Exclusive outtakes from industry leaders
A bit grayer and world wearier, maybe, but there’s no mistaking the family resemblance between NYSE Chief Operating Office Larry Leibowitz and his kid brother Jon Stewart. Unlike the Daily Show host, Leibowitz mostly keeps a low profile, although he did find himself in the spotlight even before his appearance at the Reuters Global Exchanges and Trading Summit on Monday. The Wall Street Journal interviewed him in a story about the NYSE’s effort to turn some high frequency traders — who have been chipping away at the exchange’s business — into exchange floor traders.
Leibowitz may be sick of the Jon Stewart questions, but when pesky Reuters editors and journalists inevitably raised them, he answered them with relatively good humor.
“I know my mother’s pretty happy with both,” the NYSE’s resident electronic trading expert said when asked whether it was tough living in the shadow of the celebrated news comedian. Leibowitz allowed that it was hard to imagine two brothers who had chosen more different careers. At this point, they even have different last names, after Leibowitz’s younger brother adopted a stage name.
While Stewart hasn’t shied away from financial themes, especially in his much-hyped verbal smackdown with Jim Cramer, Leibowitz said his kid brother hasn’t been running to him to ask for advice, even when his show has tackled topics like short selling and high frequency trading. But he admitted that being an older sibling, ”I give it to him anyway sometimes.”
The Global Exchanges & Trading Summit takes place as lawmakers and regulators craft new rules to avoid a repeat of the financial crisis. The rising chorus for more transparency in capital markets could drive a host of new derivatives to exchanges and clearinghouses, propelling them out of the recession, but growing calls for a clampdown on speculation and automated trading could hit some of the world’s most powerful dealers and investors, undercutting the exchanges that rely on them. High-frequency trading is behind much of the spike in volumes over the last year, but as volatility drops from crisis-era highs, traders of all kinds are forced to reevaluate strategies, and exchanges are maneuvering to attract that business. A couple years after a period of blockbuster mergers, investors wonder whether the heavyweight exchange operators are angling for another round. Join us March 29-31 as we ask some of the biggest players in the industry to share their insights and outlook for the industry at the Reuters Global Exchanges and Trading Summit which will take place in New York, London, Hong Kong.
When 36-year old Madhu Kannan took over the reins at the Bombay Stock Exchange (BSE) earlier this year, he was faced with the task of turning around Asia’s oldest bourse, which had lost market share to tech-savvy new rivals.
Kannan, the youngest-ever CEO at the 134-year-old exchange, also had to gain acceptance from his employees in what had until then been a largely hierarchical firm.
NYSE Euronext says any new rule related to short selling should be similar to the old so-called bid test, a type of “uptick rule” that only allowed shorting at a price above the highest available bid.
Short selling is a trading practice some see as harmful to markets because it benefits from falling stocks.The SEC, which issued five rule recommendations last month, is now accepting public comment letters. CEO Duncan Niederauer, speaking at the 2009 Reuters Global Exchanges and Trading Summit in New York, says “We and most of our constituents think (the price test) should be applied all of the time, not just some of the time, So I don’t think our comment letter will talk about a circuit breaker concept.” In March, NYSE Euronext signed a joint letter with other top U.S. exchanges, including the Nasdaq Stock Market, urging the SEC to adopt a circuit breaker and a “modified uptick rule.
Nasdaq OMX Group, the transatlantic exchange operator, says it expects to work hard this year to try and lure new companies looking to list publicly even as competition among exchanges continues to rise.
President Magnus Bocker, speaking at the 2009 Reuters Exchanges and Trading Summit in New York on Tuesday, says “the IPO pipeline looks very interesting” especially for financial services firms where investors could see “both new startups but also some spinoffs from traditional banks and financial services companies.”
Never before have exchanges undergone the heavy trading volumes, severe volatility, and intense scrutiny brought on by the global market crisis that began in earnest last year. Emerging from a period of blockbuster mergers, the largest market operators have so far run with few problems as investors worldwide rushed to sell securities. While the volatility could mean a short-term trading bonanza, the industry is also keeping a close eye on politicians and regulators considering sweeping changes that could mean new restrictions on capital markets and its growing ranks of participants. Some exchanges could take advantage as over-the-counter products such as credit derivatives, demonized by some for their role in the crisis, are pushed on to transparent clearinghouses.
Meanwhile, traders have hung on as roller-coaster markets forced them to reevaluate and even abandon some long-held investment strategies. The growing prominence of computer-based high-frequency trading has driven volatility to record highs, and accounts for record trading volumes in U.S. stocks despite a recession that has toppled some of the biggest financial firms. With ever faster technology, dark pools and other alternative venues have proliferated and intensified pricing wars meant to attract investors, who are bruised by the selloff and sensitive to trading costs.
“Well insulated” China, though suffering from sharp drops in its own equities markets, doesn’t have the sense of crisis that exists in the U.S., says Philip Partnow, managing director of UBS Securities Ltd in Beijing. UBS, the first Western bank to assume management control of a domestic mainland brokerage, points out the fact that what’s hitting companies is not subprime-related securities gone bad.
“I think there’s nothing here we feel is toxid,” he told Reuters on Wednesday at the Reuters China Summit in Beijing. He goes on:
David Harris, the president and chief executive of CBOE’s relatively new stock exchange, says that in the race to New York, Chicago-based options traders will never beat out New York-based options traders looking to hedge the liquidity they just provided.
Harris, who bikes to work every day, uses an automotive analogy to make his point: “If my Ferrari and your Ferrari are here, but I have to run an extra hundred yards to jump in my car (before) I race to a point, and you’re literally standing right next to your car, I’m never going to win.”
Despite a widespread movement in the world of stock, options and commodities exchanges to replace floor traders and specialists with computers, that won’t be happening anytime soon with the floor of The Chicago Board of Options Exchange, says William Brodsky, its chairman and chief executive.
Brodsky (pictured at left with U.S. Treasury Secretary Hank Paulson) told the Reuters Exchanges and Trading Summit that the business the exchange does through floor brokers has been stable at about 4 percent in recent years even as total volume has grown.
Terry Duffy, the chairman of CME Group, which owns the world’s largest derivatives exchange, says he realizes the Merc can be an easy scapegoat at a time when food prices are soaring. When politicians start to talk about the evils of “speculators”, criticism of the main venue where they make their bets on wheat and other crops can’t be far behind.
But Duffy, a long-time livestock futures trader, told the Reuters Exchanges and Trading Summit that he’s used to the exchange being a “political football” and that this is far from the worst case of that happening.