May the Best System Win
With the New York Stock Exchange planning to merge with Archipelago Holdings and Nasdaq announcing a deal to buy INET, both marketplaces have acquired rival electronic-trading technology platforms to compete in a global market. But, while Nasdaq definitively stated that it would integrate all trading onto the INET platform, the NYSE, with its 213-year-old tradition of auction trading, says it is not shifting its listed stock trading business over to Archipelago's ArcaEx electronic platform - at least for now.
During the conference call to announce the deal on April 20, John Thain, the NYSE's CEO and the co-architect of the deal, said that the NYSE's proposed Hybrid market and Archipelago's electronic matching system would operate independently. The NYSE is positioning Archipelago as a platform on which to venture into new products and other asset classes, such as options and fixed-income trading, according to Peter Kent, chief financial officer at Automated Trading Desk (ATD), a Mount Pleasant, S.C.-based brokerage firm.
"I think they look at the Arca platform as a growth vehicle," says Kent. "And then, when they can, they will look to make the transition from the floor to the electronic platform for their existing business," he predicts.
An NYSE spokesman emphasizes that there is no plan to migrate off the floor. "This is not our plan. We plan to let the customers choose how to access the market," he says. "There is no migration plan."
Still, Kent says, he believes the NYSE will maintain two separate platforms but that, sooner or later, it will move to combine them. However, in the NYSE's case, the move to electronic trading is fraught with political pitfalls, he warns, because under the exchange's current governance, its specialists and other seat holders have enormous control over the venue. Right now, Kent notes, Thain first needs to get approval for the acquisition from the exchange's seat holders. But once the deal is closed and the exchange becomes a public company, "some of the political nature goes away," he suggests.
The combined NYSE-Archipelago entity will trade over-the-counter and listed stocks, options and fixed-income securities. "They have a fairly strong foundation now to move into other asset classes, and that will put them on par with all the European exchanges out there," notes Sang Lee, managing partner of Boston-based Aite Group. "The question is, What happens to all of these different platforms," he says. One of the reasons the NYSE is holding onto parallel systems, Lee asserts, is that Archipelago isn't capable of handling the interaction with the specialist system.
However, the NYSE spokesman notes that Archipelago already interacts with the NYSE and other venues that make markets in NYSE-listed stocks. "In our Hybrid market, except for situations where there are significant swings in the market, our quotes will be automatically and instantaneously accessible."
Ivy is Editor-at-Large for Advanced Trading and Wall Street & Technology. Ivy is responsible for writing in-depth feature articles, daily blogs and news articles with a focus on automated trading in the capital markets. As an industry expert, Ivy has reported on a myriad ... View Full Bio
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