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Two Plus Two Equals What?

"Someone's broker could say, 'Okay, these new ETFs are good investments. Why don't you sell X, Y, and Z assets and get into those, and you can do it all in one transaction.' That could produce significant savings," Carter said.

Steven J. Randich, chief information officer at Nasdaq, said active traders would quickly notice significantly lower costs and faster speeds for trades in both Nasdaq-listed stocks and shares listed on the NYSE.

He said it would take about a year for Nasdaq to fully integrate Instinet's technology, which is generally considered superior to Nasdaq's automated market. But once that is accomplished, he said, the firm will have a solid edge on the NYSE because Nasdaq is already all-electronic, and the NYSE is trying to build a hybrid model that mixes man and machine, something Randich views as pointless and impossible.

"We are basically taking the leadership position we already have and dramatically extending it with the Instinet platform," he said.

Regulatory Worries

Better, cheaper, faster trades. Who could argue with that?

Well, a number of people, as it turns out. The concerns center mainly on the NYSE-Archipelago deal. For 213 years, the exchange has operated in a curious market niche, existing as both a brass-knuckled, privately owned operation and a quasi-public trust.

The exchange is recognized by the federal government as a "self-regulatory organization" charged with conducting fair trading while policing its members, mainly big brokerage houses and individual traders, and protecting investors.

In return for the right to operate on the exchange floor, NYSE specialists are required to act as liquidity providers, stepping in to take the other side of a trade when no other buyer or seller can be found. They are also expected to reduce volatility by helping buyers and sellers meet at a mutually agreeable price and buying themselves if necessary to stabilize the market.

Some worry that as a public company beholden to shareholders and focused on the bottom line, the NYSE might move to eliminate costly specialists in favor of cheaper computers, even if that would not be the best thing for the marketplace and overall investor confidence.

"They are going to have to get their cost structure in order," said Michael Obuchowski, money manager at Altanes Investments LLC in New York.

This might not matter in big, heavily traded stocks but it could cause problems for companies whose shares do not trade very often and where a specialist can add value by buying when no one else wants to buy and selling when there's no one else with shares to sell.

Then there is the question of how the NYSE's regulatory function will operate. After the scandals surrounding former chairman Dick Grasso's compensation package and allegedly illegal trading by specialists, the exchange created a beefed-up and more independent regulatory body. As a public company, the exchange has said it will spin off the regulatory arm as a not-for-profit entity housed under the larger corporate umbrella of NYSE Group Inc.

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