The New York Stock Exchange’s merger with Archipelago and its impending IPO will have a significant impact on US equity trading market structure, says Harrell Smith, manager of the securities and investments practice at Celent, a Boston-based financial research firm.
Whereas the trading of listed stocks was traditionally dominated by NYSE, Reg NMS opens up the listed market to increased competition from a range of electronic execution venues, including Electronic Communication Networks (ECNs), alternative trading systems (ATS) and fully electronic exchanges, Smith says, and predicts the NYSE NYSE to lose market share in the trading of listed stocks, on the order of 15 – 20% over the next 18 months.
NYSE could certainly gain markets in over-the-counter (OTC) stocks via the firm’s new Arca platform. But the end result, in terms of overall trading volumes for NYSE, remains unclear. What is clear, however, is that the traditional open outcry, specialist model on which the NYSE has long relied will shortly come to an end. While this will not happen overnight, Smith expect to see NYSE close its trading floors completely within the next two years.
In the meantime, the hybrid system allows NYSE to comply with the provisions of Reg NMS while protecting the exchanges most lucrative source of revenues-fees charged to brokers for booth fees.
As a public company, Smith predicts the NYSE will face pressure to reduce costs and increase efficiencies, and explore new markets and asset classes.
He adds that the firm’s recently revamped options trading platform provides NYSE entree into one of the fastest growing markets in the world. The technology that NYSE has acquired will serve as the backbone for all future trading initiatives, as the global capital markets move steadily into the electronic medium.