Just two years ago electronic-exchange operator Archipelago commissioned a Minnesota rock band to record a song called “Joey the Specialist,” a Bon Joviesque sendup of New York Stock Exchange floor traders. A typical verse:
Joey the specialist was never that quick on the draw.
So I wasn’t surprised by what he said when I gave him a call.
“You can’t trust the tape,” he said. “It’s running behind.”
“The book is frozen ‘til I finish my ham on rye.”
I can’t live my life at the speed of a guy named Joey.
Last month, Archipelago CEO Jerry Putnam, like many rockers before him, decided to sell out, agreeing to let the Big Board acquire Archipelago. Putnam, a vitriolic critic of the NYSE who never tired of predicting the exchange’s imminent demise, will become one of three co-presidents reporting to NYSE CEO John Thain.
“It was very tongue-in-cheek,” Putnam, 45, now says of the song. “Obviously, this is someone we’ve thrown bombs at in the past, but we’re doing this deal with a vision for a much better outcome for our shareholders.”
Many on Wall Street expect that in time the combined exchange will end up moving much of Joey’s business onto Putnam’s automated platform, ArcaEx. But in the meantime, the proposed deal calls for specialists and other members to exchange their NYSE seats for 70 percent of the shares of the new entity, NYSE Group, with Archipelago holders receiving only 30 percent. Thain and NYSE management will remain firmly in charge. (Putnam himself stands to get $4 million when the deal closes, following a change in his severance agreement last month. The deal has been opposed by exNYSE director Kenneth Langone, who last month began exploring a rival bid.)
Putnam’s capitulation may signal more consolidation. One day after he shook Thain’s hand for the cameras, the Nasdaq Stock Market announced its long-rumored buyout of Instinet’s electronic matching system, cutting the number of major U.S. market centers to two from at least eight a few years ago.
Brokers and investors increasingly want to trade stocks, bonds and derivatives from around the globe on a single low-cost platform. With more exchanges becoming publicly owned, there’s good reason to expect more mergers moving toward such a goal.
“Any exchange that hasn’t done a deal has got to be thinking about its options now,” says one hedge fund analyst who follows the industry closely. Adds an investment banker who has long advised exchanges and electronic markets, “The chatter level has increased substantially.”
The NYSE and Nasdaq may soon turn to global expansion (see page 60). Acquiring Archipelago also gives the Big Board the ability to trade stocks and options side-by-side, thanks to Arca’s impending acquisition of the Pacific Exchange.
The players to watch now may be the Chicago Mercantile Exchange and the International Securities Exchange, derivatives markets that had successful IPOs last year. The CME has been getting friendlier with Nasdaq, late last month announcing a dual listing of its shares on that market and an agreement to develop a new Nasdaq futures contract. The ISE’s top two executives, David Krell and Gary Katz, are quite familiar with the NYSE, having run its options business before it was sold in 1997. Both derivatives markets insist that there are no deals in the offing. But, as Putnam has proved, anything’s possible.
