Sept. 9 (Bloomberg) -- NYSE Euronext is trying to prove the $260 million it used to buy the American Stock Exchange last year was money well spent.

The company said today that it will sell stakes in NYSE Amex, once the second-largest U.S. options exchange, to seven brokerages including Goldman Sachs Group Inc. and Bank of America Corp. By giving equity to spur its owners to trade, it’s following a model pioneered by rivals Direct Edge Holdings LLC and Bats Global Markets. Today’s sale is the first of its kind for NYSE Euronext, Ed Boyle, chief of NYSE Euronext’s U.S. options division, said in an interview.

NYSE Amex has lost business for eight straight years, even as the $1.9 trillion U.S. options market grew. Its market share sank to 5.8 percent in 2008 from 28.6 percent in 2000, according to data compiled by Options Clearing Corp. The number of equity derivatives changing hands doubled between 2005 and 2008.

“They’re looking for a way to build market share, and the best way to do that is to provide an incentive to the major market participants by giving them an ownership stake,” said Andy Nybo, head of derivatives at financial services consultant Tabb Group in New York. “Amex is down from having a huge market share a decade ago. Their lack of investment in technology really gave them a declining market presence.”

Other Buyers

Barclays Plc, Citigroup Inc., Citadel Investment Group LLC, TD Ameritrade Holding Corp. and UBS AG will also buy stakes in NYSE Amex, the company said in a statement today. NYSE Euronext will remain the majority shareholder when the deal is completed this year.

“It makes a lot of sense,” said Mark Williams, a finance professor at Boston University. “Volumes have declined so market share is under pressure and they’ve got to stabilize their business model, so one of the best ways of doing that quickly is targeting your biggest customers and inviting them to join the club. It’s also capital injection at a good time.”

Shares of NYSE Euronext, the operator of the world’s largest stock exchange, rose 0.7 percent to $28.28 in New York. They have risen 3.3 percent in 2009, trailing the FTSE/Mondo Visione Exchanges Index’s 43 percent surge.

NYSE Euronext bet during the first quarter that improved technology would end Amex’s eight-year slump. Chief Executive Officer Duncan Niederauer invested about $5 million to win more orders from brokerages that rely almost exclusively on automated trading systems. As part of the transition, NYSE finished moving about 300 traders and floor officials from the Amex building to the New York Stock Exchange in March.

Late Entrant

Amex failed to invest in technology to support the transition to an electronic options market, Nybo said. The exchange didn’t adapt to the changing market structure when options were moving more to electronic execution and it didn’t push its market makers into an electronic environment while other exchanges were investing in technology, he said.

“Amex was late in getting into the electronic trading game and they underestimated the adoption of electronic trading,” said Sang Lee, a market structure analyst at financial-services consultant Aite Group LLC in Boston. “It was mainly a floor- based platform and they didn’t have an electronic trading platform to handle increasing volume as well as the institutional players that were entering the market.”

NYSE Amex’s share of options trading was 6.1 percent in August, OCC data show. It peaked in 2009 at 7.3 percent in July. For the entire year, the proportion is 5.9 percent, making it the fifth-largest platform. NYSE Euronext also runs NYSE Arca, whose 11 percent share in 2009 is the fourth-biggest.

Year-End Goal

The combined year-end goal for Amex and Arca’s options market share is “in the low 20 percent” range, Boyle said.

Direct Edge and Bats, whose owners include Goldman Sachs and Morgan Stanley, are vying to be the third-largest U.S. stock exchange. In Europe, broker-owned trading systems including Turquoise and Chi-X Europe Ltd. have taken about a third of market share from traditional bourses such as London Stock Exchange Group Plc and Deutsche Boerse AG.

NYSE Euronext will continue to manage the daily operations of NYSE Amex, which will have its own chief executive officer and board of directors, according to today’s statement. Financial terms of the stake sale weren’t disclosed, and Boyle declined to comment further.

‘Very Good Idea’

“With the options market, along with many other securities markets, being so fragmented and the growth being as rapid as it is, partnering with your client base is a very good idea,” Boyle said. “Having important partners in like this allows us to feel that we’re building the structure in the right direction.”

Selling equity to customers “is certainly a trend but this isn’t a requirement for an exchange to be successful,” Gary Katz, CEO of rival New York-based International Securities Exchange, said in an interview at an industry conference in Interlaken, Switzerland, today. “There are many examples of consortiums that haven’t worked. There is no guarantee of success. Only time will tell.”

Katz, who sold 49 percent of the ISE Stock Exchange to 11 companies to drive growth, said the bourse decided to fold that business into Direct Edge after drawing less than 2 percent of market share. ISE is the second-largest U.S. options bourse behind the Chicago Board Options Exchange.

To contact the reporters on this story: Jeff Kearns in New York at jkearns3@bloomberg.net; Nandini Sukumar in Interlaken, Switzerland at nsukumar@bloomberg.net; Whitney Kisling in New York at wkisling@bloomberg.net.

Last Updated: September 9, 2009 16:45 EDT