Tuesday, October 04, 2005

Reading between the headlines

Even though there hasn't been any real news regarding NYX to speak of lately, today's WSJ article, "Building Portfolios with ETFs," underscores the evolution of the equity markets. It's this evolution that fuels AX. ArcaEx is a massive marketplace in which ETFs are enormously popular.

ArcaEx nearly doubled the number of ETF shares they traded August 2004/August 2005. During July 2005 (exactly 3 months after the NYX deal was announced) Barclays moved 21 of their ETFs from AMEX to ArcaEx.

The WSJ article says:

"More banks and brokerage firms also have added ETFs to their investment lineups, according to James Parsons, a managing director of iShares at Barclays Global Investors, a unit of Barclays PLC and the largest provider of ETFs. These institutions are creating what they call wrap programs, in which advisers manage assets for a fee, either working with a client to pick investments or using an investment model created by the institution.

As an investor, it's typically beneficial to play the market like Gretzy played hockey. That is, if you're looking at where the proverbial puck is headed it's clear that retail investors are moving from traditional mutual funds to ETFs. Wirehouses and banks are now requiring their advisors to obtain Series 66 (or 63 + 65 alternatively) to be able to charge a fee for investment advice.

Wrap accounts are becoming popular and ETFs work incredibly well in these programs. This is where the retail investing puck is headed. Not sure of what the market opportunity is - cheggout the numbers from today's WSJ ETF piece:

"ETF assets stand at $251.5 billion, having increased $100 billion over the past year and a half. While growing strong, ETFs remain small compared with traditional funds, which have $8.5 trillion in assets.""

Numbers this big are hard to ignore!

And, speaking of numbers. There's more good news for NYX reported in today's WSJ. In an article, "Volume reaches monthly record," it's reported that options trading volume reached a monthly record in September, and rose 55% from September 2004.

Guess who's getting into the options market game? AX is already there, and this volume data is good news for ArcaEx. But what's exciting is that the NYSE does not currently do ANY options trades. Once the deal closes and NYSE and AX become NYX, NYSE will take its first step into a growing deriviatives market.

NYX will have endless capacity, and only have marginal incremental costs for expanding their revenue streams by being the marketplace for trading things other than just equities.


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