Duncan: With right tools and products, people can add value to market
Thursday, May 31st, 2007Following up this morning’s post about Duncan Niederauer’s interview with CNN, here is a complete transcript of the interview. For links, see my notes at bottom.
CNN: This new trading has been called one of the most dramatic changes here at the New York Stock Exchange in its 215 years. Would you categorize it that way?
CNN: I think that’s right. I think, you know, technology has had a major impact on our lives, and our business. The Exchange is not immune to that, and I think the changes you’ve seen in the last three or four years here have been like no changes you’ve ever seen before.
CNN: It’s called hybrid, which means that it’s a little bit of this, a little bit of that, but it does seem to favor automation. Would you agree?
DLN: I think the market has been telling us we need to be more electronic, so we′ve responded to what the market’s asking for. At the same time, we′re now trying to strike the right balance between price discovery at the right prices, and responding to the need that everyone has for automation.
CNN: Okay, so can we talk about the attributes of automation? I mean, that is pretty much the story in all the other major Stock Exchanges in the world. What does complete automation bring?
DLN: I think complete automation brings us speed obviously, but I think we like to think that market quality is more than just about speed. I think what we’re trying to figure out is, while a lot of the market is interested in getting executed as fast as they can, what we’re really trying to balance is, does that always get you the best price? And it’s not clear to me that it does, so I think you′ll see us endeavoring to try to marry the two.
CNN: So is it true that an automated trade is something like 300 milliseconds, as opposed to say a normal person assisted trade would be nine seconds. The latter is quick, but not as quick as the computer.
DLN: I think, believe it or not, Sue, things have even gotten faster than that. A truly automated market will now talk in milliseconds of two or three milliseconds, and even our system, as quickly as it moves, which is about a hundred milliseconds now, is still deemed, believe it or not, to be slow.
CNN: So, what does the person bring? So that’s the other aspect of the hybrid. What does a trader here bring as a representative between the customer and the stock?
DLN: I think that’s what we’re working on actively right now. As you know, the floor has always been an integral part of our model, and we envision it being a critical element going forward as well. As we think about the need for automation and the need to respond to that, we recognize that that’s very important, but we believe that if we arm our folks on the floor, be they specialists or floor brokers, with the right tools and the right products, we think they can also participate and add value in the market place.
CNN: Speed is important, but computers can’t think.
DLN: Right. Computers can’t do it all. The markets would tell you that human intervention is very important, and I found it quite telling, when I spoke to our new European colleagues yesterday, that we were talking about this model that we’re trying to deploy here, and they said to a person, all four of the exchanges that are part of Euronext, if they had it to do over, they would have kept an element of their floor as well. So maybe we all got what we wished for, and we went a little too far too fast. I guess it remains to be seen.
CNN: And you’re a trader. You spent a lot of time on the trading desk. What does that bring to you in this, in your job at a very important time?
DLN: Well, hopefully that will help me. I think having been a practitioner puts me in a position to be of value here. And during my career as a trader, I worked in both the higher touch businesses and the lower touch businesses, and I think what we′re truly trying to do is try to figure out how to bring the best of both worlds together here as well. You can see our macro story is about being a multi-product global exchange where we′re clearly embracing technology. Closer to home it’s going to be about also embracing technology, but having that deploy itself or manifest itself by giving traders on the Floor here the right tools to be able to compete. And I think you can marry the high touch and the low touch quite successfully, and that’s what we′re trying to do.
CNN: So what do you see in the future? I realize that it’s something that is new, it’s novel, and none of us can accurately predict the future, but what do you see, to the best of your ability right now?
DLN: To the best of my ability, the floor will be here. I think a lot of people will continue to make the decision that it’s not for them any more, they’re going to want to continue to depart. And yet for every person who’s leaving the floor and deciding that it’s time to move on, I′ve got as many people sitting in my office saying, I′m here to stay, help me with the future, if you arm me with the right tools I believe I can continue to add value. Now, it goes without saying that that’s going to require a reinvention.
The exchange is in the process of reinventing itself, and the specialists and the floor brokers will also have to do the same. I’m very optimistic that if we give the right tools and the ability to do that, they can. The ones who want to will. And I think if you’re here three to five years from now you and I can have this same conversation from this spot.
CNN: I hope so. So would it be fair to say it’ll be a smaller, tighter floor? Because we′ve had one floor, one room close.
DLN: Yeah.
CNN: Is the Blue Room going to close, do you know or?
DLN: I think it’s hard to predict, because as I said, the decision that people make is an independent and personal decision. I see some people looking to hire people, I see other people looking to say, I think it’s the end of the road. I would be surprised if it doesn’t get smaller. I could see it over time getting smaller, but I think there’s going to be plenty of people to at least be in the Main Room, the room we’re in now, the Garage, and at least part of the Blue Room. So I think over time it gets smaller, but I’m a believer that it’s here to stay.
CNN: You know, one of the things that the average investor may not appreciate is the volatility. One of the things that the New York Stock Exchange prides itself on is an orderly market, going up or down. Is that something where you find that the traditional broker executed trade is important?
DLN: The evidence is quite clear really. The fully electronic markets have historically always been more volatile than a hybrid market, or a market that involves price discovery at the point of sale, et cetera. So with the advent of the hybrid, where we’re more and more automated, the volatility on many of the stocks has ticked up marginally, so we’re currently examining how to do that. Now to give confirmation that our model, despite what others might say, is working, we were just cited as the lowest cost venue to trade, when you measure the all in cost of trading, which takes into account transaction costs, volatility, all different kinds of measures, the New York Stock Exchange again was the lowest cost venue in the world.
CNN: And one of the things in reinventing the New York Stock Exchange, you mentioned all the traders, all the colleagues here that come to you and talk to you about the future, is that it’s not only stocks that will be traded here. Is that what you’re addressing?
DLN: As we’ve talked about, the macro message for NYSE Euronext is about multi-products and being global. So I think over time you′ll see us expand into more products and more regions. And what we’re saying to the folks who come and make their living here on the floor every day, particularly the broker community, if we have a lot of products under the NYSE Euronext umbrella, there’s no reason why you shouldn’t be able to trade all those products from here as an agency broker.
CNN: Do you think as a trader, like when you come on the floor that you can have all the same data upstairs, but when you come on the floor, there’s something about it that just gives you that additional gut instinct that a lot of trading pros say they need?
DLN: Yeah, I think that’s particularly true around the opening, around the close, and in moments where there’s news out, or there’s a dislocation in a stock, and what we’re working on is, because your point’s very true, how do you have that feeling during more parts of the day? But it’s absolutely true.
CNN: So your image of the future is that this trading floor is going to be vital. It’s not just some symbolic link to
the past?
DLN: It is, while it’s steeped in tradition, and we’re very respectful of that tradition, there’s a lot more to it than a tradition, and I think it’s going to continue to be a very important element of the market model we move forward.
RP note: I had also hoped to post links to the online versions of the report, but CNN.com is giving me fits as I try to scoop off working links. All I can do right now is give you this link to the main page, and you can look for two pieces under the VIDEO category on the middle left of the page:
1) “EXCLUSIVE: The future of the NYSE” — This is the full version of the Q&A with Duncan (currently the featured piece as I post this)
2) Use the Search Videos button to see “Traders floored by NYSE change,” the version of the story that ran on TV, including interviews with NYSE traders
Tags: New York Stock Exchange, Hybrid Market, NYSE, NYSE Euronext, NYX, trading, stock market
Original post by Bill Wrinn
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