Wednesday, November 30, 2005

Real News: NYX to GAIN ETF Market Share!!

Where's Lucchetti today? How 'bout an article about NYX growing its ETF market share? Click here for a quick note on this exciting development. ETFs are getting huge. Their assets are growing at incredible rates. In fact, according to a WSJ article on 10/04/2005, ETF assets stand at $251.5 billion, having increased $100 billion over the past year and a half!

Consider that mutual funds, the investment of the 80s, have approximately $8.5 trillion in assets. When wealth is transferred to the next generation, ETFs will be ubiquitious. Perhaps more popular than mutual funds are today.

The advantages of ETFs over mutual funds are vast. In fact, the only potential downside of an ETF instead of a mutual fund, is for investors that set up dollar-cost-averaging programs that can create trading commissions that erode ETF profits -- the solution to this? Find a broker who can sell you a wrap account. Own ETFs in the wrap account, and the trades are done commission-free.

Another nice thing about ETFs over mutual funds are the capital gains tax treatments. In a mutual fund, owners are on the hook to pay capital gains tax on shares sold by the fund to honor a redemptions (read: sale of mutual fund). ETFs have no such penalty. They're tax efficient, have incredibly low cost ratios, and will likely be the mutual fund of the future.

All this is just part of an incredible transformation of Wall Street. And, NYX is positioned to be the leading bourse in the universe. AX is effectively a Porshe engine in a 1939 Cadillac.

Fill 'er up, we've got a long way to go!

BusinessWeek Reporter Joins Others On Short Bus

Dunce of the day today goes to Joseph Weber at BusinessWeek. Read his idiotic prose here.
This clown, Weber, has gone off the deep end with this article. He quotes the proven-to-be-misguided analyst, Richard Herr from Keefe Bruyette (On May 9, 2005, Herr downgraded AX to Mkt Perform. The stock closed at $32.87 that day -- today we're well over 50!).

Asking Herr's opinion about NYX is like asking Bill Buckner how to field a grounder at 1st base. Herr has consistantly proven that he's clueless. But lets not overlook that clown from Sandler O'Neil, Rich Ruppetto. This is the same guy who asked Putnam during last quarter's earnings call, if Putnam could provide him with metrics that would be meaningful to analysts, and give him a sense of how to look at NYX. Isn't that the job an anal-ist? Isn't developing meaningful mosaics what differentiates the good from the bad?

And, for the record, Ruppetto downgraded AX on 4/22/2005 and the stock closed at $29.76 that day. Again, Dick, we're over $50! Get a clue before saying anything remotely close to investment advice -- he's truly a good bed-mate for Charlotte Chamberlain. Shouldn't be long till she pipes up -- unless of course she's learned that she's indeed, without a clue.

Nonetheless, Weber decided to go to Ruppetto for insight. This one's like someone asking Helen Keller to say, "pneumonoultramicroscopicsilicovolcanoconiosis" .

The paint is drying in spite of the herd of bozos that've been putting their hands in it while it's trying to dry. Tomorrow the NYSE meet one final time before the 12/06/2005 vote.

And as for Higgens and Co. trying to tell NYX that they should pay his $18mm legal fees -- GIMME A BREAK!

Should I see if George Steinbrenner will refund my Yankees tickets from last season since they didn't win the World Series?

Tuesday, November 29, 2005

Keeping An Eye On The Ball

Folks, keep in mind Ben Graham's axiom, "Though the stock market functions as a voting machine in the short run, it acts as a weighing machine in the long run." (Graham was Buffet's prof and one of his biggest influences while getting an MBA at Colombia University).

In the long run, AX (read: "NYX") tips the scales. History has shown that at each 0-figure the stock flirts with sellers. It happened at 30 (Idiotic anal-ists and Langone and Higgens = catalysts); it happened at 40 (we hung out between 36-40 for quite some time, while being told that the vote won't pass, that the regulators wouldn't approve of the merger, etc.). We bounced around 50 for some time given the overhang from the aforementioned. Now we're seeing the same bumper game with 60.

Events left till deal closes:
Dec. 1, 2005: Meeting among NYSE seatholders
Dec. 6, 2005: Vote among NYSE seatholders
Some time very near 12/06/2005 NYX should make an announcement that the deal will close.

Regulators have already blessed the deal. All that's left are the aforementioned factual events. The rest is conjecture among folks that are paid to create stories (anal-ists and bidness writers).

In baseball, many players miss making contact because they take their eye off the ball at the last second -- arguably the most crucial second for a batter as pitches curve, dip, dance, etc. The NYX deal is not much different. NYX stakeholders need to keep focused on the pitch.

This one has all the makings for a whopper of hit!

Lucchetti's Got Diarhea of the Pen

WSJ reporter, Aaron Lucchetti, has been scribing articles that create questions, among some investors, about the strength of NYX. In August 2005 he wrote a piece in WSJ that raised doubt that the NYSE members would actually vote in favor of the NYX deal -- in its current form (i.e., the structure put forth in the S-4 filing). Re-read The ArcaNews take on this bearshit here.

Now that the facts have prevailed, and time has moved us to within about a week of the NYSE member vote, we can see things as they actually are.

The often written about, Bill Higgens case, is behind us. The only thing that came from that was about $3.5mm in fees for Citi thanks to Mr. Bill. He effectively took $3.5mm of shareholder cash and blew it on a trivial excercise of ego thumping.

Back to Lucchetti.

Today he used a lot of space for a long-winded article ab0ut NYSE market share. He takes a brief look at the history of the exchange, and clearly points out that he's disconnected from reality.

Reality is that ArcaEx is the number one electronic execution venue. Lucchetti blabs about an archaic NYSE structure giving way to traders that are looking for speed. This is something that AX shareholders have long-known, and invested in. Bringing together the top worldwide brand, for bourses, and the top trading factory, will create the 800-lb gorilla in the global marketplace.

Why doesn't Lucchetti look at the significant increases in market share among ETFs (and Barclays move entirely to AX at the expense of market share for AMEX). ETFs traded on Arca are eroding ETF market share among Nasdaq and Amex.

Arca brings ETF leadership, and market share to the table once the NYX deal closes. Arca brings trading in deriviatives such as options to the table. Futures and bonds will trade on the NYX, and Lucchetti doesn't delve into how the new NYX will be an entirely different businesses as a for-profit company.

The NYSE and AX both have been focused on the NYX deal for around the last 12 months. When the biggest deal and transformation in history is about to happen to the NYSE, it's understandable that business will pause a bit. This is a case of taking one step back in order to take 100 steps forward.

Lets look back at Lucchetti's nonsense a year from now. Lets see if he inks an article about the improvements the NYX has made in terms of market share among, not only in listed-stocks, but in OTC equitites, ETFs, bonds, futures, and PC power.

Is Dow Jones this hard-up for business writers? Lucchetti would be better served writing for a tabloid.

Tuesday, November 22, 2005

Tomorrow's the Due Date for Citi's 2nd Opinion

Just a quick reminder, per the settlement between "The DYX" (read: Higgens & Co.) and The NYX, Citigroup has until tomorrow to submit its fairness opinion to the court. See the 2nd to last paragraph in this article for evidence that tomorrow's the day.

It's possible that NYX will release the content of Citi's fairness opinion towards the end of trading tomorrow. Then, Thursday, the markets here in the US pause so we can all be with family, eat a ton, and give thanks to Jerry Putnam and his team for providing AX shareholders with a tremendous year.

And speaking of years, here's a presentation that I posted on ArcaNews (scroll down to November 22, 2004), exactly one year ago, today. It was clear then, as it is today, that ArcaEx is the bourse of the future. This presentation was given to a group at the Weatherhead School of Management at Case Western Reserve University last autumn -- I only hope that some ArcaNews readers, and some that attended my presentation, purchased AX when it was trading in the teens -- and scores of analysts were downgrading them. Those analysts include:
-Charlotte Chamberlain, Jeffries & Co.
-Rich Rupetto, Sandler O'Neil
-Roger Freeman, Lehman Brothers
-Anonymous (source of downgrade put on "analysts at Piper Jaffrey,"), Piper Jaffrey
-Richard Herr, Keefe Bruyette
-Michael Vinciquerra, Raymond James

Look no further than ArcaNews for accountability for these incredibly-wrong analysts (click here, and scroll down to June 17, 2005 for a "knucklehead scorecard") -- and ask yourself, what does it take to be an analyst? It's amazing that anyone gives these clowns time on earnings calls. In fact, last quarter's call included a question from an analyst asking Putnam, et. al., if they could provide metrics that would be meaningful to them (the analysts) so they can figure out how to assess AX. Isn't that an analysts job? You can listen to that call here.

Monday, November 21, 2005

What's Fair About a Fairness Opinion?

The next event in the NYX story is the delivery of a fresh fairness opinion from Citigroup -- a concession the NYX agreed to last week in order to quell Mr. Higgens and his group of grumpy rebels.

What exactly is a "fairness opinion?" When and why are fairness opinions issued? The answer to these questions are contained in this insightful article from Bloomberg.

Lazard provided the official fairness opinion in the NYX deal announced on 4/20/2005. In their assessment, they viewed the proposed 70/30 equity split of the NYX as fair. And they will be paid for their time and opinion, most likely, once the deal closes. The hitch here is, the deal closing.

This assumption is based on the fact that ~90% of the time, a bank's fees for their fairness opinion is delivered once the deal closes. (click here for source).

Citigroup has been mutually agreed upon by The NYX and "The DYX" (read: The Higgens group) to issue one final fairness opinion. One thing is for certain, this additional, trivial opinion will cost AX and NYSE shareholders a significant amount of money. That's money that comes from the cash that the NYX will have once the new company has been formed.

There are two possible outcomes to the Citigroup opinion:
1) The current deal structure is fair;
2) The current deal structure is not fair, but here's what is. . .

Regardless of which of the aforementioned outcomes become a reality, the Dec. 6, 2005 vote among NYSE seat holders will commence. The first outcome is pretty straight-forward, however the second one is worth exploring.

If Citi comes back and says that the terms of the deal are not fair, they risk damaging their relationship with NYX and would not likely be considered down the road for investment banking needs that are certain to arise from a rapidly growing, global exchange that sells much more than equities. Any future deals that NYX does might not come to Citigroup when there's a sufficient number of other investment banks that could be used. They also risk making Lazard and Goldman Sachs look bad.

What would Citi gain from issuing an opinion that is considerably different than the deal already struck among Wall Street's greatest titans -- NYSE and Goldman Sachs?

For one thing, an opinion that differs materially from the one already issued, could interfere with the growing value of NYSE seats, and AX's rapidly rising stock value. But, perhaps of greater consequence to Citi, is that if their opinion raises enough questions in the minds of those voting on the deal, to the point where a 2/3 vote is not achieved, and the deal doesn't close, then guess what? Citigroup won't be paid.

So right now, Citigroup holds the key to the vault for AX shareholders, NYSE seatholders (soon to be brethren), Goldman Sachs, Lazard, Citigroup shareholders, and Citigroup itself. That's an awful amount of stakeholders that stand to be hurt if they issue an opinion that is considerably different to the one already issued.

So who gains if Citi comes back with a materially different opinion? To be sure, Higgens and Langone would have significant gains to their egos, but beyond that, not many others'll gain (except for those that decided to write calls on AX to go against the deal).

To be sure, this new fairness opinion is a waste of money and time. There is nothing about the new opinion that has to do with closing this deal. Except, that anything dramatically different might effect sentiment of NYX holders, but probably not their vote since they've seen the value of their seats and future stock skyrocket since the deal was announced on 4/20/2005.

The vote will happen on 12/6/2005, and (most likely) there will be an announcement shortly thereafter letting everyone know that the deal closed -- once and for all. Once the deal is closed and NYX is trading in the public market, this trivial excercise of creating inertia for the deal, will finally be put into the proper light.

One share of AX = One share of NYX

The fact of the matter is that once the NYX is traded publicly, the market will decide on fair value for NYX stock. The percentage of equity ownership has absolutely no consequence on the value for a share of NYX. When someone in the public market goes to buy or sell a share of NYX they won't be asked which side of the merger they came from. The price they get for their shares won't depend on anything related to the percentage of equity ownership of the NYX.

The percentage ownership split matters for NYSE seatholders as it values how many of the outstanding shares of NYX are available to give their current seatholders. For AX shareholders, the split is of no consequence (see: ArcaNews story regarding this here).

The NYX deal has been cleared by antitrust authorities. Now all that's left is the vote that will occur in approximately two weeks. The fairness opinion that Citi issues will be the last distraction thrown into the biggest deal in US stock market history.

Tuesday, November 15, 2005

Lucchetti At It Again; Judge's Insight Questionable

Looks like Aaron Lucchetti's up to it again. Trying feverishly to create news when there is none. In today's WSJ the often misguided Lucchetti scribes an article with the dubious headline, "NYSE Dissidents Gain Some Support in Court." To be sure, the headline belches a hint of fear into the hearts of NYX bulls (as evidenced by AX's weak open this morning [~$46/share]). Equally certain is the fact that Lucchetti takes comments out of context to apply to his story.

In a capitalistic, demographic society, government typically keeps at least an arm's length from private enterprises. Courts are not investment bankers, and they don't teach concepts like calculating net present, value, terminal rates of growth, or discounted cash flow models in law school. In fact, they don't discuss income statements, balance sheets, and statements of cash flows. They discuss law.

No judge is better suited to value the NYX deal than the ivy-league, mensa-society, hardcore, investment bankers at Lazzard and Goldman Sachs. It's particularly interesting to look at Judge Ramos's track record. This fella has a documented history of misleading people -- see the top of the second page of the aforementioned link. Keep in mind that he has a background in tennant-landlord relations, and the NYX case could be out of his league.

Nonetheless, Lucchetti conjures up an image that Higgens and his handful of malcontents has gained judicial support regarding its claim that the NYX deal should be re-valued, and that the scheduled Dec. 6, 2005 vote among NYSE seat holders should be postponed until the valuation has been re-assessed.

Lucchetti writes, "A state-court judge reviewing the New York Stock Exchange's deal to acquire electronic-trading firm Archipelago Holdings Inc. said he was concerned that 'somebody missed the boat' in assigning a value to the Big Board, lending some support to dissident NYSE members who say they should receive more than 70% of the stock of the combined company."

Let's examine Luchetti's nonsensical statement. Where's the context for the judge's statement? The judge thinks he has a better idea on valuation methods than Goldman Sachs? Goldman is the world leader in investment banking.

Moreover, Lucchetti takes this simple statement and uses it as a framework for the rest of his bearshit (read: bullshit).
Lucchetti continues, "In court, Justice Ramos called the sharp run-up in Archipelago's stock price since the deal was announced in April "troubling." With Goldman Sachs banker David Schwimmer on the witness stand, the judge raised questions about whether the deal should have included a "cap" or "collar" to adjust the terms if Archipelago's share price rose more sharply than the value of an NYSE membership."

Which words are Lucchetti's and which are Judge Ramos's? Sharp run-up in Archipelago's stock price is Luchetti's phrase -- not that of Ramos. "Troubling?" What the heck is that supposed to mean? What's troubling about it? The USA is a capitalistic, demographic society which has fostered free enterprise for centuries. Free markets are an essential cornerstone for our society, and a state judge's remarks about a company's stock price are unwarrented unless there's malfeasance involved -- and rest assured, that's not the case with the NYX deal.

Lucchetti continues, ". . .NYSE members can actually benefit from the rise in Archipelago's stock price since they stand to own shares in a new company pegged to the value of Archipelago's stock price." That must've been a painful sentence to write for Mr. Lucchetti as it is counter to his overall sentiment.


Finally, Luchetti indicates that Judge Ramos may not understand how free markets work. Lucchettis says, "Pointing to the sharp rise in the price of shares of the Chicago Mercantile Exchange, which went public in 2002, the judge asked: 'Did that set off any alarm bells?'"

Alarm Bells?

What kind of alarm bell should be sounded as a result of the free market bidding shares of CME to an impressive level? Does the judge believe that all companies in a sector are valued equally? Does the run-up in Google imply that any deal inked in the media space should have a collar? All a stock price reflects is the value that investors believe is fair at any given time. As sure as a day has 24 hours, stock prices reflect this fair value.

What does Judge Ramos think of Berkshire Hathaway's share price? What are his views on the macro-economy? What are his feelings regarding Regulation NMS? Does he even know what Archipelago's revenues were last quarter? Does he feel that AX has a reasonable price/sales ratio? What are Judge Ramos's feelings regarding the EVA of AX? Courthouses are not investment banks. And its not clear if Lucchetti is really a business reporter.

How to Buy Insurance On The NYX Deal

Savvy investors realize that shelling out a couple hundy to purchase '06 puts with a decent strike (like the jan 35s) is the way to purchase insurance on your ax shares and lock in most of the impressive gains that have already been made.

People buy health insurance for the if-come they'll get sick. Folks buy auto insurance for the potential that they'll wind up in a car accident. Gamblers purchase insurance when the dealer shows an ace to hedge the chance that he lands a blackjack.

Investors purchase puts to lock in gains. If options are foreign to you, consider putting in a stop-loss order.

Monday, November 07, 2005

1st NYX Deal Could Be Biggest In Centuries

A favorable vote on 12/6/2005, SEC approval, and an official closing/IPO gives way to yet more opportunity. And with ArcaEx as the engine of the trading world's future, the opportunities are truly boundless.

The idea that there may be a fusion between the NYSE and the London Stock Exchange, an idea that ArcaNews has discussed before (see posting below dated, 10/28/2005), has been reported in London's Guardian Observer (read entire article here ).

The Guardian Observer states:

" emerged that the New York Stock Exchange under John Thain is also considering a bid for the LSE, which would turn the tables on rival European exchanges that have been mulling bids for London for the past 11 months.

Thain, however, is expected to wait until the new year before making a move as NYSE must still complete its acquisition of Archipelago Holdings, operator of a US electronic equities market. The acquisition, which should be finalised within weeks, will involve the NYSE shedding its mutual status and becoming a quoted company.

NYSE could delay its plans if Macquarie presses the green button, but Thain has lined up a bid for the LSE, whose chief executive is Clara Furse, because he believes that London will remain independent despite intense interest from competitors that include Euronext, which operates exchanges in Paris, Amsterdam and Lisbon. Thain is thought to have sounded out his financial advisers about how his plans for London could be brought to fruition."

It's interesting to look beyond the merger/IPO and start considering the myriad methods for the NYX to reward shareholders. The largest transformation in the global equity markets' history is afoot, and we're not even in the first inning. This is only pre-game batting practice and pepper.

Thursday, November 03, 2005

WSJ's Lucchetti = Loose Heady

ArcaNews has highlighted the absurd reporting by this WSJ reporter, Aaron Lucchetti, before. And for the most part, the WSJ has seemed to quell the diarhea of nonsense from Lucchetti's pen. But, on the day when the date for the much-anticipated vote was announced, he thought it'd be news-worthy to publish a report that Higgens and a "handful of supporters" will file a motion to stop the merger vote.

As usual Lucchetti cites his favorite source, "A person familiar with the case." Hmmm, a person familiar with the case? Maybe the assistant of the lawyer working on it? Most likely, there's no source, but he needs to attribute his bucket-headed thoughts to someone.

Lucchetti pontificates that his source has said that "Mr. Higgins's legal team might ask for a new fairness opinion from an investment bank that would be selected by members."

Think about this for a second.

If Higgens has any supporters, it's clearly the minority. So Lucchetti actually believes that a minority of crabby seatholders will block the vote, pay for another fairness opinion, and then pitch the revised fairness opinion (assuming there'd be any revisions) to the majority of seatholders who are quite happy with the fortunes they've amassed since the deal, in its original form, was announced? And then, ultimately when a vote would be held, and the new fairness opinion circulated, he'd be driving the deal? Higgens and a handful of supporters, driving the biggest deal in the history of the US equity market structure? What about any of this conjecture is news-worthy?

Maybe Lucchetti should consider writing for the National Enquirer -- a rag notorious for fictional sources, and laughable stories!

Sue Everyone!

What if members who are in favor of the deal decide to sue Higgens for blocking the vote? Or what if AX shareholders filed a class-action suit to counter Higgens? Or what if the NYSE sued Higgens? Maybe Higgens'll sue the SEC once the deal closes? When would the suits end? At best, the Higgens lawsuit is a waste of money and time.

Date for Vote set: December 6, 2005

Finally! To be sure, 12/06/2005 will be a big day for AX/NYSE stakeholders. The headwind on AX shares can be attributed to the uncertainty of the vote -- both the uncertainty of the date for the vote and the uncertainty regarding the outcome of the vote.

Warren Buffet's hero, Benjamin Graham axiom, "In the short term, the stock market behaves like a voting machine, but in the long term it acts like a weighing machine," is right on the money with AX. From today until the vote commences on 12/06/2005, the market will cast its votes towards the outcome of the NYX deal. In fact, the Street's been casting its vote since 4/20/2005 when the deal was announced. The perception that Langone and Higgens have votes that are more meaningful than anyone else caused AX to face inertia for the months following the announcement (even though the shares rose, their potential value [read: incredibly high value!] hasn't been reflected yet). However, as the date for the vote has come closer, the voting machine has been tipping in favor of the NYX deal closing.

The next thing to consider in the Street's collective voting booth is what sort of empire the NYSE will run once it's a for-profit company that concerns itself with rewarding shareholders. This is where the voting machine begins to be overshadowed by the weighing machine.

In the end, NYX tips the scales. The paint is starting to dry!

Tuesday, November 01, 2005

Watching paint dry as deal closes

Interesting article from 10/24/2005 regarding the promise of the NYX. Notable are some quotes by Mr. Putnam concerning the evolution of a digital exchange. Click here to read it.

There's really not too much to write about as we sit here and watch the paint dry, so lets just take a quick look back at some bone-headed analyst calls:

Anyone heard from Rich Repetto or Charlotte Chamberlain?
Not sure if folks remember this clown, Richard Repetto, from Sandler O'Neill, but since he had the audacity to come out on April 22, 2005 and claim that AX shares should trade at bout $19.27 apiece (click here for proof), ArcaNews has the audacity to remind everyone of what a silly call he made in April.

Charlotte Chamberlain has been mute since April 22, 2005 when she downgraded AX as the stock closed at $29.76/share.

Ladies and gentlemen, AX closed today at $47.80/share!
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