Jonathan Beyman is chief of operations and technology at Lehman Brothers, as well as an executive vice president. In addition, Beyman has served as the firm's CIO since 2000.
Question: Do you think the New York Stock Exchange's planned merger with Archipelago is good for the industry?
Certainly the architects of the merger are promoting it that way. Mr. Thain of the New York Stock Exchange claims it will make the exchange "more diversified and transparent and better able to compete, grow and serve our customers." Mr. Putnam of Arca says it "will also benefit the U.S. capital markets, as NYSE Group, Inc. becomes a leading player in global markets."
It's hard to argue that a deeper, broader and stronger exchange won't do those things. And given the Nasdaq acquisition of Instinet, it puts the two new markets into head-to-head competition with each other, which, over time, is likely to be good for investors in the form of lower fees and new products.
It seems to me that this merger is less about good and bad and more about certain inevitabilities that are being accelerated. I think merging the New York Stock Exchange with Arca hastens the trend toward fully electronic trading and the eventual spread tightening that electronic trading drives. Electronic trading will speed executions on the NYSE, broadly increase the amount of available trading information and lower costs - which are all good for the industry.
Over the long term, I think the answer to the question will depend, in large measure, on how integrated the different New York Stock Exchange and Arca models become and, ultimately, what happens to the NYSE floor trading specialist system. Among other roles, specialists have a real value in keeping the market orderly when it is under intense stress. And while the NYSE claims it has no plans to do away with the specialist system, recent history has shown how dominant electronic exchanges like the ISE and Eurex can be.
So maybe the question is: If the specialist system declines, what replaces it, and does the market become more volatile? And if it does, is that a good or bad thing for the industry?