Wednesday, February 28, 2007

Market of Markets

As Phase IV of Hybrid rolls out and NMS goes into effect next week, it's interesting to flashback to 1998 when the Nasdaq and American Stock Exchanges attempted to merge.

It's interesting to read the quote from the former-CEO of Amex , Richard Syron in the link above. (Incidentally, Mr. Syron now runs Freddie Mac, and Frank Zarb is now a Managing Director and Senior Advisor with private equity firm, Hellman & Friedman). Nasdaq and Amex desired the ability to add value by offering traders a choice of electronic trading or floor-based trading. Here is a Washington Post piece from 1998 that discusses the desire for a hybrid model.

In 1998, NYSE's largest competitors tried to put together what the NYSE has now done successfully. (If you'd like to learn much more about Hybrid, please checkout the NYSE's Hybrid Talk blog).

It's interesting to think about how much things have changed since the roaring 90's. Safe to say that in 1998 it was hard to imagine that the NASD would eventually merge its regulatory arm with the NYSE's SRO, or that the NASD would spin-off the Nasdaq (which it founded in 1971). Also, in 1998, it would've been hard to predict that the NYSE would beat all other exchanges to a Hybrid model, and that it would do so by merging its centuries-old open outcry system, with Archipelago Holdings' sophisticated and revolutionary, ArcaEx.

The NYSE has done it, and this is no small accomplishment.

And, as for fears that yesterday's sell-off (what looks on a chart like a cliff in Aculpolco) was related to Hybrid, consider what Louis Pastina, executive vice president for market development at the NYSE, said about the NYSE's operational issues.

According to a Dow Jones Newswire piece today by Gaston Ceron:

"...Pastina pointed to recent moves of human trading personnel on the trading floor, which affected the way that the NYSE's systems were set up. And while the NYSE had made adjustments for the moves, they weren't enough to properly handle the trading surge that was seen as the Dow Jones Industrial Average suddenly plunged about 200 points around 3 p.m. Tuesday - a problem caused by a computer glitch at Dow Jones & Co. (DJ), the company behind the DJIA and also the publisher of this newswire...

...Pastina said the problems didn't lie with the Hybrid Market's electronic component itself, but with other NYSE systems. "We needed to rebalance the allocation of capacity. We did it last night," he said Wednesday. More work will be done, such as additional testing. "We'll add capacity and disk space where appropriate."

...The knee-jerk reaction by the increasingly electronic trading community to the drop made matters worse, Pastina said. "This was a big trigger," he said. "The computers all kicked off at the same time." For the NYSE, the results were delays. "We wound up queuing," Pastina said."

(Source: Gaston Ceron, Dow Jones Newswire 2/28/07).


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