Thursday, December 28, 2006

What a Year!

2006 was certainly eventful for NYX shareholders. Since it's the last trading week for 2006, lets take a quick look back (please browse the archives here at NYSE ArcaNews to get a sense of what was going on YoY in ExchangeLand).

Last December, the NYSE seatholders voted and approved the most monumental deal in the history of the world's capital market structure. Though perennial synics like Lucchetti, Reppetto, and Herr (to name a few) constantly made public their doubts that the deal would close, and if it did close that it would ever be beneficial to shareholders (read: Reppetto, Herr, etc's customers).

That was then. The deal closed, the newest oldest company around IPO'd in March, and NYX has never looked back.

While NDAQ butchered its credit quality while trying to inch its way to the spotlight, NYX quietly pursued creating the first Trans-Atlantic exchange. The NYX team and Euronext worked diligently towards a fair deal, and just a few months after the NYX became a for-profit enterprise, the deal was done -- NYSE Euronext has been born.

This means that in addition to the hundreds of millions of dollars that NYX will save in cutting redundant costs, the company has a best-in-class platform for options, futures, bonds, and stocks.

To be sure, futures have gotten much attention as their margins are wide enough to drive a train through (read: they're incredibly big). NYSE Euronext's Liffe (click here for more info on Liffe) brings NYX into this lucrative marketspace.

Though not the most happy headlines, the cost cutting at the Big Board has been quite impressive. Many were aware of the fat that the NYSE schlepped around for centuries, but to actually see the savings that result from rightsizing the organization is not only good for NYX's bottom line, but it's a reflection of a culture that's completely changed, and a focus on driving shareholder return while keeping the NYSE the most advanced and largest bourse on the planet. For example, ~20% of the trading floor is being shut down, and scores of the old brass were made redundant.


Of course, the year was spotted with nonsense from the media and sell-side community. The Wall Street Journal's, Aaron Lucchetti could probably get a gig working for sales organizations to lead brainstorming excercises about potential objections (if you prepare for potential objections, you can be ready to overcome them). For years he's been writing about every possible unfavorable outcome for any strategic initiative that the NYSE undertakes. His expensive prose about NYX have consistantly mislead for years (he constantly got the AX story wrong too).

Not to be outdone by the WSJ, the majority of sell-side shops (that cover NYX) have consistantly demonstrated to their customers that they oughta ignore their thoughts. There are some specific analysts that are candidates for Clown-with-a-Calculator-of-the-Year. First, the candidates:

* Richard Reppetto, Sandler O'Neil
* Richard Herr, Keefe Bruyette
* Michael Vinciquerra, Raymond James

Click here for a summary of how clear the aformentioned clowns vision is. You can gain a sense of their accuracy, but more importantly, you can gain a sense of how incredibly distorted their mosaics are that they use to determine NPV of NYX stock based on projected cash flows.

And, the winner is:

Sandler O'Neil's Richard Repetto!! And here's why.

Repetto's been wrong about NYX since it was in gestation (AX). Simply put, he's constantly been wrong about NYX. The reason that he beats the other clowns out for this title goes back to his appearance on CNBC in March, the day of the NYX IPO.

While many were celebrating the birth of NYX, Repetto spoke on CNBC about his idea the potential of the NYX has already been priced into the stock (when the stock IPO'd it was trading in the 60 - 70 range, and it even tradfed up to 88). Recall, at that time, there was no real discussion about NYSE Euronext. Maybe just some speculation that an exchange could do a cross-border deal. Nonetheless, Reppetto was bearish.

It's truly worth listening to a quarlerly earnings call so you can hear, first-hand, how the analysts typically are not viewing NYX's glass as half-full. It's not unusual to hear NYX's management correct an analyst as they ask their questions during the Q&A of the call. I still think my favorite question he's asked was to AX's management years ago. His question to AX management centered around why AX's daily trading volume was so light. Boy, that's a great question for management during its quarter-end call. At least it was indicative of what sort of metrics Reppetto spent time analyzing.

Now the NYX will operate its cash markets in 2 of the 3 largest currencies. It's refreshing to hear a focused management team that knows how to execute. NYX told the street that they were interested in expanding into Europe -- and it happened. Now they've said they're interested in expanding into Asia. Quietly, they'll execute. In the meantime, the aformentioned clowns with calculators and typewriters, may continue to create drama by taking the other side (read: pointing out potential pitfalls) as they position for next year's NYSE ArcaNews annual clown award.

In case expanding into Asia (or other countries/currencies) is not big enough news. Other initiatives include Hybrid, creating structured products, and adding listings to NYSE Arca (hopefully at the expense of NDAQ -- see RHT).

So, once again, Happy New Year to my NYSE ArcaNews readers. I hope you've enjoyed my blog, and I look forward to another year of bringing you my thoughts on what I truly believe is the most advanced, innovative, best managed, strongest brand, bourse in the world.

What a year!


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