Incredible Changes at the NYSE
---perhaps the greatest changes since its merger with the Open Board of Brokers in 1869. The NYSE is working hard to maintain its leading niche. I'm not sure whether the current changes qualify as catching up, staying abreast, or getting ahead of the competition. (I'm still thinking about the NYSE and my time there.)
The First Major Change---Acquisition of Archipelago
The NYSE has recently acquired Archipelago, a small electronic exchange (ArcaEx), which owns the Pacific Stock exchange. This acquisition gives the NYSE an electronic market and the ability to trade stock options, futures, and ETFs. Options listing and trading is growing nearly three times as fast as stock trading. It also opens the door for listing and trading small companies that do not meet the listing requirements of the NYSE. One third of NYSE revenues come from listing fees---new and annual. It is about competing with the Nasdaq in listing small companies, trading stock options, and running a stand-alone electronic market. At the completion of the acquisition/merger, the NYSE will become the New York Stock Exchange Group with John Thain as CEO.
The Second Major Change---Transformation to a Publicly Traded Company
The second change is the most profound one. As part of the merger, the New York Stock Exchange Group will become a publicly traded company listed on the New York Stock Exchange. It will change from a non-profit organization to a publicly traded, for-profit corporation. It completely skipped the usual step of operating as a private, for-profit corporation. As a publicly owned corporation, the Exchange will be valued at approximately $7M and needs to make roughly $320M a year.
Goldman Sachs is facilitating the January 2006 initial offering. The ticker symbol will be NYX, and the expected price will be in the high 30s. The current members of the NYSE---the 1,366 people who own seats---will be given significant cash and stock settlements for their seats and will be given licenses to trade on the Exchange. Talk about changing something that has been done the same way for 136 years!
The Third Major Change---No Connection to Changes 1 and 2.
The third change has nothing to do with the merger nor with going public. The NYSE has developed and is in the process of implementing its Hybrid Market system---Specialist and direct electronic matching (Direct Plus). Direct Plus will allow the Exchange to double the number of shares it trades each day, to regain market share from the ECNs, and to better meet the desires of its institutional investors. Recently, institutions have wanted to bypass the Specialist auction and to electronically match their orders at various prices going up or down. For them, speed of transaction is more important than single best price. Using Direct Plus, Merrill Lynch and other firms that own a seat on the Exchange will be able to execute their own orders from their offices by double clicking on a bid or ask order that comes up on the computer screen. Through Direct Plus, institutions will have the speed and certainty of transaction and the anonymity of execution they desire.
The Specialist will still be on the floor of the Exchange to maintain an orderly market---to move prices up or down by small increments to reduce volatility. The Specialist's book will reflect both the auction and the direct electronic market---one part of the page will reflect the auction market and the other part, the direct electronic market (Direct Plus). Specialists will spend most of their time on thinly traded stocks. Direct Plus will handle 99 percent of the trading of the largest, most active stocks. The Specialist will continue to open the market to handle any trade imbalances---for example, more sell than buy orders at the previous day's closing price. All investors, individual and institutional, will have the option of obtaining the best price through the Specialist or obtaining the fastest transaction through Direct Plus.
4:00:12 PM 
|
