Will the New York Stock Exchange survive the merger with Archipelago and will the companies remain separate as promised? Simply put: Yes.
Though I believe John Thain when he says he intends to keep the companies separate, I also recognize the synergies created by the merger. Undoubtedly, he intends to leverage Archipelago's technology, eliminating some of the trading floor's antiquated processes while bringing immediacy and certainty to the exchange's ability to respond to orders.
Additionally, Arca's experience with automated execution technology, (i.e., reserve book and pegging functionality) should provide a boost to Thain's Hybrid market rollout. This experience will be particularly valuable in helping specialists run algorithms to assist in their decision making, allowing them to spend more time making good markets and less on routine decisions.
That said, I also believe the merger is a complement and not a threat to the NYSE existence and way of doing business. Outside of its technology, one of the biggest benefits Arca offers is a platform through which additional products can be traded (i.e., Nasdaq stocks, options and ETFs) and a vehicle on which to list companies that don't meet the NYSE's tough listing requirements.
The merger will allow the NYSE to stop being a one-trick pony and expand beyond listed equities, with the combined company solidifying itself as a leader in our and the world's financial markets. In short, though I may agree that many of the NYSE's current listings, namely the top few hundred names (about 10 percent), could be automated and traded without human intervention, the need will always remain to have someone present and willing to respond to trading opportunities and make markets, especially in the small and mid cap stocks. This is where the New York Stock Exchange can continue to differentiate itself from its competitors, thereby keeping its doors open. - Jason M. Valdez, Associate Portfolio Trader, Frank Russell Securities
The NYSE-Archipelago merger is a stroke of genius - it spells diversification with a capital D. The deal provides the NYSE with an entry into the Nasdaq, Fixed Income and Options markets, which typically are higher margin businesses than its current listed business. The NYSE also acquired some very good technology and another equity exchange business model. These new businesses and the ability to become a public enterprise in a much shorter-than-normal time frame are big pluses for the NYSE.
While Mr. Putnam has said that the two units will operate independently, there is nothing to say that the exchange can't integrate some of Arca's technology into the Hybrid product that it currently is developing or take advantage of some of Arca's technology people. I think the two platforms will be cooperative competitors, and I believe that Arca will try to leverage some of the NYSE's strengths as well.
I would expect to see a migration of some large cap issues that need much less intermediation to the Arca platform, and we already have seen Arca file rules that will enhance its market making corps. This commingling of models would, conceptually, cure many of the problems with the current auction process, while at the same time offering choice to their respective clients and presenting a challenge to their largest competitor.
There still is a large buy-side contingent that believes the auction market has a strong value proposition. The marriage of technology into the auction, if done appropriately, will strengthen the model and produce more liquidity. There always will be a place for true liquidity providers and there is always room for a representative at the point of sale who can bring rational decision making to the trading process. I believe that many specialists and floor brokers do just that. The NYSE and the auction model will be around for quite some time to come. - Peter Driscoll, VP, Senior Equity Trader, The Northern Trust Company