Key lawmakers indicated yesterday that they were in no hurry to pressure the venerable New York Stock Exchange to alter its regulatory or trading structure in the face of rapidly improving technology, global stock trading and new competition.
Indeed, Senate Banking Committee Chairman Phil Gramm (R-Tex.) chided the Securities and Exchange Commission for trying to prod the process along. Last week, in a speech that surprised many on Wall Street for its tough approach, SEC Chairman Arthur Levitt Jr. signaled that he had lost patience with the NYSE's efforts to retain its current regulatory structure and monopoly rules as it seeks to offer shares to the public.
Major Wall Street houses have been concerned that the Big Board has been too slow to adapt to the technological revolution sweeping Wall Street, such as the rise of alternative electronic markets. For investors, the growing tension between the computerized, Internet-driven world of today and trading traditions that date back decades may make it more difficult for traders to tell whether they are getting the best prices or fastest order executions.
Yet several lawmakers showered praise yesterday morning on the exchange. The NYSE is "a national treasure," said Sen. Robert F. Bennett (R-Utah). Sen. Charles E. Schumer (D-N.Y.) applauded the NYSE's "sophisticated" regulatory operation, and Gramm described U.S. capital markets as "the best in the world."
Later, over lunch with Washington Post reporters and editors, NYSE Chairman Richard A. Grasso professed to be little concerned about some of Levitt's proposals, including one that would end the NYSE's exclusive right to trade major stocks. He also indicated that the securities markets were changing so rapidly that he couldn't hazard a guess about how the 207-year-old exchange would look a decade from now.
"Equity capital markets on a global scale are really less than two decades old right now. Within that two decades, the personal computer became a part of our life, and conductivity through the Internet has just begun," Grasso said. "So for me to sit here and say I know what the New York Stock Exchange is going to look like in 10 years would be a boast without substance behind it.
"I know we're not going to look anything like we do now. I know the technology and networking will become a part of our competitive offering." Just as the Internet has changed how books or clothes are sold, he said, it is also changing the way stocks are sold.
Grasso did maintain that the NYSE's public offering would allow it to be more competitive and invest more in technology.
But Levitt, in an interview, said both the NYSE and its rival, the Nasdaq Stock Market, have spent too much money polishing their image. "I had long been frustrated by the inability to structure markets to adapt and frustrated by the expenditures exchanges were putting into advertising rather than technology," Levitt said.
Grasso countered that the exchange has invested $2 billion over the past decade, allowing it to execute orders in just seconds.
During Levitt's speech, he shot at the heart of two of the NYSE's most sacred rules: It regulates itself and it has a system--known as Rule 390--that prevents major stocks listed there, such as International Business Machines Corp., from trading on Nasdaq or other competitors. That coveted rule, Levitt said, "should be history."
Until now, the New York Stock Exchange has hung on dearly to the rule and has, by most accounts, resisted technological changes that would displace market-makers (known as specialists) and floor brokers who own the place. But Grasso said yesterday that he was unsure how serious an impact the loss of this monopoly would have on the NYSE. He noted that there appears to be little demand to trade off the exchange floor those stocks not covered by the rule.
Many on Wall Street have pushed for the NYSE to loosen up the way stocks trade, so that every stock in America can go to a central order book--in other words, so everyone can see all of the orders. Yet if every order went through a computer to a central place, the hundreds of brokers who scurry around the floor all day shouting orders and jotting numbers on papers would become unnecessary.
While Grasso said he could not predict the future, he did suggest he expected specialists to still be part of the trading process, saying they were essential to helping match buyers and sellers.
"We are burdened with individuals protecting the franchise rather than creating a market of the future," Levitt said during the interview.