Marshall Carter brought his sterling reputation to the New York Stock Exchange, where he'll help shepherd sweeping changes during the post-Grasso era.
When most people think of giving back to the community, they think of volunteering for a worthwhile charitable organization or donating money to a cause. Not Marshall Carter, the 65-year-old former chief executive officer of State Street Corp., Boston.
After spending more than 20 years in the financial services industry and taking State Street to $22 billion in market capitalization during his 10 years at the helm, Mr. Carter accepted one of the most daunting tasks on Wall Street. He agreed to join the new board of the New York Stock Exchange just two months after former Chairman and CEO Richard Grasso left amid a scandal over his $139 million compensation package. In April, the new board elected Mr. Carter as chairman, a post he will hold at least until April 2006, when the entire board is re-elected.
Recently, Mr. Carter discussed his role at the NYSE as it undergoes some of the biggest changes in its 213-year history, including completing the planned merger with electronic exchange Archipelago Holdings Inc., Chicago, and instituting a hybrid trading system that combines the age-old auction outcry system with electronic trading features.
Why did you join the NYSE board at such a tumultuous time? The industry had been pretty good to me and I felt like I owed something back. This seemed to be the way to do that.
Almost two years later, do you still feel that way? Yes. We're making some progress. We've clearly revitalized executive leadership here with John Thain (chief executive officer) and Rick Ketchum (chief regulatory officer).
How did you end up joining the NYSE board in the first place? John Reed came aboard in September 2003 and he immediately began surveying what he had to do here. He clearly needed to get the place under control, but at the same time he had to give some serious thought to a new independent board because the board here was an industry utility board and clearly that wasn't going to be allowed. â¦
One of his early criteria was you couldn't be a big-salary CEO because he didn't want any controversy. He knew I had 20 years experience as a fiduciary and I hadn't violated one of the main rules â having excess enemies. I think I was known at State Street as a fairly straight shooter so he asked me to be one of the seven original board members.
And from there to the chairman's seat. Last fall John (Reed) began indicating he had come out of retirement to do a job and he felt that in another few months, by the time of the annual meeting, we needed to select a new chairman. So we talked among ourselves and they asked me to do it. I had the advantage of coming from the industry.
What do you see as the main objectives? The most important thing was getting a really good CEO and a really good CRO in John Thain and Rick Ketchum, getting them in place to restore the integrity. An independent board can't reach that far down in the organization so you're really dependent upon the CRO and the CEO for that.
After John (Thain) had gotten his feet on the ground for about six months, we started talking about strategic direction then last fall we had a half-day session taking a look at the market, competition and what we needed. â¦.
Out of that meeting came this matrix: On the left hand side was what we are now, which is a public utility, not for profit, one product, high market share. Then jump across about seven places to where we want to be, which is a multiasset-class, global marketplace. In between we put all the ways we could get there â build our own (electronic crossing network), buy a regional exchange.
But our work force is a fairly stable work force, so it looked like doing it in-house was going to be longer and harder. So when the (Archipelago) deal was presented to us, that clearly jumped us about five blocks across the matrix because we got an ECN, we got a nice piece of Nasdaq market share and we got the capability to do derivatives.
This was a really good strategic leap for us. We also got a very entrepreneurial work force.
The Arca deal is only part of the change at the NYSE, right? There's the hybrid (trading system), which allows us to still have a specialist role. That will roll out next April.
I think what happened was the model here â the auction outcry model â is really the primary source of good prices, but some of the big institutional investors said "Look, if I want to move a million shares of IBM, I'm interested in getting a good price but I'm more interested in speed of execution because if I start the process of unloading those shares, pretty soon people sense the mood of the market and the price goes away from me."
So some people are saying "I want speed. To me, speed is more important than price." But Aunt Millie in Omaha, who calls her broker, it could be that she wants the best price.
So it's all about customer choice
Customer choice is not something one often hears in context of the NYSE. I think you should relate everything back to "this is what the customer wants." That's a technique I used at State Street. When I ran into internal turf issues, I'd say "Hey look, I was at IBM last week, I was at CalPERS the week before â this is what they want. Don't bother me with organizational niceties or un-niceties. This is what the customer wants. They're paying your salary."
Is there any place for specialists in the future? We positively see a role for the specialist in all but maybe the top couple 100 stocks â the ones that have massive liquidity. But you still might need that for a Merck, like when it pulled Vioxx. When that (news) came out, if it wasn't for the specialist that day, that stock would have been all over the place.
I ask people I know at mutual funds: "I understand you want to go to an ECN, but what happens if one of your portfolio managers wants to sell 50,000 shares of West Texas Natural Gas Pipeline, a lightly traded stock? What if he can't sell it?" He needs to get a good price. He doesn't want to sell at 20 when he really wants 24. Sometimes I get the answer: "Well he might have to wait a couple weeks." I say, "Wait a minute. How can the portfolio manager wait?" I never get a satisfactory answer to that question.
My sense is that in these lightly traded stocks, people want somebody in there to make a market.
Has technology changed the broader investment management business? The original mutual fund guys said they thought that with investments there are four things you have to do: you have to invent the product, you have to manage the money, you have to do the administration, including custody, and you have to talk to the investors.
I still think that one and two are not automated; that is thinking up the product and managing the money. That is still the mind as the black box.
The rest of it has become so automated and so electronic. ⦠Back-office functions should no longer be a concern of the portfolio manager. They shouldn't have to choose assets based upon the fact that they can or cannot settle the trade.
You've said the Big Board wants to be a global marketplace. Will you stay until that's the case? Our board all gets elected every year. Members elect the board and the board elects the chairman.
I think we're on a three- to five-year timeline, with the shorter end being completing this (Arca) merger by the end of this year or the first part of next year and then going into the new year planning new products. Once everything's running smoothly on that, then we can think about do we need to link ourselves up with some Asian stock markets, do we have cross listings.
