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Peter Crabb: Micron's move to a different stock exchange brings risk, reward

Like many of us, Micron is making some resolutions for the New Year.

Not only did the Boise company announce a welcome return to profitability this month, its stock is moving to a new home. Beginning Wednesday, Dec. 30, Micron Technology Inc., no longer trades on the New York Stock Exchange , but will join many other technology stocks on the Nasdaq Global Select Market.

As reported in the Idaho Statesman, Steve Appleton, Micron chairman and CEO, said the NASDAQ is the “best fit” for the company and shareholders. Bob Greifeld, chief executive officer of The Nasdaq OMX Group, welcomed the move and the new customer, saying the Nasdaq offered “transparent electronic trading”.

Why is transparency so important? What makes this New Year’s move so beneficial to shareholders?

The New York Stock Exchange is the oldest, largest, and most well-known market for trading stocks in the United States. For small orders, like 100 shares of Micron stock, the NYSE uses an automated, electronic trading system. But this is not what we see on television when we here from reporters. For larger orders, the NYSE uses what are called floor brokers and specialists.

These NYSE workers are the heart of the famous trading floor. In the hustle and bustle of this market the floor brokers execute trades at the best available prices for their clients. The specialist is charged with maintaining an “orderly market” and with “price continuity,” meaning they must always quote a price when asked. Specialists will keep at least a small inventory of the stock and thereby maintain liquidity in the market.

In contrast, the Nasdaq is primarily a dealer market. These dealers buy and sell the stock via an electronic communication network, posting prices at which the dealers are willing to trade.

The Nasdaq will have multiple dealers in the stock, whereas the NYSE has only the specialist. The Nasdaq is like buying or selling a car to multiple prospects. At the NYSE, the specialist is conducting what is essentially an ongoing auction.

Critics have argued that these auctions are hidden from investors. This is why the Nasdaq says its dealer system is more transparent. However, the competition between the two markets and the frequency with which institutional investors use both suggests there is no significant difference for investors.

The move may give Micron some greater exposure. By moving to the Nasdaq Global Select Market, Micron will be part of a large index used by many to track technology stocks. Investing in indexes, through exchanged-traded funds especially, has grown in popularity.

Micron is a member of the Standard and Poor’s 500, the largest and most widely tracked index. But by joining the large number of technology companies on the Nasdaq, it is likely to join more index listings. The cost of such greater exposure may be increased volatility in the stock price. As home to many technology stocks, the Nasdaq has seen wide price swings. Volatility, as measured by the annualized standard deviation in stock returns, is 27.4 percent for the Nasdaq Composite, compared with 16.2 percent for the NYSE Composite Index.

Micron’s stock may now be seen by more investors, but there may be greater risk in this new resolution.

Peter R. Crabb is a professor of finance and economics at Northwest Nazarene University in Nampa. He earned his doctorate in international and financial economics from the University of Oregon.

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