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DealBook: NYSE Euronext to Take Over Libor

July 9, 2013 by Leave a Comment

Martin Wheatley, a British financial regulator, conducted a review of Libor that started the search for a new administrator.Carl Court/Agence France-Presse — Getty ImagesMartin Wheatley, a British financial regulator, conducted a review of Libor that started the search for a new administrator.

9:10 a.m. | Updated

The parent company of the New York Stock Exchange won a contract on Tuesday to administer and improve the controversial benchmark interest rate known as Libor.

The move could help provide a fresh start for the London interbank offered rate, which helps determine the cost of short-term loans around the world. The banks that help set the rate each day have been accused of conspiring to rig the rate for their own benefit before and during the financial crisis, leading to billions of dollars in fines and a few arrests.

NYSE Euronext announced on Tuesday morning that it planned to take over the administration of Libor early next year. Finbarr Hutcheson, the chief executive of NYSE Liffe, a NYSE Euronext subsidiary in London, said in a statement that his group was interested in “continuing the process of restoring credibility, trust and integrity in Libor as a key global benchmark.”

A new subsidiary, NYSE Euronext Rate Administration Ltd., “will be able to leverage NYSE Euronext’s trusted brand, long regulatory experience and market-leading technical ability to return confidence to the administration of Libor,” according to a statement from the company.

The decision comes just a few weeks after European regulators approved NYSE Euronext’s sale to IntercontinentalExchange, or ICE, an Atlanta-based operator of derivatives exchanges. NYSE Euronext has been trying to diversify its business beyond its traditional stock exchanges as stock trading volumes and revenues have fallen steadily.

Libor Explained

Until now, the daily process through which Libor is set has been run by the British Bankers’ Association, an industry group in London. A British government review of Libor led by Martin Wheatley, at the time the managing director of Britain’s Financial Services Authority, recommended last fall that the responsibility for formulating Libor should be given to an “independent party.”

NYSE Euronext beat other contenders, including the London Stock Exchange, said a person briefed on the process, who spoke on the condition of anonymity ahead of a public announcement.

The company was picked by an independent committee led by Sarah Hogg, chairwoman of the regulator responsible for financial reporting, after a tender process that started in February. The deal will still need to be approved by the Financial Conduct Authority, now led by Mr. Wheatley.

The so-called Wheatley Review recommended that Libor should continue to be set through daily consultations with the world’s largest banks. But while those banks now provide estimates of how much they are charging for short-term loans, in the future the administrators of Libor are also supposed to use data from actual short-term loans.

At least one regulator was critical of the selection of NYSE Euronext.

“We had a ‘fox guarding the henhouse’ issue here, and we should learn from that,” said Bart Chilton, a member of the Commodity Futures Trading Commission in the United States. “I firmly believe that having a truly neutral third party administrator would be the best alternative, and I’m not sure that an exchange is the proper choice.”

Julia Werdigier contributed reporting from London.

Article source: http://dealbook.nytimes.com/2013/07/09/nyse-euronext-to-take-over-libor/?partner=rss&emc=rss

Filed Under: Global Business Tagged With: , ,

Awaiting the Fed, Wall Street Rises

June 18, 2013 by Leave a Comment

In afternoon trading, the Standard Poor’s 500-stock index gained 0.8 percent, the Dow Jones industrial average rose 0.9 percent and the Nasdaq Composite added 0.9 percent.

With the Fed expected to maintain the current level of bond purchases, shares of industrial, technology and consumer discretionary companies rallied. General Electric gained 1.8 percent and was among the most actively traded stocks on the New York Stock Exchange.

Traders are trying to anticipate the Fed’s timeline for winding down purchases of $85 billion per month of bonds, known as quantitative easing, that have underpinned the S.P. 500’s rally to all-time highs in May.

The expectation is that the Fed will change its rhetoric on tapering to ease the “hysteria” in the markets since talk that a change may be coming sooner than expected caught fire in May, said Peter Kenny, chief market strategist at Knight Capital in Jersey City.

“The volatility is absolutely 100 percent tied to the confluence of themes, the two themes being quantitative easing on the one hand and improving economic data on the other hand, which supports the removing of quantitative easing,” said Mr. Kenny.

The rally halted after the Fed chairman, Ben S. Bernanke, said on May 22 the Fed could begin to reduce its stimulus in the “next few meetings” if the economy gains momentum and inflation remains moderate. Intraday swings by stock indexes have widened, although the S.P. 500 closed on Monday less than 1 percent below the May 22 close.

Data showed United States housing starts rose less than expected in May but the overall trend remained consistent with strength in the housing market, while consumer prices rose giving the deflation-wary Fed some respite.

The Fed’s policy won’t show major changes after the meeting, according to Todd Salamone, director of research at Schaeffer’s Investment Research in Cincinnati.

“They won’t do anything in this meeting and I think the data supports that,” Mr. Salamone said. “We remain in a holding pattern until the policy statement is released” on Wednesday afternoon.

Boeing introduced a larger version of its flagship Dreamliner aircraft at the Paris Airshow on Tuesday, sharpening the battle with rival Airbus in the market for fuel-efficient, long-distance jets. Boeing shares were up 0.7 percent.

United States-traded shares of Sony rose 3.2 percent as a hedge fund, Third Point, said it has raised its stake in the company and urged its leadership to create an independent board to run a partially spun-off entertainment arm.

Shares of Hormel Foods, the meat processor, fell 4.6 percent after the company cut its full-year outlook.

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After a calmer session for Asian markets, European shares recovered from an early dip. The FTSEurofirst 300 index ended the session down 0.1 percent.

The pickup in European shares was aided by a rise in investor sentiment in Germany, suggesting Europe’s largest economy is on the slow road to recovery, but it was only a brief distraction ahead of the Fed.

Benchmark crude was slightly higher, up 25 cents to $98.02 a barrel.

Article source: http://www.nytimes.com/2013/06/19/business/daily-stock-market-activity.html?partner=rss&emc=rss

Filed Under: Economy News Tagged With: , ,

Bucks: Why E.T.F.’s Won’t Solve Our Behavioral Problems

April 15, 2013 by Leave a Comment

Carl Richards is a certified financial planner in Park City, Utah, and is the director of investor education at The BAM Alliance. His book, “The Behavior Gap,” was published this year. His sketches are archived on the Bucks blog.

It’s tempting to think that the next new investment product is the solution to our behavioral problems. So it’s no surprise that I’m getting this question a lot: Do I need to invest in exchange-traded funds?

The fact that lots of people are confused about what E.T.F.’s are — they’re essentially index funds that trade on an exchange like stocks — and why investors might want them is no surprise. To add to the confusion, last week CNBC announced it was planning to design and offer its own E.T.F.’s. Seriously? Their announcement about the benefits of E.T.F.’s offers a great example of why people are so confused.

Here are some of the advantages CNBC cited:

1) E.T.F.’s offer diversification.

Sure they do, but this is nothing new or unique to exchange-traded funds. Traditional mutual funds were invented to offer diversification. Sure, you can now trade an E.T.F. that invests in only sugar. There’s also an E.T.F. for those “long-term investors” who want exposure to the inverse price of silver with a whole bunch of leverage. Is this what we’re talking about when we say E.T.F.’s offer diversification? In fact, there are more mutual funds to choose from than the number of stocks listed on the Nasdaq and New York Stock Exchange combined.

2) E.T.F.’s are low cost.

It’s true that some E.T.F.’s are an additional, low-cost alternative to index funds. Plus, you might be able to argue that the added competition from exchange-traded funds has driven down the cost of mutual funds. Remember, however, that there are also some very expensive E.T.F.’s and some extremely cheap mutual funds.

3) E.T.F.’s allow intraday trading.

Stop and think about that one for a minute. If you’re investing for the long term, why do you care if you can trade your investment every hour, minute and second of the day? The benefit of intraday trading only matters if you’re an active trader. And if you are, E.T.F.’s will just let you cut your own fingers off that much faster.

4) E.T.F.’s allow your adviser to place you in the right fund at the right time.

This is code for something that virtually no one can successfully do: time the market. Claiming that exchange-traded funds allow an adviser to add value by placing a client in the right fund at the right time is not only wrong, it’s dangerous. Any adviser who claims to be able to time the market is an adviser you should run from. Advisers are valuable if they can help you avoid the costly behavioral mistakes we all tend to make, not because they claim to be able to outperform the market.

All the hype about E.T.F.’s is just throwing more fuel on the behavioral fire (see intraday trading, market timing). Ultimately, E.T.F.’s are just another tool that should be evaluated alongside all of the other tools available to help you reach your goals. To be clear, I’m not saying that all E.T.F.’s are bad. What I am saying is E.T.F.’s alone won’t solve our most vexing investing problem: our own behavior. In fact, they might just make it easier to behave badly.

For most long-term investors, exchange-traded funds don’t offer significantly different benefits over other low-cost funds. So my answer to the E.T.F. question is pretty simple: just because everyone else is doing it, doesn’t mean you should.

Article source: http://bucks.blogs.nytimes.com/2013/04/15/why-e-t-f-s-wont-solve-our-behavioral-problems/?partner=rss&emc=rss

Filed Under: Your Money Tagged With: , ,

Bucks Blog: Why E.T.F.’s Won’t Solve Our Behavioral Problems

April 15, 2013 by Leave a Comment

Carl Richards is a certified financial planner in Park City, Utah, and is the director of investor education at The BAM Alliance. His book, “The Behavior Gap,” was published this year. His sketches are archived on the Bucks blog.

It’s tempting to think that the next new investment product is the solution to our behavioral problems. So it’s no surprise that I’m getting this question a lot: Do I need to invest in exchange-traded funds?

The fact that lots of people are confused about what E.T.F.’s are — they’re essentially index funds that trade on an exchange like stocks — and why investors might want them is no surprise. To add to the confusion, last week CNBC announced it was planning to design and offer its own E.T.F.’s. Seriously? Their announcement about the benefits of E.T.F.’s offers a great example of why people are so confused.

Here are some of the advantages CNBC cited:

1) E.T.F.’s offer diversification.

Sure they do, but this is nothing new or unique to exchange-traded funds. Traditional mutual funds were invented to offer diversification. Sure, you can now trade an E.T.F. that invests in only sugar. There’s also an E.T.F. for those “long-term investors” who want exposure to the inverse price of silver with a whole bunch of leverage. Is this what we’re talking about when we say E.T.F.’s offer diversification? In fact, there are more mutual funds to choose from than the number of stocks listed on the Nasdaq and New York Stock Exchange combined.

2) E.T.F.’s are low cost.

It’s true that some E.T.F.’s are an additional, low-cost alternative to index funds. Plus, you might be able to argue that the added competition from exchange-traded funds has driven down the cost of mutual funds. Remember, however, that there are also some very expensive E.T.F.’s and some extremely cheap mutual funds.

3) E.T.F.’s allow intraday trading.

Stop and think about that one for a minute. If you’re investing for the long term, why do you care if you can trade your investment every hour, minute and second of the day? The benefit of intraday trading only matters if you’re an active trader. And if you are, E.T.F.’s will just let you cut your own fingers off that much faster.

4) E.T.F.’s allow your adviser to place you in the right fund at the right time.

This is code for something that virtually no one can successfully do: time the market. Claiming that exchange-traded funds allow an adviser to add value by placing a client in the right fund at the right time is not only wrong, it’s dangerous. Any adviser who claims to be able to time the market is an adviser you should run from. Advisers are valuable if they can help you avoid the costly behavioral mistakes we all tend to make, not because they claim to be able to outperform the market.

All the hype about E.T.F.’s is just throwing more fuel on the behavioral fire (see intraday trading, market timing). Ultimately, E.T.F.’s are just another tool that should be evaluated alongside all of the other tools available to help you reach your goals. To be clear, I’m not saying that all E.T.F.’s are bad. What I am saying is E.T.F.’s alone won’t solve our most vexing investing problem: our own behavior. In fact, they might just make it easier to behave badly.

For most long-term investors, exchange-traded funds don’t offer significantly different benefits over other low-cost funds. So my answer to the E.T.F. question is pretty simple: just because everyone else is doing it, doesn’t mean you should.

Article source: http://bucks.blogs.nytimes.com/2013/04/15/why-e-t-f-s-wont-solve-our-behavioral-problems/?partner=rss&emc=rss

Filed Under: Your Money Tagged With: , ,

U.S. Markets Edge Back From Recent Rally

February 12, 2013 by Leave a Comment

The stock market drifted lower in thin trading on Monday, pulling the Standard Poor’s 500-stock index back from a five-year high.

With little in the way of market-moving news, the S. P. 500 slipped 0.92 of a point to close at 1,517.01. Last week, the broad-market index edged up slightly to its highest level since November 2007.

Seven of the 10 industry groups within the S. P. 500 dropped.

Now, with major indexes near record highs, many think the stock market’s six-week rally is ready for a pause.

“The consensus seems to be that we’re due for a correction,” said Brian Gendreau, market strategist at the Cetera Financial Group. “If you compound the increase we’ve had so far, this year would be the best year ever for stocks. And nobody thinks that that’s going to happen.”

The best year ever for stocks? For the S. P. 500 index that was 1933, when the index rebounded 46 percent in the middle of the Great Depression.

Among other stock indexes on Monday, the Dow Jones industrial average dropped 21.73 points to 13,971.24. The UnitedHealth Group led the Dow lower, losing 62 cents to $57.12.

The Nasdaq composite fell 1.87 points to 3,192.00.

Trading volume was light, with 2.6 billion shares trading on the New York Stock Exchange. That stands in contrast to a two-month moving average of 3.4 billion.

Solid earnings reports have helped feed the rally in recent weeks. Of the 342 companies in the S. P. index that reported results through last week, two out of every three have beaten Wall Street’s earnings estimates, according to research from Goldman Sachs.

Mr. Gendreau gave three reasons he believed that stocks still had room to run. Even after the market’s recent surge, he said, the typical stock looks fairly priced when compared to underlying earnings. Corporations keep finding ways to increase profits, which helps push stock prices higher. And Americans looking for places to put their savings have few attractive alternatives.

“I’ll go out on a limb and say that I think earnings growth, attractive valuations and pent-up demand will add up to a fairly strong year for equities,” Mr. Gendreau said.

Apple’s stock gained $4.95, to $479.93, after The New York Times reported that the technology giant was developing a wristwatchlike device — in essence a smart watch — that would run the same operating system used for iPhones and iPads.

The stock market raced to a stunning start this year. The Dow and the S. P. 500 have already gained more than 6 percent for the year. The Nasdaq is up 5.7 percent.

Among the companies in the news on Monday, the Danish drug maker Novo Nordisk dropped 14 percent after the Food and Drug Administration refused to approve the company’s proposed diabetes treatments until it received more data, which the drug maker said it could not supply this year. Novo Nordisk’s depositary receipts lost $26.89, to $165.40.

Loews fell 34 cents, to $43.51, after it reported on Monday that it lost $32 million in its fourth quarter, hurt by insurance losses from Hurricane Sandy and sliding prices for natural gas. Loews, a holding company with dealings in insurance, oil and gas and hotels, is largely controlled by the Tisch family of New York.

Carnival, the cruise-ship operator, slipped 29 cents to $38.72 after an engine room fire over the weekend left its cruise ship Triumph stranded in the Gulf of Mexico.

In the bond market, interest rates showed little change. The price of the 10-year Treasury note fell 4/32, to 97, while its yield rose to 1.96 percent, from 1.95 percent late Friday.

Article source: http://www.nytimes.com/2013/02/12/business/daily-stock-market-activity.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: , ,

In New Year, Errors Mount at High-Speed Exchanges

January 11, 2013 by Leave a Comment

The latest example came Wednesday night when the nation’s third-largest stock exchange operator, BATS Global Markets, alerted its customers that a programming mistake had caused about 435,000 trades to be executed at the wrong price over the last four years, costing traders $420,000.

A day earlier, the trading software used by the National Stock Exchange stopped functioning properly for nearly an hour, forcing other exchanges to divert trades around it. The New York Stock Exchange, the nation’s largest exchange, has had two similar, though shorter-lived, breakdowns since Christmas and two separate problems with its data reporting system. And traders were left in the dark on Jan. 3 after the reporting system for stocks listed on the Nasdaq exchange, the second-biggest exchange, broke down for nearly 15 minutes.

The stream of errors has occurred despite the spotlight on the exchanges since a programming mishap nearly derailed Facebook’s initial public offering on Nasdaq last May and BATS’s fumbling of its own I.P.O. two months earlier. At the end of 2012, a number of exchange executives said they were increasing efforts to reduce the problems. But market data expert Eric Hunsader said that the technology problems have become, if anything, more frequent in recent weeks.

Matt Samelson, the founder of the industry consultancy Woodbine Associates, said, “Now that the world is watching, everyone is trying to be more rigorous. Their increased rigor is not yielding the benefits they hoped.”

Joe Ratterman, the chief executive of BATS, said Thursday that he viewed the firm’s announcement this week as a sign of markets that were functioning well, given his firm’s ability to find a problem that he called an “extreme edge-case scenario.”

“We discovered this problem and reported it — it’s a positive thing,” Mr. Ratterman said. “It’s being covered as if it’s a negative issue, and a continuation of a series of problems.

“Call me an optimist, but I see positive indications of the markets moving forward,” he said.

Regulators and traders have said that malfunctions are inevitable in any complex computer system. But many of these same people say that such problems were less frequent before the nation’s stock exchanges were thrown into a technological arms race in the middle of the last decade as a host of upstart exchanges like BATS challenged incumbents like the New York Stock Exchange.

The nation’s 13 public stock exchanges now compete fiercely to offer the latest, fastest and most sophisticated trading software, in part to appeal to the high-speed trading firms that have come to account for over half of all stock trading. With each tweak comes a new opportunity for a mistake to be inserted into the system.

“The rate of change is getting so rapid that the quality assurance process isn’t as robust as it should be,” said George Simon, a partner at Foley Lardner who used to work at the Securities and Exchange Commission, which oversees the nation’s stock markets. “This has been something that has been brewing now for five years, and it keeps getting worse.”

Mr. Simon said that in less fragmented and complex markets, technology problems had been less common.

The market malfunctions have been assigned part of the blame for the diminishing amount of trading happening on the nation’s stock exchanges. The total volume of daily trading was down 17.6 percent in 2012 from 2011, according to Rosenblatt Securities.

Mr. Samelson of Woodbine Associates said the problems had long rattled retail investors, but they were becoming increasingly worrying for big institutional investors as well. While he was talking about the BATS mishap on Thursday, he received a text message from one big investor who said, “as if we didn’t have enough bad news.”

The problem reported by BATS was different from many other recent problems because it did not halt trading. Instead, the programming error meant some trades were not executed at the best price, as exchanges are required to do by law.

Only a small category of very complex trades were executed at the wrong prices, all of them coming from investors trying to do a so-called short sale of stocks. The 435,000 erroneous trades were only 0.003 percent of all trades over the last four years, according to Mr. Ratterman.

“This is so hard to identify that no customer ever identified it,” Mr. Ratterman said.

Mr. Ratterman said that 119 member firms lost money. He said he was not yet sure if BATS would compensate its members for their losses. BATS informed the members and the S.E.C. of the problem on Wednesday night, after discovering it on Friday.

The S.E.C. was not previously aware of the problem, but the enforcement division is already reviewing the issue, according to people with knowledge of the review who spoke on the condition of anonymity.

S.E.C. officials have acknowledged that they do not have adequate tools to properly police the high-speed, highly fragmented stock markets. But the agency has started several initiatives to catch up. Last year, the agency purchased software from a high-frequency trading firm that will give regulators a real-time window into the markets.

The agency has also been considering a rule that would force exchanges to submit their technology for regulatory review, something that some exchanges currently do voluntarily. At recent hearings called to examine the automation of the markets, members of the industry have supported other reforms to strengthen the system, like kill switches that would automatically stop errant trading.

Mr. Ratterman said regulators could make small changes to rules that would simplify the market infrastructure and make it less prone to mishaps.

But executives at some other exchanges have said that more sweeping changes are necessary. At a hearing in December, Joe Mecane, an executive at the New York Stock Exchange’s parent company, said that “technology and our market structure have created unnecessary complexity and mistrust of markets.”

Amy Butte Liebowitz, the former chief financial officer at the exchange, said that “you are only going to see more and more of this until someone says, ‘I’m not going to put up with this level of errors.’ ”

Article source: http://www.nytimes.com/2013/01/11/business/in-new-year-errors-mount-at-high-speed-exchanges.html?partner=rss&emc=rss

Filed Under: Economy News Tagged With: , ,

Markets Swing in Tune With Fiscal Crisis Developments

December 27, 2012 by Leave a Comment

Stocks fell for a fourth day on Thursday, but recovered most of their losses after the House, in the barest sign of progress, said it would come back to work on the fiscal crisis this weekend.

It was a ragged session for stocks, with shares falling more than 1 percent after the Senate majority leader, Harry Reid, warned that a deal was unlikely before the deadline, only to rebound on news that the House would reconvene Sunday, a day before the Dec. 31 deadline when tax increases and federal spending cuts would be mandated.

“There’s no conviction in the move or the overall market, based on the across-the-board reduction we’ve seen in volume,” said Joseph Cangemi, managing director at ConvergEx Group, in New York. “But there will be continued weakness until there’s sustained positive direction coming from our leaders.”

The market has been prone to quick reactions to headlines and those moves have sometimes seemed more pronounced because of reduced trading volume. About 5.12 billion shares changed hands on the New York Stock Exchange, the Nasdaq and the NYSE MKT, formerly known as NYSE Amex, well below the daily average this year of about 6.48 billion shares.

Investors are looking for any hint that lawmakers will avert the $600 billion in tax increase and spending cuts that are scheduled to take effect next week and that could push the nation’s economy into recession.

“Markets turned around in a heartbeat, as the House session is the first announcement of anything getting done,” said Randy Bateman, chief investment officer of Huntington Asset Management, in Columbus, Ohio, which oversees $14.5 billion in assets. “I’m not convinced it will result in a deal, but you could get enough concessions by both parties to at least avoid the immediacy of going over the cliff.”

In a sign of the anxiety, the CBOE Volatility Index, or VIX, rose above 20 for the first time since July, suggesting rising worries, but ended down 0.4 percent as the stock market rebounded.

Stocks in the materials and the financial sectors, which are more vulnerable to the economy’s performance, bore the brunt of the selling before recovering. Shares of Bank of America fell 0.6 percent to $11.47 while Freeport-McMoRan Copper Gold fell 0.7 percent to $33.68.

Some of 2012’s biggest gainers bucked the broader trend and rallied, a sign of year-end “window dressing.” Expedia, the online travel agency, was the top percentage gainer in the Standard Poor’s 500-stock index, climbing 4.1 percent to $60.30. The price of its stock has doubled this year.

The Dow Jones industrial average slipped 18.28 points, or 0.14 percent, to 13,096.31 at the close. The S. P. declined 1.73 points, or 0.12 percent, to 1,418.10. The Nasdaq composite index fell 4.25 points, or 0.14 percent, to close at 2,985.91.

The Marvell Technology Group, the chip maker, fell 3.5 percent to $7.14 after it said it would seek to overturn a jury’s finding of patent infringement. The stock fell more than 10 percent in the previous session after a jury found that Marvell had infringed patents held by Carnegie Mellon University and ordered the company to pay $1.17 billion in damages.

The four-day decline was the S. P. 500’s longest losing streak in three months. The index has lost 1.8 percent over the period as investors grappled with the possibility that a budget deal might not be reached until next year.

President Obama arrived back in Washington from Hawaii to restart stalled negotiations with Congress. The House speaker, John A. Boehner, and other Republican leaders were to hold a conference call with other Republican lawmakers. The expectation was that lawmakers would be told to get back to Washington quickly if the Senate passed a bill.

The Treasury secretary, Timothy F. Geithner, announced the first of a series of measures that should push back the date when the federal government would hit its legal borrowing authority, a limit known as the debt ceiling, by about two months.

Economic data seemed to confirm worries about the impact of the budget impasse on the economy.

The Conference Board, an industry group, said its index of consumer confidence in December fell to 65.1 as the budget crisis restrained growing optimism about the economy. The gauge fell more than expected from 71.5 in November.

Interest rates were lower. The Treasury’s benchmark 10-year note rose 5/32, to 99 1/32 and the yield fell to 1.73 percent from 1.75 percent late Wednesday.

Article source: http://www.nytimes.com/2012/12/28/business/daily-stock-market-activity.html?partner=rss&emc=rss

Filed Under: Economy News Tagged With: , ,

DealBook: At the Big Board, Seeking Rejuvenation in Consolidation

December 21, 2012 by Leave a Comment

The New York Stock Exchange on Thursday.Richard Drew/Associated PressThe New York Stock Exchange on Thursday.

When the chief executive of IntercontinentalExchange approached his counterpart at NYSE Euronext about a merger in late September, they quickly came to terms, hashing out a deal in only three months.

The union just made sense.

NYSE Euronext, the owner of the New York Stock Exchange, facing a slowdown in its core equities trading business, was mulling a number of options after a deal with the German exchange fell apart last year. IntercontinentalExchange, an upstart in the high-growth derivatives market, had long sought both an international platform and a way to expand its footprint in futures trading, having lost a bidding war for a London exchange.

They both got what they wanted.

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On Thursday, IntercontinentalExchange, or ICE, said that it would pay $8.2 billion for NYSE Euronext, creating an imposing trans-Atlantic giant in stocks, derivatives and commodities trading. The deal revives a stalled push for consolidation among market operators at a time when bigger is not only better but necessary.

“It’s about the things that don’t happen,” Duncan Niederauer, NYSE Euronext’s chief, said in an interview on Thursday. “It’s good that we kept the door open. We always thought that this was a good partnership.”

NYSE Euronext has eyed a deal with its younger rival for a while.

In internal discussions with his board three years ago, Mr. Niederauer noted that ICE would complement its core businesses and help the company gain scale. He contended that marrying his slow-growing stock trading business with ICE’s enormously profitable commodities markets would rejuvenate NYSE Euronext.

It would also benefit the crown jewel of NYSE’s portfolio, Liffe, a London-based futures exchange. By teaming up with ICE, the company would add a much-needed platform to settle customer trades. In essence, NYSE would have a one-stop shop for trading and clearing futures.

The merger also seemed unlikely to invoke the ire of antitrust regulators, unlike a deal with a top rival in equities like the Nasdaq OMX Group. NYSE Euronext and ICE have very little overlap in their main businesses.

Last year, NYSE Euronext tried to strike a deal with the German exchange, hoping to create one of the world’s biggest derivatives exchanges. The threat of that was enough to drive ICE’s chief, Jeffrey Sprecher, to partner with Nasdaq on a hostile $11 billion bid for NYSE Euronext.

During that time, Mr. Sprecher — by his own reckoning — criticized the parent of the New York Stock Exchange in as many ways as he could. NYSE Euronext’s board, he said, was “the only obstacle” preventing shareholders from getting a good deal. But the ICE chief said on Tuesday that he had refrained from personal attacks, given his long and friendly relations with Mr. Niederauer.

When the Justice Department blocked the hostile bid on antitrust grounds, Mr. Sprecher wondered whether he had severed their friendship. But several weeks later, after one of ICE’s quarterly earnings presentations with analysts, he received a quick e-mail from Mr. Niederauer. It simply read: Good call.

“It was a magnanimous gesture,” Mr. Sprecher said on Thursday.

Soon, the NYSE Euronext found itself in a bind. European regulators squashed the deal with the German exchange in February, leaving NYSE scrambling to find another solution to its growth problems.

The NYSE Euronext had lost a year in creating a clearing platform for Liffe, putting those efforts aside as it focused on the German merger. And investors continued to lose faith in the company. At a market value of $5.6 billion in June, NYSE Euronext seemed to have little of value but its London unit.

The board considered multiple options, including buying and selling assets. NYSE Euronext joined the bidding for the London Metal Exchange, but dropped out of the race early as the potential price rose. ICE also took a run at the London market, ultimately losing to the Hong Kong Exchange’s $2.1 billion bid.

NYSE and ICE went back to the drawing board. In late September, Mr. Sprecher approached Mr. Niederauer, and the two companies found themselves in alignment on several issues.

Mr. Sprecher indicated that he was willing to maintain two headquarters, ICE’s home in Atlanta and the Big Board’s center in New York City. He hoped the move would help allay concerns from people like Senator Charles E. Schumer of New York, who had warned that the N.Y.S.E. name had to come first in the deal for the German exchange.

The two sides struck a separate agreement in which Liffe would use ICE’s clearing services by next June, even if the merger fell apart. Mr. Sprecher will also weigh a spinoff of NYSE’s European stock markets in an effort to shed nonessential businesses that come with a tangle of national regulators.

During the talks, Mr. Niederauer showed little hesitation in the revamped management structure. When the deal closes, he will be ICE’s president and will report to Mr. Sprecher.
ICE offered a generous premium for NYSE Euronext from the start, according to people briefed on the matter. Eventually, the company sweetened the terms to $33.12 per share in stock and cash. The two sides also calculated $450 million in cost savings in the second year after the deal closes. While Mr. Niederauer met with officials from the CME Group several weeks ago, no rival proposal emerged, some of the people briefed on the matter said. By that point, most of the terms of the deal with ICE had been ironed out.

People involved in the talks said that one date — Dec. 20 — had been circled on Mr. Niederauer’s calendar. The NYSE chief had a longstanding appointment to meet with European regulators the day before, and wanted to have a done deal to present alongside Mr. Sprecher when he met with them.

With NYSE’s board having discussed the transaction at length in meetings last week and on Monday, the two men flew to Europe to make their presentation. They returned to New York City after midnight on Thursday to unveil the deal — one that ultimately reflected the diminished position of the once powerhouse market.

“Let me be clear that this combination — while friendly and strategic — is an acquisition, not a merger of equals,” Mr. Niederauer wrote in an internal memo to NYSE employees on Thursday. “We’ve built a stronger company, with a great brand and a bright future.”

Article source: http://dealbook.nytimes.com/2012/12/20/at-the-big-board-seeking-rejuvenation-in-consolidation/?partner=rss&emc=rss

Filed Under: Global Business Tagged With: , ,

ICE Deal for N.Y.S.E. Creates Global Powerhouse

December 20, 2012 by Leave a Comment

Today the New York Stock Exchange building at Broad and Wall Streets in Lower Manhattan is not much more than a television studio. Soon it seems likely that it will not even be owned by a New York company.

The owner of the exchange, NYSE Euronext, agreed on Thursday to be acquired by IntercontinentalExchange, an Atlanta-based upstart that has prospered by trading derivatives over the Internet, for $8.2 billion in cash and stock.

The transformation of the New York Stock Exchange from its position at the apex of the world financial system to an asset to be bought and sold like any other — and one that is not deemed to be worth as much as it would be if it traded more modern derivative securities rather than old-fashioned stocks — has been going on for decades, but has accelerated in recent years.

Along the way the exchange lost its pre-eminent market position to newer competitors, gave up most of its regulatory responsibilities, and stopped being owned by the brokers who traded there.

An institution that began as an attempt to limit competition prospered most when it was able to exert monopoly control. Its power and authority withered as regulators and changing technology forced it to compete.

The exchange traces its history to the Buttonwood Agreement in 1792 — an agreement that was nothing more than an effort to fix the commissions that brokers charged their customers at a quarter of 1 percent, or $2.50 on a $1,000 bond. In the beginning, there was just one stock, the Bank of New York, and a handful of bonds that were traded.

The buttonwood tree — actually a sycamore — under which the agreement was signed lasted until 1865, long after the exchange moved indoors.

By the 20th century, the exchange had established its pre-eminent role. There were exchanges in other cities, but important companies were listed in, and traded in, New York.

The brokers who were “members” of the exchange agreed they would not trade any stock listed on the Big Board anywhere except on that exchange. In practice, that meant there was no competition. If you wanted to buy or sell shares in ATT or General Motors, the trade would take place at 18 Broad Street, in the 1903 edifice designed by George B. Post. The huge sculptures on the pediment were titled “Integrity Protecting the Works of Man.”

Commissions were fixed, just as they had been in 1792.

The exchange was virtually unregulated until the 1930s, and for decades after that it was a “self-regulatory” organization that monitored and supervised its own trading under the sometimes cursory supervision of the Securities and Exchange Commission. The Big Board cultivated a high-class image, in which only the best companies were allowed listings. The reality did not always match the image, but a N.Y.S.E. listing became a symbol of quality that reassured investors around the world.

The monopoly began to break down in the 1960s, as brokers who were not members of the exchange found ways to use computers to trade shares listed on the exchange for less than the Big Board charged. A pioneer in that business was Bernard L. Madoff, who would go on to infamy many years later as the creator of the largest Ponzi scheme in history.

Then the government banned fixed commissions, and the exchange was forced to allow its members to trade N.Y.S.E.-listed securities anywhere. It lost market share, but remained the dominant marketplace, the one that set the price of any security it traded. If the N.Y.S.E. halted trading in a stock, so did every other exchange. Without price discovery within the walls of 18 Broad Street, no one could be sure what market prices were.

But the financial world was changing, and the Big Board was not keeping up. Options on stocks began trading in the early 1970s. The Big Board could have dominated that market, but instead it sniffed at it and the market became centered in Chicago, where commodity exchanges had long existed, trading wheat and corn contracts. As financial futures were created, on things like currency values and interest rates, they too were traded in Chicago.

Within the world of stocks, more and more exchanges moved to computers. The N.Y.S.E. moved as well, but it tried to maintain the dominance of its members, particularly the specialists who were required to always be ready to buy or sell any stock listed on the exchange. It found it hard to keep up with competitors in speed or cost. Competitors did not have to finance their own regulatory apparatus, and the Big Board decided to follow, merging N.Y.S.E. Regulation into Nasdaq’s operation to create Finra, the Financial Industry Regulatory Authority. The Big Board became less distinctive.

In 2006, the exchange stopped being owned by its members and went public. It acquired exchanges in Europe and renamed itself NYSE Euronext. It acquired a computerized market.

Article source: http://www.nytimes.com/2012/12/21/business/global/ice-deal-for-nyse-creates-global-powerhouse.html?partner=rss&emc=rss

Filed Under: Economy News Tagged With: , ,

DealBook: U.S. Markets to Be Closed on Tuesday

October 29, 2012 by Leave a Comment

The New York Stock Exchange was closed on Monday ahead of the arrival of Hurricane Sandy.Michael Appleton for The New York TimesThe New York Stock Exchange was closed on Monday ahead of the arrival of Hurricane Sandy.

2:32 p.m. | Updated

Stock markets in the United States will be closed again on Tuesday for a second day without trading as Hurricane Sandy roared closer to the New York area.

The New York Stock Exchange, the Nasdaq stock market and BATS Global Markets said in separate statements that they have agreed to close, after consulting with other exchanges and clients. The N.Y.S.E. added that it planned to operate on Wednesday, pending developments in weather conditions.

The decision came as little surprise, with market operators already hinting that they would stay closed as the storm’s impact intensified. And the Securities Industry and Financial Market Association, an industry trade group, recommended that United States bond markets stay closed on Tuesday as well.

The two-day stoppage is the first weather-related closure of the American stock markets since Hurricane Gloria in 1985. And it is the first unscheduled trading stoppage since the Sept. 11 terrorist attacks.

Representatives for the exchanges emphasized that the safety of their employees was paramount, relying on skeleton crews to run critical operations. And a slew of Wall Street firms, some of whose offices are based in evacuated areas of Manhattan, have asked employees to continue working remotely.

Hurricane Sandy Multimedia

A continued stoppage in trading is expected to have some costs for exchanges like the N.Y.S.E. and the Nasdaq stock market. Richard Repetto, an analyst at Sandler O’Neill Partners, estimated that stock and option exchanges would lose about $1 million in transaction fees for every day that they are closed.

That loss of revenue would likely have little impact on those companies’ earnings, he added, though Mr. Repetto added that he did not factor in lost revenue from exchanges’ other businesses.

Other Wall Street firms made contingency plans as well. Goldman Sachs advised employees in an internal memorandum to stay home on Tuesday, and that its offices at 200 West St. and 30 Hudson St. would be closed. The firm is relying on operations in London, Salt Lake City and elsewhere to keep its businesses running.

Here’s the latest memo from Goldman’s chief administrative officer, Jeffrey Schroeder:

October 29, 2012
Hurricane Sandy – Business Operations on Tuesday, October 30
Hurricane Sandy is expected to intensify this evening. Financial markets will be closed on Tuesday and transportation will remain suspended indefinitely in New York City and other locations affected by the storm. As a result, 200 West and 30 Hudson will be closed tomorrow.

The firm’s Business Continuity Plans will remain active throughout Tuesday, leveraging our teams in London, Salt Lake City and other offices around the world.

Unless otherwise instructed by divisional management, you should plan to stay at home tomorrow. The safety and well-being of our people remains our highest priority. We ask you to be mindful of communications from municipal and state authorities, your divisional leadership and your managers.

We will provide further updates as necessary and request that you pay special attention to messages from the Office of Global Security (OGS). Please also visit the OGS site for more information on Hurricane Preparedness.

Thank you for your cooperation.

Jeffrey W. Schroeder

Article source: http://dealbook.nytimes.com/2012/10/29/u-s-markets-to-be-closed-on-tuesday/?partner=rss&emc=rss

Filed Under: Global Business Tagged With: , ,
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