Duncan: 'I thought the trading model needed to change, and it has.'

By: Ray Pellecchia

File Under: NYSE

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Sorry that I've been posting very infrequently lately. The day job keeps getting in the way. I feel like I have a lot to say, but no time to say it. Will work on getting back into the swing.

Couple items of interest today:

1) Niederauer's First Challenge: NYSE Floor Traders' Future (WSJ.com) Excerpt:

Mr. Niederauer, NYSE's co-chief operating officer until Dec. 1, says he sees a modified role for floor traders today because they can still improve the way stocks trade in volatile markets.

"My approach is always candid," the 48-year-old Mr. Niederauer says. "I thought the trading model needed to change, and it has."

Indeed, as a trading executive at Goldman Sachs Group Inc., he ruffled feathers by critiquing the old specialist floor model. Now, he points out that the percentage of NYSE trading activity taking place with human intervention increases to about 25% on high-volume days from 15% in normal times. Investors sometimes want "to hand off more of the trading responsibility to an expert," he said recently.

For surviving specialists and new ones that may sign up, Mr. Niederauer needs to get rules approved by the U.S. Securities and Exchange Commission that would, among other things, ease some trading restrictions while reducing the capital that specialists are required to maintain. Specialists would continue to have an obligation to buy and sell to keep markets orderly.

Here is the dilemma: If the exchange gives the traders too much of a break, some investors, wary of the middleman, might balk. But if the specialists leave, some predict NYSE stocks may grow more volatile, irking NYSE-listed companies who like the specialist firms smoothing out price moves.

2. Nyse-Euronext : " Nous regardons vers l'Asie et l'Amérique latine " (La Tribune) Translated excerpt:

As a result of competition from NASDAQ and ECNs, NYSE Euronext’s share of trading in shares listed on the NYSE fell from 69.2% to 54.2% in a year. How do you hope to turn the trend around?
Duncan: As you can imagine, we are tracking developments in this area very closely. The decline you mentioned is not all that surprising considering how fierce the competition is on cash equity markets in the US. We steadied our market share at around 55% in November, so we still have a strong lead. We adopted new rules for investors and new fee structures around a month ago, and the benefits of that are still to come. We are planning to offer new system options with new functionalities at the beginning of next year. And taken together, I believe that these innovations, which have already enabled us to steady our market share, should now allow us to regain ground.

MiFID has just come into force. How does the NYSE Euronext group plan to stand up to competition from trading platforms like Turquoise?
Jean-François: In three ways. First of all by offering a highly efficient central order book. Secondly, with our new offering for internalization of order flows, which matches buy and sell orders in the order book first and enables investors to cut execution costs at the settlement and delivery stage. Some 50 financial intermediaries accounting for 70% of trading volumes on NYSE Euronext equity markets in Europe have already taken us up. Finally, we will be launching the SmartPool platform in association with BNP Paribas and HSBC to meet the growing demand for so-called anonymous block trades.

A bit of historical trivia, and a wish for a very happy Thanksgiving to you and yours.

Today in NYSE History
21 Nov. 1983 -- The stocks of the seven "Baby Bell" companies - spun-off in the AT&T divestiture - began trading, adding 1.5 billion shares to the list in a single day.

Wow, listing 1.5 billion shares in one day. Sorry I wasn't around to see that one.