Sunday, December 19, 2004

NYSE's Thain Fears End of An Era

Last Thursday (12/16/2004) NYSE chief executive John Thain spoke to the press about his views on the revised Regulation NMS. Here is some of what Thain said (quoting Thain from DowJones Newswires):

[Background: One of the NYSE's big fears is that Regulation NMS will be the catalyst for eliminating its archaic open outcry, floor-based auction system. "CLOB" stands for Central Limit Order Book". In a CLOB marketplace
brokers "sweep" across all markets and prices to find the best price for a particular stock.]

Wondering how does Thain and the NYSE view innovation and efficiency? Here's a telling statement he made on 12/16/2004:

"In a CLOB environment, it would be very difficult for us to maintain the auction process. It really eliminates the ability to have an auction on the floor of the New York Stock Exchange in the first place. . .It forces everyone into a purely electronic model."

[Editorial comment:What is wrong with that if it means efficiency? Microwave popcorn pretty much replaced the old fashioned oil and popcorn machine method. Ink pens replaced feathers and ink, automobiles replaced horses (and made businesses that survived on cleaning up horse dung obsolete), on demand video has replaced the need for Blockbuster or Netflix, modern medicine has replaced the need for medicinal leeches, peer2peer networking has caused disintermediation in the multimedia industry. . .)
The nature of business and advancement of our society lays in our ability to use technology to create efficiencies].

When Thain was asked about the possibility of the NYSE acquiring Instinet, he skirted the question but did say
that the NYSE needs to focus on the market for Big Board-listed stocks. (Quoting from DowJones Newswire) "I don't think we need to look into other markets at the moment."

What exchange could possibly be taking share from the NYSE? You guessed it, ArcaEx - Just look at the gains in NYSE-listed market share ArcaEx has been enjoying over the last year and the last sequential quarters (click here to read Arca's November 2004 numbers:

Here's what the press release from AX says, "
Specifically, in NYSE-listed equity securities, ArcaEx's total trading market share was up both year-over-year and sequentially, growing from 1.1% in November 2003 to 2.4% in November 2004 and from 2.3% in October 2004." As for OTC share - It will be interesting what happens when Instinet either becomes part of ArcaEx or fades away. "


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