NYSE filling its empty floor
Live traders, opening bell add up to big fees from listed companies
June 28. 2008 6:29PM Aaron Elstein
Roger Hagadone
For years, a chorus on Wall Street loudly proclaimed the New York Stock Exchange's historic trading floor to be obsolete and predicted it would be swept away by the fast pace of computer-driven trading. Few were more certain of this than Duncan Niederauer, once a powerful Goldman Sachs executive who oversaw electronic trading services.
"It's an unsustainable model," he told Forbes in 2000.
Today, as chief executive of NYSE Euronext, Mr. Niederauer has undergone a remarkable change of heart. The former critic is now doing everything he can to prop up the trading floor, trying to slow what in the past few years has been a steady exodus of traders.
"Like the song goes, Duncan has looked at life from both sides now," quips Thomas Caldwell, chairman of Caldwell Financial Ltd. and an NYSE shareholder.
The reason for the change in Mr. Niederauer's thinking is pure economics. At a time when the NYSE is losing market share in trading, it recognizes that if it is to continue collecting fat fees from the companies listed on its exchange, it has to offer something no one else can—the tradition and spectacle of the floor.
Adding to ranks
To repopulate the floor, Mr. Niederauer's exchange will complete its acquisition of the American Stock Exchange later this summer and bring in 200 traders. The ranks of floor traders, down more than 50% in recent years to about 800, should rise to 1,000. Earlier in June, the exchange proposed rules that could make it easier for existing floor traders to make more money.
The remaining floor traders could use the break, because events at the NYSE have played out much as Mr. Niederauer predicted earlier this decade. Business dried up as investors began routing orders electronically, and hundreds of traders were forced to abandon the NYSE floor. The scene was so sad that last fall the exchange cut the size of its historic trading space in half to make the remaining brokers seem less lonely.
But it seems that Mr. Niederauer, who succeeded John Thain as the stock exchange's chief executive last November, has grasped a key fact of life about the NYSE's floor: It's his best marketing tool. At a time when exchanges around the world have shut down their animated floors and offer similar varieties of drab trading technology, the NYSE's trading floor is as much a draw for corporate leaders as a trip to Fenway Park or Wrigley Field is for baseball fans.
"What is the NYSE without the floor and the opening bell?" says Chris Concannon, executive vice president for U.S. transaction services at Nasdaq OMX Group Inc. "Without them, it's an electronic exchange, exactly like we are and the others they compete against. You quickly conclude that there's a branding element" to what Mr. Niederauer is doing.
An NYSE spokesman said Mr. Niederauer was unavailable for comment.
Marketing is something the NYSE understands better than most. To celebrate the listing of a mining company whose logo was a lion, former Chief Executive Richard Grasso brought a live lion to help ring the opening bell. Supermodel Gisele Bündchen appeared when a Brazilian brewery was listed. The stunts have been toned down, but corporate leaders remain eager to join the fun—and bask in the exchange's prestige.
"Ringing the opening bell and watching your stock trade on the floor below, that's the pinnacle of business success," says David Richter, president of Hill International Inc., a New Jersey construction management firm that switched its listing to the NYSE from Nasdaq earlier this year. "Nasdaq does a good job with its opening ceremony, but it's held in a TV studio."
High fees
The pomp and circumstance pays off big for the NYSE. Its 2,800 issues generated nearly $400 million in listing revenue last year, about 20% of the company's total and about 30% more than it produced five years ago. The exchange charges its blue-chip companies up to $500,000 a year to list their shares, or more than five times the top rate pocketed by Nasdaq. That doesn't mean companies can't get discounts. Mr. Richter says his firm is paying NYSE about the same listing fee as it paid Nasdaq.
The revenue is increasingly important because Nasdaq and other low-cost providers have seized significant trading business from NYSE, which used to handle more than 80% of trades in its listed securities but now has less than 40%. Most of the remaining trades are routed over the NYSE's computers; only 10% are sent to the floor.
That won't do for an exchange whose identity is tied to its floor. So in mid-June, Mr. Niederauer's staff unveiled rule changes to help traders who have been hurt by the automation he helped bring about.
The changes, which must be approved by the Securities and Exchange Commission, would let floor auctioneers called specialists trade a broader array of securities and enable them to trade when they please, rather than when the market needs their services. In return, specialists would lose some of their privileges to see orders before other traders.
"It's a big move that shows how committed the exchange is to producing a better floor business model," says Miranda Mizen, a senior consultant at the Tabb Group.
COMMENTS? AElstein@crainsnewyork.com |
