Back in the New York groove (well, not quite!); links for 4 Sept. 2007

By: Ray Pellecchia

File Under: ETFs / Indexes, Liffe derivatives, NYSE

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Back from vacation. Got in the car this morning, found the station. Made the train, to the PATH, to the walk, to Wall and Broad.
The roar of the trading floor had to be piped in with mic's and speakers.
I guess muscle memory wins vs. vacation brain.

But I don't feel quite back in the New York groove yet. So vacation had the desired effect.

Maybe this will help re-groove me. I posted on Exchanges only once during vacation, but I took an occasional look at my RSS reader and e-mail. It's hard for this old news junkie to tear completely away. So here's a scan of what jumped out at me during my summer vacation:

NYSE proposes incentive-based pay to specialists (Reuters.com) -- "'The old plan was a fixed monthly payment. The new plan is more variable and performance-based,' said Colin Clark, vice president of strategic market analysis at NYSE Euronext, in an interview.
'There are upside and downside opportunities for specialists, depending on how they perform related to the payment plan,' he said. Specialists will be rewarded for enhancing liquidity in stocks and on other parameters such as helping to round out orders by dipping into their own reserves, and helping execute trades on the exchange to reduce routing costs for customers, Clark said."

NYSE tying specialist fees to market share (MarketWatch.com) -- "'Niederauer has done what he promised, which is to align the interests of the NYSE with the specialists,' said Patrick Healy, a capital markets consultant with the Issuer Advisory Group."

Big Board Wants New Rules For Its Specialists (Traders) -- "One of Niederauer's goals is to eliminate the rules about how much price improvement specialists must provide. 'No market maker in a stock that is 5 cents to 6 cents wide is going to improve the price by 3 cents just to provide price improvement,' Niederauer said. Those rules have 'eliminated quote competition inside the quote,' he added."

NYSE Euronext's Liffe to Upgrade Commodities Post-Trade System (Bloomberg) -- "Liffe, NYSE Euronext's European derivatives exchange, said it will start a new Internet-based system next year to help track and settle commodities trades. Liffe plans to install an automated system called Guardian to replace the Grading & Tendering System, a database for all cocoa and robusta coffee marked for potential delivery against contracts. Guardian will use electronic warrants to reduce the paper trail for settlement, Liffe said in a statement....The system, developed by Kynetix Technology Group, will 'provide our customers with both cost and process efficiencies, allowing the market to continue its strong growth,'' Chief Executive Officer Hugh Freedberg said..."

Robusta coffee, huh? Sounds like just what the doctor ordered, right about now. Samples, Hugh?

Brokers' Commissions Drop As Use Of Electronic Trades Grow (Dow Jones News Service -- sorry, no link available) -- "As more and more institutions move toward electronic trading systems and away from traditional single-stock transactions, brokers' commissions are down for the first time in three years.
According to a report by consulting firm Greenwich Associates, total U.S. brokerage commissions held steady at about $10.8 billion for the 12-month periods ended in the first quarters of 2005 and 2006, but fell to about $10.3 billion in the 12-month period ended in the first quarter of this year....
According to Greenwich Associates, about 30% of single-stock U.S. equity trading was done electronically by institutions so far this year, up from 23% in the prior 12 months. That percentage is expected to reach 42% by 2010, Greenwich Associates consultant Jay Bennett said, and algorithmic trading is expected to reach about 23% in three years...
Bennett said a high-touch trade through the New York Stock Exchange has a commission of about 3.8 cents, while a self-directed trade has a commission of about 1.8 cents. The commission rate is about 50% lower, and 'as the amount of business in lower marginal commissions rises, the total amount of increases in commission that brokers generate goes down.'"

Not mentioned in this piece is the fact that those larger, high-touch trades can get better pricing that compensates (or more than compensates) for the higher commission.

A reminder: (NYSE Group will increase short-interest reporting announcements for both NYSE and NYSE Arca starting this month. (NYSERegulation.com -- See top item under "New and Noteworthy.)

The Analog Market: Commentary: Our overconfidence in technology doomed us to this crisis (MarketWatch.com) -- "In the last half-decade, a kind of hubris about technology has taken hold on Wall Street. The market has been on a sensational run. Simultaneously, the relics of the 20th century - floor traders and specialists at the New York Stock Exchange, public companies and public markets - have been shunned in favor of unfailing circuitry and switches.
And much of this - like choosing an email over a handwritten letter delivered by post - is only natural. Any carpenter will tell you that no job is difficult if you have the right tool, but we also thought, for a time, that the Titanic was unsinkable and nuclear power would save us.
And any professor at MIT will tell you that the most advanced computer is still no more powerful than a dim flashlight when it compares with the human mind. One of those professors, indeed, S.P. Kathari, the deputy dean at the MIT Sloan School of Management, said that it was less technology's failure to stem the credit crunch and fund disasters than our overconfidence that computers would adjust to a wild swing in the markets."

Skyrocketing Market Data Message Rates Leading Trading Firms to Consider Hardware Acceleration (WallStreetandTechnology.com) -- "With Reg NMS causing more quote message traffic in equities and options volume already exploding, vendors are pushing hardware acceleration to lower data latency. As predicted, quote message traffic in U.S. stocks has surged as a result of Reg NMS, which forced the exchanges to automate their market centers and link to one another. This is leading market participants to conduct more quantitative trading in listed stocks, just as they've been able to do in Nasdaq-listed stocks, generating more electronic order, cancel and replace messages, and quote updates."

Five iShares® Fixed Income Funds Transfer to NYSE Arca -- NYSE Group Now Lists 130 iShares ETFs -- (NYSE.com) -- "Five iShares ETFs transferred to NYSE Arca from the American Stock Exchange. This is a continuation of the previously announced plan to initiate the phased transfer of the primary listings of iShares branded exchange-traded products from the Amex to NYSE Group exchanges...Including today’s listings, NYSE Group markets have 207 primary ETF listings and trade all other eligible ETFs on a UTP basis. In first half of 2007, NYSE Group handled 43% of all ETF shares traded in the U.S. market."

Meanwhile, on the historical-trivia front:

Yesterday's On This Day (Sept. 4) in 1888: George Eastman received a patent for his roll-film camera and registered his trademark: Kodak. Certainly a historic event in our culture; happy anniversary to one of our listed companies, Eastman Kodak Co. And everyone: smile!

In college, I had a communications professor who taught us about a theory that the still camera had helped make possible the great migration of Europeans to the United States in the late 19th and early 20th centuries. According to the theory, people found it easier to leave their homeland if they could take along pictures of people and places they were leaving behind. Interesting theory. I mentioned it to my grandmother, whose family came to the U.S. from Italy around that time. Her response: "Eh! Who had a camera?"

Also today, in NYSE History: 1901 -- AT&T was listed on the NYSE. (NYSE.com) Now *that* would be a corporate history to read. Happy anniversary, Phone.

And lastly: The day the NYSE went Yippie (CNNMoney.com, 24 Aug 24, 2007) -- "Forty years ago, Abbie Hoffman and friends invaded the heart of American capitalism and sprinkled dollar bills on the exchange floor. Did it make a difference?" It sure did. After Hoffman's stunt, NYSE enclosed what had been an open-air visitors gallery above the trading floor, putting it behind 1 3/16 inches of bulletproof glass. Abbie got his daily fix of press, and millions of visitors got a diminished experience. Not exactly what you have in mind when you think of power to the people, is it?

Maybe that's too harsh on the old Yippie, but his action did have a negative, if unintended, consequence. Ultimately and also regrettably, post 9/11, our visitors gallery closed down completely.

Tags: New York Stock Exchange, Hybrid Market, NYSE, trading, specialists,stock market, Duncan Niederauer, ETFs, SEC, Reg. NMS, futures, Liffe, href="http://technorati.com/Abbie+Hoffman" rel="tag">Abbie Hoffman