One site off the road ahead

Consider the potential revenue that the NYX will be deriving from selling seats:
(using the average of the minimum and maximum seat prices)
$61,612.50/seat x 1366 seats = $84,162,675 to the top line -- and that's recurring revenue that'll likely scale with inflation.

It could be interesting if NYX shareholders one day agree to issue more than 1366 trading licenses (i.e., seats). The incremental costs to the NYX are small per each additional license it may issue.

The other revenue rivers like data feeds (again, wonderful economies-of-scale) will be recurring and predictable.

Meantime, global expansion is afoot. Same way that costs for sending email internationally are marginal, sending buy and sell orders electronically has incredibly low costs and huge margins.

And, among other things, the NYX is instantly getting into the options and ETF games. Market share that has nowhere to go but up, and listings that are migrating to their system (like 40 iShares Barclays has moved over).

History is for losers

After 213 years of being run as a non-profit organization, the NYSE, with the assistance of Arca, is finally being transformed to a for-profit, publicly-held, enterprise.

The NYX nay-sayer with the loudest microphone has been WSJ reporter, Aaron Lucchetti. He scribed numerous articles suggesting that the NYSE seatholders would have a hard time voting in favor of the NYX deal. For the months leading up to the 12/06/2005 vote, Lucchetti insisted that litigation, Langone, and Higgens would strong-arm other NYSE members into voting against the terms of the deal.

While Higgens wasted millions of dollars on his pathetic lawsuit, Lucchetti wasted valuable space in the WSJ, as well as the time of WSJ readers.

That said, Lucchetti drafts a mini-history of the NYSE in todays WSJ. And, his research is truly interesting to note.

The following is based on some of Lucchetti's research:

* Since the NYSE was founded in 1792, members have paid for the ability to trade on the NYSE. Memberships were known as seats since the early 1800s, when members sat in assigned chairs and stood to trade when stocks were called by an auctioneer.

* In 1868, the NYSE had a mere 533 seats. Folks seeking NYSE memberships could only obtain by purchasing a seat from an existing NYSE member. In 1952, following numerous increases in the supply of memberships (i.e., seats) the NYSE settled on having 1,366. By this time, "seats" went the way of carbon copies. Children today may ask what "CC" stands for in email sending options. And adults answer that long ago, we used carbon paper to make copies -- the name carbon copy stuck. Same with "seats." The name has stuck. And Thain has said publicly that he is committed to preserving the tradition of calling memberships "seats."

* In 1929 a seat sold for $625,000 (inflation-adjusted), an amount equal to more than $6 million today. For years, seatholders actually voted on applicants. Much like many fraternities during rush-week, members ("brothers"), actually voted by placing marbles in a box. Through the years, this fraternal entrance process has changed from a committee, to eventually, NYSE staff.

* In 1963, The US Supreme Court ruled that the NYSE could not reject memberships without fair procedures. Today, it can take months for a membership to be approved. Prospects must prove fiduciary soundness, a rich understanding of the markets, and other things in order to be admitted to the "club."

* The NYSE constitution that is kept in a locked credenza on the exchange's sixth floor is chock full of signatures from NYSE seatholders through the ages. Among the signatures are John D. Rockefeller's from 1883 and J.P. Morgan Jr.'s from 1895.

On 10/10/1953, the volume on the NYSE was 900,000 shares (the last time there was fewer than 1m shares traded for the day). 52 years later, billions of shares trade each day the market's open.

Today marks the end of one of capitalism's greatest traditions. However, it also stands to mark the beginning of one of capitalism's greatest technological advances. Colombia professor, Kenneth Jackson, the author of the Encyclopedia of New York (and other books), says, "History is for losers." His point is, evolution and advancments often occur at the expense of preserving tradition.

Today, Jackson's words ring in tandem with the closing bell.

How shorting against the box can hurt

There's a fairly good chance that the sell off since our 12/06/2005 vote to allow the NYX deal to close, can be largely attributed to seatholders -- that will receive ~80,000 shares of NYX within a month or two -- who are selling AX short.

The rationale is that since there will be lock-up requirements imposed on the NYSE-turned-NYX shareholders, why not sell the stock short now and use some of the 80,000 shares to cover if necessary. It's an arbitrage play -- and a pretty obvious one.

But, here's the thing. Tax law changes from 1997 can treat profits derived from these short positions (or tax advantages derived from these short positions) as short-term gains. And, short-term gains are not typically desirable for investors (see this article).

The pressure that's been put on AX shares since the deal's approval represents "artificial selling." However, in the stock market, a sale is a sale is a sale.

While the giddy NYSE seatholders lock in their impressive gains, little retail investors may get burned. It's hard to squeeze a short that's got 80,000 shares to cover with. And, if 1366 seatholders sold 80,000 shares short, that'd be 109,280,000 worth of shares being sold.

Of course, we know that the aforementioned hypothetical situation is not happening, but even a small fraction of the 109,280,000 will put extraordinary pressure on AX shares.

And, unlike typical short covering, when these short-sellers go to cover their short -- they don't need to actually purchase stock -- they own it already!

This phenomenon helps to explain the spike in daily share volume since 12/06/2005. It also explains why seats are selling for ~$25k below their all-time high. This arbitrage strategy is attractive to some investors with deep pockets.

Raymond James' Vinciquerra Latest Passenger on The Short Bus

It looks like Raymond James & Associates analyst Michael Vinciquerra decided to give making a call in the market another shot -- seeing as though he's been wrong about Arca each time he has published a report.

Most recently, May 4, he decided to slap an "underperform" rating on the stock. For accountability sake, AX closed on May 4, 2005 at $33.88. Today AX closed at ~$55 -- the stock is up ~60% from his pathetic little downgrade.

Vinciquerra, Reppetto, Chamberlain, and Herr -- most notably -- have pie all over their faces. They've lost their customers mega-bucks, and still continue to draw a paycheck from their employers. Honestly, a 6-year old could be just as wrong! It's amazing that buy-side PMs would actually pay attention to these analyist's idiotic discourse, let alone act on their reports.

Vinciquerra, et. al. keep coming back to market share for NYX. They need to open their collective eyes and realize that the game's changed. They can't apply their math skills in a spelling bee -- financial exchanges are radically different now than they've ever been, and this transformation is literally just beginning.

There's more to the NYX business model than there's ever been to that of the NYSE. There will be revenue streams that have never existed for the exchange before. Costs will be cut enormously, and margins will grow.

To be sure, the economies of scale that exist with NYX are, in-and-of-themselves enough to get excited about. Can any of these analysts talk about the incremental costs involved in collecting revenue from new listing requirements for smaller companies -- you know, the kind that traditionally have gone to the Nasdaq.

NYX will grow its market share, not only among its listed companies (which it essentially has a monopoly on), but it will grab share from Nasdaq in terms of OTC stocks. They've already gained considerable share from the AMEX, in terms of ETF listings.

Options, futures, bonds, PC computing power are all revenue streams that these analysts neglect to talk about. Do they think NYX will actually lose market share in options? ETFs? Futures? Bonds? Come on! These are things that currently stand at 0% market share for NYX -- that means that there's only one direction to go (in case these bozos read this, let me spell it out so you can understand). . .U-P!

Today's action was the ole voting machine. Eventually, cream rises (as it has), and the NYX will stand on its own merit. These anal-ists already look like knuckleheads. History has proven that they're clueless about NYX. But once the NYX starts firing on all cylanders, and management focuses on executing a business plan (not focused on the largest deal in US equity market structure history), then, just then, these anal-ists will join the likes of Henry Blodget -- crap that just gets flushed down the toilet (and into other professional endeavors).

Timing for Release of Vote Outcome

It's hard to believe that it's already December 6! The jungle of nonsensical conjecture that has been ubiqitious since April 20, 2005 (when the NYX deal was announced) must now give way for facts. The fact of the matter is that this afternoon the 1366 NYSE members are scheduled to meet.

ArcaNews spoke with representatives at the Big Board this morning (in the Secretary's office). It was learned that the members will report to Wall & Broad at 4:30 PM EST. They are expected to meet for no longer than 30 minutes. Upon the close of the vote this afternoon, the Inspector of Elections will issue a preliminary result (assuming that the vote is not very close, and he can determine the outcome with reasonable certainty). It doesn't sound like the Inspector of Elections will quantify the results today, but it does sound as though he will announce the unofficial results today -- probably around 5:00 PM EST.

This result will be made public, and tomorrow morning when the Inspector of Elections returns to his office, he'll conclude an official tally. This official tally will then be released to the public.

Timing for Release of Vote Outcome

It's hard to believe that it's already December 6! The jungle of nonsensical conjecture that has been ubiqitious since April 20, 2005 (when the NYX deal was announced) must now give way for facts. The fact of the matter is that this afternoon the 1366 NYSE members are scheduled to vote on the NYX deal. Recall, guesses towards the outcome of this vote have been a distraction from the day after the deal was announced and LongGone ("Langone") and Higgins started to rebel, and make public stooges of themselves. WSJ reporter, Aaron Lucchetti, has used the vote as a mechanism to spread bearish speculation (his bucketheaded articles are documented here at ArcaNews, and if you want a chuckle, re-read some of his commentary over the last several months). As cited here at ArcaNews, NewsWeek got into the bearish-outcome game, as did a rash of anal-ists (is that an anal rash?). But, 95% of what's been published about this deal since April 20, 2005, is bearshit, and purely conjecture.

Today, facts shall prevail.

ArcaNews spoke with representatives at the Big Board this morning (in the Secretary's office). It was learned that the members will report to Wall & Broad at 4:30 PM EST. They are expected to meet for no longer than 30 minutes. Upon the close of the vote this afternoon, the Inspector of Elections will issue a preliminary result (assuming that the vote is not very close, and he can determine the outcome with reasonable certainty). It doesn't sound like the Inspector of Elections will quantify the results today, but it does sound as though he will announce the unofficial results today -- probably around 5:00 PM EST.

This result will be made public, and tomorrow morning when the Inspector of Elections returns to his office, he'll conclude an official tally. This official tally will then be released to the public.

The Profile of A Poor Sport

At this point, one week before the official vote, with seat prices hitting new all-time highs, and GS, Lazard, and Citi have concluded that this deal (in its current structure) is fair, Bill Higgins continues to shine the light on himself.

First, his pathetic little law-suit was merely a trivial excercise that became ammunition for the nay-sayers out there - Noteably, Lucchetti, Weber, Ruppetto, and Chamberlain. To be sure, they wasted valuable space in the WSJ as well as wasting the time of their readers. Their conjecture has time-and-time-again, proven to be nothing more than merely a bunch of hollow-sourced articles, misleading mosaics among a few anal-ists, and fodder for those interested in the largest deal to effect the structure of the US national equity and deriviatives structure in history.

To be sure, the Higgins lawsuit was ineffective. His re-assessment of valuation was a collossal waste of money and time. And his demand for NYX to pay his legal fees is simply laughable. But today's story from Reuters takes the cake.

Higgins employed a firm by the name of Willamette Management Associates -- hardly a name on Wall Street, hardly a name recognized multi-nationally, and hardly a company anyone in the US is familiar with.

Just surveying the company's website is enough to indicate that they're small players. Compare the websites of Citi, Lazard, and GS to that of Williamette Management Associates. Just the appearance and content on these sites indicate what level these firms are on. Citi, Lazard, and GS, are global leaders in investment banking -- arguably the top in their field. They hire ivy-league MBAs, utilize topgrading in staffing, and simply attract the top talent. On the other hand, Williamette, is a small shop with inferior talent (oxymoron?).

Their opinion that Citi, Lazard, and GS never explain why the deal is fair to shareholders is pathetic and indicates an extreme level of desperation for Higgins to try and save face.

At this point, the only thing William Higgins has been successful in doing (related to the NYX deal, that is), is drawing attention to what a litigious, arrogant, and misguided person he really is. Other NYSE seatholders may already know him and have their opinions of him, but to the rest of the world -- that don't know him other than from his ridiculous antics with the NYX deal -- it's fairly easy to develop an opinion of his character.

And, that speaks for itself.