WITH A RINGING OF

a bell, New York Stock Exchange Chief Executive John Thain not only opened the markets on Wednesday, he ushered in a new era for the venerable exchange.

That's because today the NYSE Group made its debut as a publicly traded stock with an impressive double-digit rally. Its merger with electronic trading firm Archipelago Holdings having closed on Tuesday, the 213-year-old institution is no longer solely owned by an elite group of 1,366 members. Instead, investors of every stripe can claim a piece of the action for themselves. (Well, more or less. We'll explain).

Having such a stock in your portfolio is a tempting proposition, considering how financial-exchange operator stocks have performed in recent years. The Nasdaq Stock Market soared 245% last year and has risen 152% since going public in July of 2002. The Chicago Board of Trade's parent, CBOT Holdings, is up 25% year to date and 46% since its October IPO. The Chicago Mercantile Exchange Holdings? It's up nearly ninefold since its December '02 public offering.

Why are momentum players parking their money in this sector? As electronic trading has become more prevalent, trading volumes have risen. Since exchanges have high fixed costs, profit margins can grow nicely once those costs are met. And, as the formation of the NYSE Group illustrates, consolidation is afoot in this business.

The hope is that the NYSE Group will better compete against the Nasdaq by employing a hybrid trading system using electronic trades and specialists that will continue to step in to facilitate trades and increasing revenues with greater exposure to derivative, option and bond products. Of course, the transition doesn't come without its share of risks. Lingering issues include Archipelago's integration, the launch of a hybrid trading system, the amount of incremental volume that will be generated, as well as the trading fee structure, according to Richard Repetto, an analyst at Sandler O'Neill & Partners, who has a Sell rating on NYSE Group.

That said, are shares of the new NYSE Group worthy of investor attention?

First, a few things about this stock's debut: It's not a straight initial public offering. Rather, the NYSE is getting a foothold in the public arena via Archipelago's presence (prior to Wednesday, Archipelago traded under the ticker AX). Under the new NYSE Group structure, Archipelago will account for 30% of the new company's shares, translating into a $10 billion-plus market cap for the new company. The remaining 70% will be doled out to NYSE seat owners who aren't permitted to sell their shares until a secondary offering, which is expected in the next six weeks.

When it comes to gauging NYSE Group's stock, valuation is somewhat problematic, as there's little in the way of guidance for the new entity's growth potential and consensus estimates have yet to be compiled. That's why analysts and money mangers are awaiting more information on what kind of earnings and revenue performance they can expect from the NYSE Group. Additional details are expected with the secondary offering.

But, even back-of-the-envelope calculations show that NYSE Group's stock is flying at a lofty valuation. Given what's known about the new entity's business model, Sandler O'Neill's Repetto crunched numbers to arrive at 2006 and 2007 earnings estimates of $1.25 and $2.00 a share, respectively, according to a Wednesday report. That's somewhat higher than Reuters's respective 2006 and 2007 estimates of $1.12 and $1.39 for Archipelago as a standalone company. Using Repetto's figures and taking into account a 13% stock surge by midday Wednesday, NYSE Group shares trade at a current-year price/earnings multiple of about 58 and a P/E of about 36 on 2007 figures. To compare, the Standard & Poor's 500 index trades at about 16 times this year's earnings and 15 times next year's.

NYSE Group's rally follows the 242% return Archipelago chalked up between the merger announcement on April 20 and the deal's close on Tuesday. At current levels, the stock already anticipates the good news, thanks to the hot money that's flowed into it, says Dayle Malone, portfolio manager of Old Second Wealth Management, a money-management firm based in Aurora, Ill. He considers the stock fairly valued at about $60 a share. "There's been quite a bit of exuberance," he says.

Indeed, shares of NYSE Group look expensive compared with its peers, which is saying a lot for this group. NYSE Group's 58 P/E compares with Chicago Mercantile Exchange's multiple of 39 and the CBOT Holdings' 48, according to Zacks Investment Research. Heck, NYSE Group trades at a richer valuation than Google, which has a P/E of 40.

"The NYSE is going to be a more formidable company in the sense of its size and the number of companies listed," says Malone. "But at the premium they're trading at, we just feel it's already been discounted."

Agreed.