Upcoming changes in the NYSE market model: here's the latest

By: Ray Pellecchia

File Under: NYSE

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Thought I'd share the latest with those of you who closely follow the ongoing changes in the NYSE market model (and, may I say, bless you). I know that many of you don't have a spare hour to do things like listen to our quarterly financial-results conference calls. Which is why you have your humble blogger, because my time is either priceless, or worthless, depending on how you look at it. Anyway. So here is an excerpt from the Tuesday 5 Feb. call that I thought would be of interest:

Roger Freeman, analyst, Lehman Brothers: Okay, and Duncan, lastly, can you give me an update on discussions that you've been having with the SEC around changes of the specialist market structure and specifically, as you look at buying the AMEX here does that give you any additional ability to drive an agenda since effectively you're going to be taking care of all of the equity exchange specialist operations, modernizing them?

Duncan Niederauer, CEO, NYSE Euronext: Sure, the first part of your question, Roger, is the dialogue continues very regularly and very actively. I think we're down to where we really just have two or three rules left. One has to do with their ability to hedge and really run their business as an integrated market maker which there's a follow-up meeting on tomorrow and I think we'll be filing a rule on that front fairly soon about, then the other two changes that we're contemplating making that will be concurrent with the next phase of the technology that rolls out that Larry was referencing earlier will be tied to what I would call the elimination of the look that the specialist has had pretty much forever, in exchange for probably slightly better treatment on the parity side. I think that's where we're going to head with that.

In terms of the AMEX integration, I think that should over-simplify the landscape because it is the only other model that has what I would call close to a high-tech, high-touch model, and I think we intend to bring that over here as possible. The ETF business - I don't think we'll reinvent the wheel. I think you'll see that go to Arca. The listings business - I think you'll see us create
just a slightly different approach on the listings side to account for all the different companies. And then as far as with their model with the specialist is, many of the specialists there are also specialists here, so we imagine that if the initial conversations are any indication, they will just consolidate their businesses and do it in one place instead of two and many of the ETF specialists are also LMMs on the NYSE Arca platform so we would imagine that they would just move over as well. So I think that's all kind of to be determined but that reflects the initial conversations we've had with some of the issuers and some of the market participants over at the AMEX.

And on the technology rollout that Duncan referenced, here is that commentary from Larry Liebowitz, our executive VP in charge of U.S. Markets and Global Technology:

So turning to page four [of the slide presentation]. This is a diagram similar to what we've shown you in the past but now we're going to lay out exactly how each layer occurs and when it will probably occur. So the top line is CCG [Common Customer Gateway]. That's how our clients reach us. That's also going to be how any client in any geography reaches any of our products ultimately, and what it also does is it makes it easier for us to make the technology transitions in the layers beneath because the customers will only be affected by the top layer. As we've talked about in the U.S., we expect to roll this out in the first quarter and I'm happy to report that our specialists are already converting to the system, that should be done by this week and that we should be able to rollout to our first clients by next week so that's proceeding on path and then in Europe, we hope to be rolling this out to customers by the second half of the year, specifically in the July time frame, we'll start to roll that out. That is absolutely critical to us in terms of getting--not only getting positioned for a platform consolidation but in the U.S. that gets us off our first wave of non-stops which we'll talk about in a minute.

BTW, if you do have the time and if you're interested in NYSE Euronext as a whole, here are the full transcript and the audiocast (free registration required for the latter).

I don't have anything more definitive right now about the approvals or the timing, but obviously the next few months are going to be busy, and, I expect, productive. Will continue to keep you posted on new developments.

In the meantime...

Today in NYSE History
07 Feb 1967 -- A blizzard caused the NYSE to curtail the trading day, opening 15 minutes late and closing 90 minutes early.