May 24, 2005

Well, he was right. Seth Merrin, Liquidnet's CEO, made two seemingly outrageous comments when speaking at an April trade show on trading technology. While discussing the NYSE's plans for its Hybrid market, he said, "I have to give the benefit of the doubt that John Thain will come up with something more interesting than this." The audience was shocked that Merrin would make such a statement - as Roger Burkhardt, CTO, NYSE, was a speaker at the event as well. But the crowd also was, for the most part, in agreement.

Two weeks later, Thain and Gerald Putnam, Archipelago' CEO, announced their plans to merge, proving that Thain indeed did have something much more interesting up his sleeve.

Now that the merger news is out, several questions are raised: How will the two companies be integrated, and what will it mean to the industry? Do they plan to keep the two platforms operating separately, as both parties insist that they will, or are they hedging their bet, playing both sides until it is clear which model - auction or automated - will persevere?

I think the merger is a brilliant idea, but I'm also in the camp that believes the NYSE is hedging its bet, particularly now that it has to comply with Reg NMS. It's hard to imagine that the Hybrid will be ready for testing by next April.

If Seth Merrin's second statement - "The NYSE has to become an ECN or an ECN will become the NYSE." - proves correct, then we can say goodbye to the auction model. Although it's too early to determine, as the merger news was just announced last week, I believe that the NYSE eventually will become Archipelago. However, to hedge my bet, it wouldn't surprise me if John Thain had something even more interesting up his sleeve to prove me wrong.

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