James R. Jones Leave Mixed Legacy At The American Stock Exchange With BC-Amex-History, BC-Amex-Derivatives
NEW YORK (AP) _ To some, the American Stock Exchange’s aging headquarters near a Wall Street graveyard is a fitting metaphor for the market that’s always done business in the shadow of its larger rival, the New York Stock Exchange.
To James R. Jones, who ran the American exchange for nearly four years, it’s the graveyard metaphor that should be buried.
During his tenure, Jones launched a new market for small companies, forged closer bonds with Washington regulators and encouraged the exchange to build on its leading position in trading exotic securities known as derivatives.
Jones, who served as Lyndon Johnson’s White House chief of staff in the White House and six terms as a Congressman from Oklahoma, has now joined the Clinton Administration as ambassador to Mexico.
Before assuming his new post, Jones, 54, reflected on his record as the 15th American Stock Exchange chairman. The reforms Jones initiated at the exchange just now are beginning to yield results, he said.
″I thought this was a three- to five-year turnaround and sure enough, this was going to be the start of the payoff year,″ said Jones, a native of Muskogee, Okla., said in an interview in the State Department in Washington.
It may be too soon to say if Jones’ reforms helped the Amex. But the exchange, like the rest of the securities industry, is benefiting from a strong upswing in the financial markets.
The Amex market value index, which measures price performance of Amex listed stocks, is up more than 14 percent for the first nine months of 1993, ahead of other major market indexes, including the Dow Jones Industrial Average. It has listed 83 new companies in that period, double last year’s pace, and trading volume is at a record high.
Arthur Levitt Jr., Securities and Exchange Commission chairman who served as Amex chairman from 1978 until Jones replaced him in 1989, credits Jones for a job well done.
″In general, he was a distinguished leader,″ said Levitt. ″He created a fine board and led the exchange through a very difficult time in the markets.″
″I think his working relationship with Congress made him a successful missionary for the interest of the capital raising process and the American Stock Exchange in particular,″ said Levitt.
Jones’ Washington background, particularly his former leadership of the House Budget committee, was billed as a major asset in 1989 when Wall Street firms began feeling the pinch of new market regulation following the 1987 market crash.
But having a Wall Street outsider lead the nation’s third-largest exchange proved to be a source of considerable friction and resentment among Amex executives, brokers and traders.
″I think his lack of experience and lack of knowledge was one of the critical deficits in his tenure with the exchange,″ said Jules Winters, the Amex chief operating officer and acting chairman. It’s a sentiment widely reflected throughout the exchange.
Jones admitted his lack of experience posed a handicap, and recalled spending most of the first year ″listening, learning, observing.″
″It would have been helpful if I had had a long time experience in the industry. I could have gotten off to a faster start and we would’ve started seeing results earlier,″ Jones said.
Also riling the membership was Jones’ decision to bring two former members of his Washington staff, former press secretary Christopher Finn and aide Phillip Steele, to senior positions at the exchange.
″A guy who came in with a Washington background and he brought Washington people with him,″ said Andrew Schwarz, senior partner at AGS Specialist Partners. ″That drew a certain amount of resentment of him on the trading floor.″
Jones has said both Finn and Steele brought valuable outside experience to the senior management.
Brokers and senior exchange officials said Jones’ energies, at times, were misplaced, particularly in his proposals to have the exchange sponsor insurance and retirement savings plans for listed companies. They would have liked to see greater focus on bread-and-butter issues, such as getting the listed companies more exposure at securities analyst meetings and industry gatherings.
″The membership felt they weren’t given their dollars’ worth,″ said Joel L. Lovett, president of Jacee Securities Inc. and vice chairman at the Amex.
Biddle Worthington Jr., an options trader and an exchange governor, agreed that Jones lacked sufficient private sector experience, but praised him for taking on the rival Nasdaq electronic stock market in an April Congressional hearing on the future of the markets.
″Towards the end, he signed on to the right message. It took him a long time,″ Worthington said.
The exchange’s main competitor is Nasdaq, home to 4,100 company stocks, traded in a vast computer network that links securities dealers. The Amex, by contrast, is an auction market where human beings, not computers, specialize in specific stocks, matching buyers and sellers and maintaining orderly trades.
By many measures, Nasdaq has grown rapidly since its inception in 1971. Wall Street investment banks find the electronic dealer market more profitable to launch new public offerings of stock, brokers say, and they like the electronic market’s large size. Nasdaq share volume, as a result, has soared from an average 33 million shares a day in 1982 to 190.8 million in 1992, while the Amex has grown from 5.3 million to 14.1 million in the same period.
The shrinking share of the Amex has led many analysts to wonder why the exchange doesn’t merge with the nation’s biggest stock market, the neighboring New York Stock Exchange, where trades also are conducted in an auction style.
″It’s not hurting anybody, but I wonder if it couldn’t be merged into the Big Board or somewhere else,″ said Perrin H. Long Jr., securities industry analyst for First of Michigan Corp.
Jones said he explored tighter links with the NYSE, with the eye on eliminating duplicate marketing and regulatory expenses, and passing the resulting savings on to customers. However, Jones added, ″I’m not suggesting a merger.″
Last month, plans were scrapped to build a new complex to house both the New York and American stock exchanges due to the troubled real estate market in lower Manhattan.
Jones perhaps will be best remembered for the Emerging Companies Marketplace, designed to attract companies too small to meet the exchange’s normal listing requirements.
The ECM was pitched as ″the industry’s first new marketplace in two decades,″ offering small firms that are major job creators access and exposure to New York’s massive capital markets and relief from stingy banks.
The ECM came under scrutiny shortly after its launch when press reports raised questions about three companies, including PNF Industries Inc., which had a large shareholder who had been banned from the Amex years ago.
As a result, the exchange tightened screening of ECM prospects and that limited the number of new companies that could qualify for the emerging market, Jones said.
Also under Jones, the American Stock Exchange set a new path as a niche player for midsize companies that prefer the auction market over the Nasdaq dealer system. He also encouraged the exchange to build on its successful derivative securities business.
″I firmly believed that if we were to be a competitor, and a player, we had to fundamentally refocus on the customer and away from the membership,″ he said. ″And that was not a popular position to take.″