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To: tcmay who wrote (143408)	9/13/2001 5:12:40 PM
From: GVTucker	Read Replies (1) \| Respond to of 186894

tcmay, RE: NYSE and NASDAQ, centralized vs decentralized First of all, NYSE-listed stocks are already pretty decentralized. It really wouldn't have been that difficult to resume trading right now if we wanted to. Trading wouldn't happen on the floor of the NYSE, but that wouldn't matter nearly as much as Mr. Grasso would like us to believe. Electronic books such as Instinet and Bloomberg Tradebook could handle the volume in the short run, assisted by the regional exchanges in Chicago, Philadelphia, and San Francisco. It would in essence be a NASDAQ-type market then, with 5 or 6 market makers. That's fine in the short run. In the longer run, I actually like having the NYSE system as a balance to the NASDAQ. We still aren't that far from 1987, when the NASDAQ melted down completely. Then, traders just didn't answer their phones, didn't honor their bids. In times of liquidity crisis, a market like the NASDAQ, where no one is obligated to provide liquidity, can have great difficulty and exacerbate panic. The NYSE specialists, while robber barons in normal times, are beacons of liquidity in crisis. In 1987 the specialist was the only thing that prevented the US capital market system from collapsing. Yes, I know that there have been reforms that make that situation less likely today on the NASDAQ. But the fact remains that the obligation isn't there for individual market makers. They will pull their bids if they have to. NYSE specialists cannot pull their bids, and 1987 serves as evidence that they won't even in the worst of times. I am reminded of the presentation that Long Term Capital Management gave when they were in their heyday. I asked them what would happen if liquidity dried up in one of their instruments that would prevent trading in some of their securities. I was told that liquidity wouldn't disappear completely, because they were trading government bonds, not common stocks. The combination of the NYSE and the NASDAQ is a great combination for liquidity and efficiency. Perhaps that will change in the future, but until then, the anachronism of a centralized exchange still serves a significant purpose. I do think that we need to get over the feeling that NYSE stocks cannot trade anywhere else, but that is a minor detail.