Within the first several days since the December 20 proposed merger announcement between NYSE Euronext and IntercontinentalExchange (ICE), there has been no shortage of public responses, comments and of course, a lawsuit opposing the deal (filed last Friday by the New Jersey Carpenters Pension Fund).
For those following this deal, today’s WSJ column by Jason Bunge profiles the mindset of ICE CEO Jeffrey Sprecher, and it speaks volumes. It also raises concerns on the part of Wall Street’s biggest firms, who, along with exchanges, reap tens of millions of dollars in fees that more than a few consider to be wrought with conflict, and are necessarily loathe to put the genie back in the bottle.
Here are some poignant extracts from today’s WSJ piece:
The chief executive and chairman of IntercontinentalExchange Inc., which last week unveiled plans to buy NYSE Euronext NYX +0.32% for $8.2 billion, isn’t steeped in the business of equities trading. But he has plenty to say about it, including some views that challenge the prevailing wisdom and business models of many securities-trading firms.
The 57-year-old, who started IntercontinentalExchange 12 years ago after a career in the electric-power industry, opposes paying incentives to lure big traders onto stock exchanges, a widespread practice that exchange officials say is necessary to keep their markets in motion. Mr. Sprecher also objects to the dispersion of stock trading across scores of exchanges and private markets, a trend embraced by banks and trading firms that earn profits by trading shares away from exchanges.
Mr. Sprecher also has criticized the common practice by the NYSE and other U.S. stock exchanges of paying incentives to traders that are active buyers and sellers of securities. The exchanges say they pay such rebates to help ensure that there are traders to take the other side of orders placed by mutual funds or individual investors.
Paying these incentives has fostered a system that encourages some traders to heavily buy and sell without much concern for holding a given stock—making such traders more likely to abandon markets when conditions turn volatile, Mr. Sprecher said in Chicago last year.
Some industry executives are skeptical that Mr. Sprecher could change the practice, known as “maker-taker” pricing, even with the clout of the Big Board at his disposal. Doing away with it could require changes to many firms’ trading strategies, and an exchange could lose business as some customers shift to rival markets that still pay incentives.
Some of Mr. Sprecher’s views are consistent with those of the Big Board. Like NYSE executives, Mr. Sprecher has criticized the diffusion of stock-trading activity across scores of exchanges, brokerages and private “dark pool” markets, warning that the trend has damaged investor confidence in stock investing and played into catastrophes such as the “flash crash” of May 2010.
Traders say that the stock market is more convoluted and interconnected than the futures trading world Mr. Sprecher is used to, thanks largely to rule changes designed to boost competition among stock exchanges and brokers.
“The NYSE is a much different world, and it’s much more difficult to get any market-structure change done,” said Neil Catania, chief executive of MND Partners Inc., a brokerage firm on the floor of the NYSE. “But we need new thinking.”
The full article is available to WSJ online subscribers by clicking here