When Lawrence Leibowitz joined NYSE Euronext Inc. in July, he brought with him a long experience in market structure and electronic trading — the perfect background for integrating the operations of 12 securities, options and futures markets on two continents.
As executive vice president and co-chief operating officer responsible for technology, Mr. Leibowitz has a lot of work ahead of him to integrate the technology of these units, but he wasted no time getting started: Next month, NYSE will introduce a single gateway — the Common Customer Gateway — to those markets.
The technology challenge is real for such a large group. Just on the U.S. side, the NYSE operates a floor auction system; a hybrid, where specialists can interact with an auto-execution platform; the pure electronic book Arca; and an electronic options market combined with floor trading in San Francisco.
Mr. Leibowitz knows trading. He joined from UBS’ Americas equities division in Stamford, Conn., where he was chief operating officer. His career includes co-founding quantitative hedge fund Bunker Capital LLC, Jersey City, N.J.; heading the REDIBook electronic communications network; and leading program and quantitative trading at Credit Suisse First Boston.
Can you bring together the disparate technology departments of what is now NYSE Euronext? I run technology worldwide and help create a dialogue to figure out where to go from here. We have a technology and integration committee, and look at all our technology resources as an available pool. …
Regarding the integration, the management of NYSE Euronext will make that choice, and do that relatively soon, and then embark on the implementation. My guess is that the choice will involve some of the elements of all three technologies: NYSE, NYSE Arca and AEMS (Atos Euronext Market Solutions joint venture).
How much more difficult is it to integrate the technology of different markets on different continents? All mergers are challenging. There always is the territorial aspect, there is the fear of people losing their jobs, and different cultures can make that much worse. But, with the right leadership, we can overcome this, and that’s our job.
Regarding the location of the main technology center, we don’t have an opinion yet. First, we must think what the required resources are, and then, where those resources are. We have technology operations in Manhattan, Brooklyn, Chicago, San Francisco, Orlando, Paris and London. We have developers all over, and the hallmark of a modern-day technology firm is to be able to manage that. I don’t have an opinion of where those people should be. We are scoping out the platforms.
First, the Common Customer Gateway will replace the CMS (Common Message Switch protocol) and will be rolling out in January. We plan to provide a single access point to the group’s listings, and that’s exactly what the CCG will do: provide access to all NYSE Euronext markets. You’ll be able to trade any of our products in any of our geographies.
We are integrating the technology platforms, starting at the top with CMS. Then we’ll move (on) …
What is the outlook for the specialist system, and how does this affect your technology strategy? You have to think about what happened in 2001 to the over-the-counter Nasdaq wholesale market-makers, who had hundreds of traders under the old way of doing business.
The order-handling rules came, then decimalization came, and the electronic communications networks came. The old way of doing business did not make sense any longer. Those guys reinvented their business …
The specialists were protected by a monopoly barrier, but that has changed. What has happened before (with the Nasdaq market-makers) is what you are seeing happen again. The point is still the same: it does not matter whether there are seven or six specialist firms. It’s what kind of firm can adapt to market making in today’s environment. The market rules changed and the market changed so that the obligations of being a specialist outweigh the benefits.
It’s a business where people need to apply technology and risk management differently. I think it’s a viable business. It will be like a modern-day market-maker model: There is a lot of black-box market-making for small orders, and the specialists will handle larger orders and price discovery for blocks on the floor.
The idea of what it means to be a specialist in an electronic market is evolving, and we need to move along relatively quickly and get there. How much of this is electronic and how is the specialist providing a value-added proposition is an ongoing process; we will continue to work on that.
Ending the specialist system is not our goal and certainly not our intention. I still think the floor is a piece of the value proposition that we have. It’s not the only differentiator, but it is a valuable differentiator.
Tell us about the alliance you forged with the off-exchange block-crossing system BIDS Trading LLC. We are hearing from our clients that, now that trades are occurring in hundred-share lots, they would like to find blocks. You can see that from the proliferation of (these so-called) dark pools, although most of them don’t seem to get a lot of traction. Our clients would like someone to reaggregate these dark pools. Our joint venture with BIDS is a first attempt to do that.
At the same time, brokers are trying to prevent themselves from being disintermediated. There is a lot of algorithmic trading, which is a way to disintermediate the brokers; the net result is that block-price discovery has disappeared from the markets.
We have to be competitive and help. Look at who owns BIDS; it’s our biggest order flow providers. We will work together to try to solve the block discovery problem. People vote with their market share for a value proposition.
It’s a scale game: if you don’t have liquidity, you’re not going to have any business. Critical mass is important for the customers who really matter in the marketplace. When people decide where to route their order, the questions are: What’s your price? What are the chances of an oversized fill? Where will they get things done?
How much of a threat to Euronext is the Markets in Financial Instruments Directive reform? It’s actually an opportunity for our markets. We have extremely competitive technology in Europe. Even though we are the No. 1 exchange (in respective countries), there are an awful lot of shares that trade in other markets. We want to be competing in those arenas. When the ECNs came, the volume expanded greatly, and we would expect to see the same thing happen in Europe.
We have already announced a multilateral trading facility in Europe. We had approached the Project Turquoise people, but they wanted to go on their own for now. We remain open to partnerships in Europe, as we are in the U.S.
There is a lot of talk that NYSE Euronext is interested in a U.S. futures exchange. We are always looking at different alternatives as a matter of strategic fit, price and management. I don’t think we’ll do acquisitions for acquisition’s sake. It would have to be a strategic fit and add value to our shareholders.
In the futures area, we are definitely interested, but there are not a large number of opportunities out there. We are constantly evaluating our positions. Just assume that in the exchange space, everyone is talking to everyone.
