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NYSE : NYX

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New York Stock Exchange (NYSE) NYSE Arca (formerly Archipelago Exchange, Arca Ex) ... successful fully electronic stock exchange. Incorporates latest SEC order ... – PowerPoint PPT presentation

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Title: NYSE : NYX


1
NYSE Group BUY
NYSE NYX 81.30 David Rogal
2
  • Leading global multi-asset financial marketplace
  • New York Stock Exchange (NYSE)
  • NYSE Arca (formerly Archipelago Exchange, Arca
    Ex)
  • Leader in
  • Securities listings
  • Market-information products and services
  • Investment vehicles
  • Order execution services
  • 2672 Issuers
  • Global market value of 21 trillion

3
  • The Equity Trading Industry
  • Increasingly efficient exchange market
  • Long term, steady growth in trading volume
  • Heightened competition
  • Technological advancement
  • Globalization
  • Regulation
  • Massive expansion in spectrum of tradable
    securities
  • Derivatives

4
  • Formation of NYSE Group
  • NYSE Reverse Merger with Archipelago Holdings
    (AX)
  • Acquisition of a public company by a private
    company
  • Allows the private company to bypass the lengthy
    and complex process of going public
  • 1 share AX 1 share NYX
  • Bid up AX after merger announcement
  • Should preclude first day IPO Effect
  • Not the case
  • Market Psychology
  • Valuation Issues

5
Formation of NYSE Group
6
Archipelago
Merger Announced
7
  • Archipelago
  • Most successful fully electronic stock exchange
  • Incorporates latest SEC order-handling rules
  • Transparent marketplace, homogeneous information
  • State of the art technology Smartbook
  • Affords superior execution model
  • Speed Price
  • Jan 2004 - over 800 million shares traded / day
  • Extended trading hours (430 AM 800 PM)
  • Equities 8000
  • NYSE (2.9 volume)
  • NASQ (23.3 volume)
  • AMEX (27.7 volume)

8
  • Archipelago
  • Options (PacEx)
  • Bonds
  • ETFs
  • Now NYSE Arca
  • www.archipelago.com Traders page
  • Provides further details
  • Auction systems (opening closing)
  • Technology market-making

9
NYSE Before the Merger
NYSE
10
  • NYSE Before the Merger
  • Legacy face-to-face auction system
  • Specialists maintain order, bring buyers
    sellers together
  • Floor brokers
  • Steadily losing market share to electronic
    brokers since 1999
  • Facing extinction - SEC requirements for
    electronic routing
  • Largest equities market but lacking in other
    securities
  • Rigorous listing standards
  • Revenue

11
  • NYSE Before the Merger
  • Slower overall execution (only 11 trades
    through Direct)
  • Small orders with Direct
  • Less transparency, Less trader anonymity
  • Market quality
  • Reduced volatility compared to NASDAQ
  • Depth of liquidity
  • Best prices (Note for NYSE listed stocks)
  • 81 NYSE volume traded through NYSE
  • 1366 seats
  • 1 million/seat last year
  • 4 million/seat just before merger completed
  • Now 80,000 shares/seat 6 million/seat !

12
  • AX A Perfect Fit
  • Leader and innovator in fully electronic trading
  • Infinite headroom for automation
  • Robust technology
  • Modernized component for fighting NASDAQ,
    INET
  • Ideal vehicle for going public
  • Small overlap with NYSE trading volume (only
    2.9)
  • Chunk of NASDAQ trading volume (23.3)
  • Venue for emerging companies not yet up to NYSE
    standards
  • Increase IPO market share
  • Instant options access via Pacific Exchange

13
  • NYSE Scandals A Thing of the Past
  • Grasso - 140 million paycheck
  • Thain Straightlaced and rebuilding credibility
    with regulators
  • 4 million paycheck
  • Middlemen specialists stole 158 million
    from investors
  • NYSE paid 20 million for regular audits
  • Video cameras on the trading floor

14
  • Publicly Traded Exchanges Have Created SH Value
  • It pays to go public!
  • Chicago Mercantile Exchange (CME) - Dec, 2002
  • 800
  • Nasdaq (NDAQ) - Mid 2002
  • 200
  • International Securities Exchange (ISE) Mar,
    2005
  • 60
  • Chicago Board of Trade (BOT) Oct, 2005
  • Up slightly
  • London Stock Exchange (LSE.L) Late 2002
  • 150

15
  • Leadership
  • John Thain
  • Past President, Goldman Sachs (20 M/year)
  • Present CEO, NYSE Group (4 M/year)
  • Problem solver
  • Electrical engineer by training
  • Vision NYSE one-stop shop
  • Personal time horizon to get the job done 3
    years

16
  • The NYSE Group Hybrid System
  • Flexibility
  • Combines auction-based and electronic equities
    trading
  • Shrinks the role of the middleman
  • Specialists are available human judgment
  • For potentially superior execution price
  • For electronically-mediated market stabilization
    quality
  • ArcaEx NYSE Direct are available to those who
    desire speed
  • Still separate
  • Alternative platforms

17
  • The Hybrid System Longevity?
  • My personal opinion NO
  • Should you care? NO
  • Were the investors, not the trading specialists
  • Hybrid - transient appeasement to specialists
  • Result Middlemen will gradually fade away
  • However, some still believe in floor-folks
  • Buy volatile stocks
  • Prevents erratic plunges
  • Maintains liquidity
  • Keep markets liquid in less-traded stocks
  • Are above problems solvable via automation?
    ArcaEx?

18
  • The NYSE Group Emerging Global Powerhouse
  • Consolidation with European markets
  • London Stock Exchange?
  • Securities expansion
  • Global stocks
  • Futures
  • Options Structured Products
  • ETFs
  • Bonds
  • Arca Ex technology
  • Compete with electronic rivals like NASDAQ
  • NYSE Brand Listing Prestige
  • NYSE market quality (if hybrid prevails)

19
  • The NYSE Group Emerging Global Powerhouse
  • Meet the demand of almost any investor
  • Domestic and international competitor

20
  • Revenue Growth Diversification (see S-4)
  • Strengthen core market Cash Equity Trading
  • Enhanced listings platform
  • Expansion of market data products and services
  • Expansion in other product areas
  • International expansion
  • Strategic alliances and acquisitions
  • Cost reductions via synergies with ArcaEx

21
  • NYX Too Rich for the CIC?
  • Valuations?
  • P/E v. P/Book
  • Lofty within the sector due to popularity of
    electronic trading
  • Low P/B
  • Capitalize on asset base going forward? (ROA,
    ROE)

22
NYX Too Rich for the CIC?
23
  • Risks and Challenges
  • Near term downside is a very real possibility
  • Further acquisitions hurting short term share
    price
  • LSE bidding war with NASDAQ
  • Eurex, Euronext
  • Failure to realize growth, cost savings and
    synergies
  • Integration with AX
  • Implementation of hybrid market
  • Merger costs deplete cash which could initially
    impede growth
  • Competition
  • Difficulty in expanding into options/derivatives
    market
  • Stiff competition from CME, CMOT (acqn.
    required?)
  • Difficulty in expanding into bonds

24
  • Risks and Challenges
  • Secondary offering (owners selling not new
    shares)
  • If measured divestiture, should be benign
  • NASDAQ nabs LSE while NYSE is tied up
  • Would create a tough competitor
  • Global
  • Fully Automated
  • Unlikely if no bidding war
  • Recent bid (8 premium) rejected

25
  • However
  • Do not underestimate
  • Thains ambition
  • NYSE brand
  • AX technology
  • Try to resist immediate gratification
  • Long term, foreign exchange consolidation is an
    exceptionally good thing
  • Initial valuation confusion can be beneficial

26
  • Recommendation
  • 10 allocation
  • 2 year initial time horizon
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