LegiStorm Pro

In March 1992, the American Stock Exchange (Amex) began trading equity securities on its Emerging Companies Marketplace, which was developed for companies too small to qualify for a standard Amex listing. That same month, an Amex official questioned the Marketplace listing of a company whose majority stockholder had been barred from Amex trading for violation of the exchange's trading rules. Shortly thereafter, media reports linked persons with criminal and regulatory violations to two companies listed on the Marketplace. Although Amex has tried to beef up its assessments of the companies' management, GAO found weaknesses in Amex's process for assessing companies' qualifications for Marketplace listing. Some qualitative factors have been stressed more than others. The nature of the company's business, its historical record and growth pattern, and its financial integrity have been given less emphasis than the company's commercial prospects and its management's reputation. Thirteen of 18 Marketplace-trade companies GAO reviewed had no revenues and earnings, declining revenues and earnings, or negative cash flows. GAO believes that Amex's failure to disclose the relative important of qualitative factors could mislead investors about Marketplace eligibility standards. Finally, Amex did not always properly document that Marketplace-listed firms met all quantitative requirements before being traded.