Friday, February 17, 2006

Market Share Jitters Nothing New

History tends to repeat itself.

Lately, there have been numerous articles and analyst comments regarding NYSE losing market share in terms of trading its listed company's stocks. This post is about how this fear also existed 32 years ago. But before getting into that, I just wanted to note that the market share numbers that are generally cited include extended hours trading. This is a time of the day where NYSE market share in listed stocks doesn't move the needle. During the regular session, NYSE market share is right around 80% -- impressive by any measure. But more interesting than that is how in 1974, the exact same threat of eroding market share existed. But before getting into the thoughts of Robert Haack (
president of the NYSE in 1974), lets look at some of the recent press.

On 2/07/06, Reuters wrote a story with the headline, "NYSE market share weakens for 7th straight month." In this article, the author writes, "The New York Stock Exchange's dominance of trading in NYSE-listed stocks weakened for the seventh straight month in January. . ."

In fact, just yesterday Megan Davis of Reuters published a story that says, ". . .And the erosion [of market share] is far from over, some industry experts believe. Some analysts see the market share of rivals rising to 35 percent before midyear, when the NYSE rolls out its counterpunch -- the so-called "hybrid" market model combining electronic trading with traditional open outcry." Nasdaq's CEO, Bob Greifeld is quoted in this article, saying, "As we gain market share, our credibility as an alternative listing venue increases."

Robert Sobel's, "A History of The New York Stock Exchange: 1935-1975" documents how the same fears about eroding market share existed in 1974. Towards the end of the book there's a chapter about NASDAQ. In this chapter Sobel writes about a speech delivered on
11/17/1970, by Robert Haack entitled,"Competition and the Future." During this speech Haack said, "As recently as 1967, the regional exchanges and the Third Market combined to account for just over 10 percent of all trading in our listed stocks. . . Today they account for almost 20 percent. . .Available data indicate a significant loss of block trades, with an estimated 35 percent to 45 percent of 10,000 shares or more traded away from the New York Stock Exchange." The reasons for this, and the most important was the "presence of antiquated and unequal rules and the emergence of a new environment for trading in securities." (Sobel, 1975, p.355).

Cream rises, and the NYSE has proven through the centuries that it evolves and retains its leadership position. Leadership in terms of market share and mind share. In the near term, market share ebbs and flows, but when the dust settles and ArcaEx and Hybrid are firing on all cylanders, the discussion will turn to market share in revenue streams that today are non-existant for the Big Board. Through AX/NYSE synergies there will be an emergence of market share for the NYX in categories that today their share stands at zilch. Exchanges that trade ETFs, options, and bonds will likely see their market share decrease as the NYX enters their markets.

So, the point of this post is simply to point out that through the ages there've been changes in the national market structure that've elicited threats of market share declines for the Big
Board. Ultimately though, the NYSE has always emerged as a leader.

History tends to repeat itself.

Wednesday, February 01, 2006

Arca turns in an amazing quarter!

Yesterday's conference call was monumental. It was the last earnings call for Archipelago Holdings as a seperate entity. The results for the quarter were outstanding. In fact, once merger costs are taken out, AX beat the Street by three cents!

The takeaway from the WSJ article is:
"Excluding merger costs and related executive compensation of $34.7 million, Archipelago said it would have earned 28 cents in the latest quarter. Analysts polled by Thomson First Call had estimated earnings of 25 cents a share."

Once again, AX's extremely talented management team has continued to deliver substantial shareholder value. And for that matter, they've continued to deliver significant value to its customers. This is evidenced by the growing of Listed, AMEX, Nasdaq, and options market share. The share data regarding Nasdaq for the 4Q reflects a pricing model that the Nasdaq had until they realized that their model lacked any real business sense. Subsequently, there has been an uptick in Nasdaq market share for Arca since Nasdaq adjusted its prices upwards.

It's worth noting a couple of the analyst comments from yesterdays call. The call may be heard here. At approximately 28 minutes and 40 seconds into the call (you can move the playhead of the media player to get directly to this point of the call) Richard Herr from Keefe, Bruyette, & Woods demonstrated his poor understanding of AX. He asks a question about declining market share, but management quickly helped Mr. Herr understand the numbers he was looking at. The numbers he alluded to are actually a positive for AX -- not a negative as he initially concluded.

Since this is the final conference call for Arca as a stand-alone company I'd like to thank and congratulate all of the devoted employees of Archipelago who have worked incredibly hard to build a revolutionary bourse. So revolutionary is this bourse, that the NYSE has agreed to merge with it. This merger represents the biggest structural change Wall Street has seen since the advent of telephones on the floor.

And, the technology that Arca brings to the party is second to none. It is an engine that inherently has unmatched capacity, speed of execution, and economies that scale like wild fire!

Congratulations Arca on all of your success!

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