Exchange to Split Stock, A Move Few Others Undertake Anymore

  • ICE announces 5-for-1 stock split; only five done this year
  • In 1986, 114 companies in S&P 500 Index did stock splits

Intercontinental Exchange Inc. is doing something it probably wishes more of the companies it lists would.

The New York Stock Exchange owner disclosed a 5-for-1 stock split along with its earnings Wednesday, an action that will lower its share price to around $56 from its current $278.86. Such steps have been increasingly rare in the past few decades, with just five other companies in the S&P 500 Index doing it this year, compared with 114 in 1986.

In a market dominated by institutional owners and overrun with exchange-traded funds, demand for splits has waned -- but that doesn’t mean nobody wants them. Market operators like ICE are nostalgic for the days when virtually any stock sporting a three-digit price tag became a candidate, if only because of the impact on volume.

“In addition to highlighting ICE’s consistent earnings and share price growth, we believe the stock split will support liquidity in our stock in a highly fragmented marketplace,” Chief Executive Officer Jeffrey Sprecher said in a statement Wednesday.

Not so long ago, companies were concerned about keeping their share prices within reach of investors buying them in round lots of 100, said Howard Silverblatt, a senior index analyst at S&P Dow Jones Indices. As the way investors buy stocks has changed, so too has the appetite for splits.

About a quarter of the stocks in the S&P 500 now trade for more than $100 each, data compiled by Bloomberg show. Fewer than 20 on the New York Stock Exchange have share prices higher than ICE’s, including Seaboard Corp. trading at almost $2,993. Among that cohort, more than half never split their shares. Those companies cut across industries and size -- Berkshire Hathaway Inc., Markel Corp. and Chipotle Mexican Grill Inc.

It’s a quirk of markets that long-term rallies have a tendency to lower the number of shares changing hands. Consider the different trajectories of share volume and the value of share trading daily on U.S. exchanges over the last seven years.

In 2009, average daily trading in the U.S. was 9.76 billion shares, while the value of those shares was $219.5 billion. As stocks rose in price, average volume declined last year to 6.88 billion -- while daily value surged to $276.7 billion. Mostly because of the rally -- but also due to a lack of splits -- the average price of stocks in the S&P 500 Index has more than doubled to $87.16, according to Silverblatt’s calculations.

The refusal by corporate boards to split stocks is partly to blame for the decline in market liquidity and also increases costs for investors, Chris Concannon, chief executive officer of Bats Global Markets Inc. wrote in a May letter to customers and traders. The company operates four U.S. stock exchanges.

“In an ill-conceived effort to attract ‘long-term investors’ and detract ‘speculators’ from trading in their stocks, a number of popular U.S. companies have kept their nominal stock prices above $200, $500, or even $1,000 per share,” Concannon wrote. “While intended to attract buy-and-hold investors, these higher nominal stock prices can actually negatively impact liquidity, trading costs, and investor participation, affecting returns and the value of equity holdings for investors both large and small.”

ICE’s announcement stands out in a market that has seen so few, Silverblatt said. It also provides a psychological boost to investors, even if only temporarily. “A split still is a vote of confidence in a stock.”

The proposed split marks the first for ICE, which went public in 2005 at $26 a share. While the announcement is contingent upon clearance from the Securities and Exchange Commission and shareholders, “the company does expect to get approval on both,” a spokeswoman for the Atlanta-based exchange said by phone. Shares of the exchange rose 0.3 percent to an all-time high of $278.86 as of 12:08 p.m. in New York, following a 5.3 percent surge Wednesday.

“Stocks splits have grown out of fashion, but when an issue’s price grows to a level where the company feels it might interfere with liquidity or ownership, the action becomes necessary,” Silverblatt said. In 2010, the number of companies issuing positive stock splits was just eight, the lowest in data he’s compiled going back to 1980.

The fact that an exchange is coming out with a stock split doesn’t go unnoticed, but an increase in such corporate action more broadly would help to combat the issue of market liquidity and trading volumes, said Donald Selkin, the chief market strategist at National Securities Corp. in New York who helps manage about $3 billion. “Historically stock splits are bullish -- if more companies were to do this it would be a real big boost.”

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