Hub exchange to restructure

Positioning itself to buy or sell other regional exchanges, the Boston Stock Exchange yesterday said it plans to switch from a member-owned structure to a shareholder-owned company.

The "demutualization" would convert the memberships of the exchange's 203 seat holders into shares of a new umbrella business known as BSE Holdings Inc., which would own the small 172-year-old exchange located at 100 Franklin St. in Boston 's financial district. The change will take effect this year.

Competitors, including other regional exchanges such as Philadelphia's, have made the same transition to capitalize on the stock-trading environment expected to take hold Monday when a new federal regulation, known as Reg NMS, creates a national market system for stock trades.

The new system, mandated by the Securities and Exchange Commission last year, will enable specialists at any of the nation's exchanges to access buyers and sellers at all the exchanges, effectively putting regional exchanges on an equal footing with national rivals.

Currently, a company seeking to sell a large block of shares is likely to choose the New York Stock Exchange or Nasdaq because it might not be able to find buyers quickly on regional exchanges.

"We really hope to gain market share with the level playing field," said Mike Curran , chief executive of the Boston Stock Exchange, predicting the changes could set off a wave of buying and selling of stock exchanges. "And we think, with the demutualization, we'll be well positioned to participate as the market consolidates."

Curran said that, while the exchange will be a for-profit company under the new structure, it has no plans to go public.

For generations the Boston Stock Exchange offered active trading markets for the shares of local companies. On Nov. 20, using new technology in anticipation of Reg NMS, it boosted the number of stocks it traded from less than 200 to about 8,400, including all of the stocks listed on the Nasdaq and New York stock exchanges.

One motivation for the 65 companies that own the 203 seats on the Boston Stock Exchange, including Boston mutual funds giant Fidelity Investments and New York money center institutions such as Morgan Stanley, Lehman Brothers Inc., and Credit Suisse Group, is to keep the cost of trades competitive on the big national exchanges.

Boston Stock Exchange officials have made a number of moves in recent years to shore up the exchange's position.

They opened an options market called the Boston Options Exchange in 2004 and an electronic trading network called the Boston Equities Exchange in 2005.

Last year, they created an alternative trading system that lets money managers from financial institutions, like mutual fund companies , trade large blocks of shares anonymously to prevent the information leaks that could drive up their costs.

Art Hogan , managing director at Jefferies & Co., which holds seats on the Boston Stock Exchange, said the exchange's moves have left it in a strong position as the market consolidates.

He said the shift to a shareholder structure will give the exchange flexibility to make decisions in the more fluid environment .

Robert Weisman can be reached at weisman@globe.com.