Delistings starting to pinch U.S. exchanges

By Jonathan Spicer and Phil Wahba - Analysis

NEW YORK (Reuters) - The combination of more delistings and fewer new listings has pinched the big U.S. exchange operators, as the financial meltdown topples some of their clients and spooks others.

Midway through this year, more companies than in previous years had been bumped from the Nasdaq Stock Market and, to a lesser extent, from the New York Stock Exchange because they failed to meet the minimum requirements.

Meanwhile, tumbling stock markets have brought the IPO market to a crawl, compounding the pain for Nasdaq OMX Group (NDAQ.O: Quote, Profile, Research, Stock Buzz) and NYSE Euronext (NYX.N: Quote, Profile, Research, Stock Buzz), which derive up to 15 percent of their overall revenue from listing fees.

"It's a negative" for the exchanges, said Ed Ditmire, analyst at Fox-Pitt Kelton. "But it ebbs and flows with the economic cycle."

More Nasdaq-listed companies have been delisted for non-compliance so far this year than in either of the previous two years, according to Nasdaq data. Some 54 stocks were bumped as of August 7, compared to 48 in all of last year and 52 in 2006.

At larger rival NYSE, data show 11 companies had been delisted due to non-compliance as of July 1. That compares to 21 delistings in all of last year and 14 in 2006.

The bump comes as dry credit markets threaten the operations and liquidity of weaker stocks. Financial firms, in particular, have drawn more scrutiny from exchanges as some of them break standards that range from cash flow to investor interest.

"In the last 12 months or so, it's the companies under liquidity pressure and funding pressure that have led to non-compliance," said Glenn Tyranski, senior vice president of financial compliance at NYSE Regulation, which independently regulates the New York mart.

VICTIMS OF THE CRISIS

The failure of former NYSE-listed mortgage lender IndyMac IDMC.PK, which regulators seized last month, is the obvious example of a financial stock that fell below compliance.

Bear Stearns was also tripping alarms at NYSE before JPMorgan Chase & Co (JPM.N: Quote, Profile, Research, Stock Buzz) plucked it in a fire sale earlier this year.

NYSE will lose about $878,000 in annual revenue from IndyMac and Bear Stearns, according to the exchange's fee structure and SEC filings from the two banks.

Noreen Culhane, executive vice president of NYSE's Global Corporate Client Group, said the revenue impact from delistings "is quite manageable." NYSE had $4 billion in revenue last year.

NYSE has fewer but larger listings than Nasdaq, and has more stringent requirements. In general, NYSE-listed companies must maintain a market capitalization of more than $75 million, while Nasdaq-listed companies need $35 million.

This partly explains the recent spike in Nasdaq delistings: Smaller companies are usually more vulnerable in volatile times. But with its smallest clients paying only $27,500 a year in listing fees, Nasdaq was sanguine about the fallout.