Wednesday, December 22, 2004

Thain's Desporate Editorial Piece in the WSJ

Yesterday, NYSE CEO John Thain wrote an editorial in the Wall Street Journal called, "The Quest For the Right Balance." The prose is absurd and it's my pleasure to share a few choice quotes from it. Keeping in mind that Thain's company's future is at stake and the 212 yr. old tradition of fleecing investors is on the verge of being transformed, it's not surprising that Thain doesn't support modernizing the US capital markets structure. Here are some of his whines:

"The SEC has put on the table two alternatives, one of which achieves both these objectives, and the other of which would effectively transform our markets into a homogenized government utility."

Translation: An innovative disintermediated structure damages the NYSE business model. Does Thain propose that US monetary policy should be handled in the private sector, too? Some things are important enough for government intervention -- that's the basis for the creation of the SEC and the NASD. They are doing their jobs by protecting the interests of the public.

Here's another:
Until now, the SEC has successfully maintained the important balance that separates order competition within markets and competition between markets. But one alternative proposed by the SEC eliminates the latter by requiring that markets route orders to any displayed limit order in any market center. Such a proposal would transform our market system into a virtual Consolidated Limit Order Book or CLOB. The CLOB has been proposed in the past, debated at length, and wisely and repeatedly rejected by previous SEC chairmen and commissioners for a number of reasons; foremost among them, it would convert our dynamic, diverse, and internationally competitive markets into a government-mandated, one-size-fits-all monolith."

Translation: In the past, under the guidance of Grasso (a thief who hasn't the pride to come out and face the public since he malfeasance was revealed) and his henchmen, the NYSE was successful in persuading policy makers to let the NYSE do its own thing. History shows us that the NYSE is a self-serving, unfair marketplace. One where specialists have been busted for trading ahead of orders from the public and countless specialists have and board members have been let go.

They get better:
". . .Whether they are a retail investor purchasing 100 shares or an institution trading one million shares, they have options that enable them to receive the best price from their trading venue."

ArcaNews view: If that's the case why have so many specialists been busted for giving themselves better prices?

Over the past 212 years, the New York Stock Exchange has stood as a great American institution by gaining the trust of millions of investors and the world's leading corporations; today, over 2,760 companies are listed on the NYSE and their market value exceeds $18 trillion. The NYSE has helped to both fuel the growth of U.S. enterprise and maintain the global pre-eminence of the U.S. capital markets. Our success has been won on the basis of our ability to provide the world's deepest pool of liquidity, the best price discovery, the highest certainty of order execution, the lowest overall cost of trading, and very importantly, the lowest volatility."

ArcaNews view: Gaining the trust of millions of investors? Paaa-lease! Again, Grasso's ridiculous pay structure, specialists breaking the law, and NYSE-listing of Enron surely underscore this trust.

Thain continues:
"In one key area of competition, speed, the New York Stock Exchange needs to improve in order to stay competitive. "

ArcaNews view: Speed an an open-outcry system is a paradox. Simple as that. A "hybrid system" is hogwash and merely a method of trying to preserve antiquated tradition.

Here Thain gets a bit protectionist:
"My concerns about the CLOB's impact extend beyond the New York Stock Exchange to the overall competitiveness of U.S. markets and how they serve investors. In an electronic-only environment, where exchanges must break up orders to attempt to chase displayed quotes from market-to-market, large orders of stock will be difficult to execute. Instead, these large orders may go elsewhere, to be traded in private markets or overseas."

ArcaNews view: If trading in private markets or overseas assures investors of the best price and execution, Thain's talking out of both sides of his mouth.


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