The Philadelphia Stock Exchange announced today that Citigroup, Credit Suisse First Boston, Morgan Stanley and UBS have each acquired equity stakes in the exchange.

Morgan Stanley will invest US$7.5 million for 10% of the total PHLX shares outstanding. It will also receive a warrant that will increase its stake to a total of up to 19.9%, exercisable for nominal consideration to the extent its activity on the PHLX meets or exceeds the specified benchmarks.

Citigroup, CSFB and UBS will each invest US$3.75 million for 5% each of the shares outstanding, and each firm will also receive a warrant for a nominal consideration that will increase its stake to a total of up to 9.9%.

These transactions (along with the Citadel and Merrill Lynch transactions that were completed in June) complete the first phase of the PHLX plan of strategic alliances with major securities market participants. If all warrants are fully exercised, the six strategic investors would own an aggregate of 89.4% of the PHLX common stock

“We expect that all six of our strategic investors will achieve their performance criteria and will be entitled to exercise their warrants in full as of June 30, 2006,” said Meyer “Sandy” Frucher, chairman and CEO of the PHLX. “However, the importance and true value of these investments is not found in the relatively short performance period and terms, but rather in the long-term commitment by each of our strategic partners that is reflected in the significant equity stakes they have acquired.”

“These investments by our partners will transform the Philadelphia Stock Exchange’s place in the capital markets,” Frucher continued. “This is a validation of our value proposition in options, which is predicated on speed, price and our directed order flow model. We also expect the business models we are developing in the equities (cash) and futures trading marketplace to be energized by the entry of our strategic partners. Overall, the exchange should benefit greatly from our alliance with these substantial partners, each of which brings a significant securities market footprint and intellectual capital to our vision of a low-cost, electronic/hybrid market,” Frucher said.

“These alliances will help us become a strong new competitive force in the rapidly consolidating securities exchange marketplace. Our long-term objective – to offer multiple product classes traded in one venue, at a competitive cost – will ensure that the investing public is not captive to the forces of market center convergence,” he concluded. “The PHLX is committed to competing vigorously in the listed and OTC equity markets and to providing investors choice and the ability to manage their portfolio more efficiently and more comprehensively.”

Along with the addition of new strategic partners, the exchange intends to make a share buyback offer to its original shareholders for US$900 per share. It intends to offer to repurchase up to 16,700 shares, and will reserve the right to purchase additional shares. The offer is expected to commence in September, after documentation is prepared and distributed, and will be kept open for a minimum of 20 business days.

http://www.phlx.com/news/pr2005/05pr081605.htm