The Rise and Fall of the AMEX Emerging Company Marketplace

In 1992, the AMEX launched the Emerging Company Marketplace (ECM) to trade the stocks of small but growing companies. After listing on the ECM, stocks experienced dramatic decreases in bid-ask spreads, but showed mixed results on price and trading volume. News coverage of the ECM stocks rose significantly. Yet few firms chose to list on the new ECM, and the AMEX closed it in 1995. What went wrong? A series of scandals tarred the image of the exchange. Furthermore, auction markets historically have not fared well against dealer markets for very small firms. For some companies, it is worthwhile to subsidize the distribution channel for their stock by listing in a higher transaction cost dealer market, which gives dealers incentive to publicize the firm.