NYSE has just filed a change in our fees that will provide floor brokers with a credit when they add liquidity. Excerpt:

The Exchange proposes to amend its equity transaction fees, for implementation on March 1, 2008.

Member organizations will receive a $.0004 per share credit for execution of orders sent directly to the floor broker for representation on the NYSE when adding liquidity to the NYSE Display Book system (including Percentage Orders).(2)

Technological limitations(3) make it impossible for floor brokers to post orders on other markets while at the point of sale on the Exchange. Therefore, unlike other Exchange users, they are unable to benefit from the incentives certain other markets provide to customers who provide liquidity. The time that would elapse if a floor broker sent the order to his booth or upstairs trading desk for execution on another market means that, if the floor broker utilized this alternative, the trade would likely not get executed at the desired price. The Exchange believes this disparity places floor brokers at a competitive disadvantage to other Exchange customers and believes that the proposed credit will mitigate the effects of that disadvantage while also attracting additional liquidity to the Exchange.

The Exchange believes the credit is justified because of the importance of the floor brokers to the continuation of the floor as an integral part of the Exchange’s market model. The Exchange’s market model integrates the auction market with automated trading. Essential to this model is the interaction between the specialists, floor brokers and orders in the Display Book system, which creates opportunities for price improvement, provides information about changing market conditions and serves as a catalyst to trading. The Exchange believes that this incentive will allow floor brokers to remain competitive.

(2) An order adds liquidity to the market if it is posted on the book for execution against incoming orders on the contra side. Generally, Exchange customers are able to send their orders to other markets to avail themselves of incentives those markets provide to customers who provide liquidity. Floor brokers add liquidity to the market by posting orders either as eQuotes or as DOT or Percentage Orders. Non-electronic trades on the Exchange floor do not add liquidity to the book and are either charged a fee of $.0004 per share (if they are non-electronic agency transactions of less than 10,000 shares between brokers in the crowd) or are free (if they are non-electronic trades of 10,000 shares or more).

(3) The Exchange’s order management system on the floor, the Broker Booth Support System® (BBSS), is not configured to route orders away from the floor to another market.

This is another in a series of steps to enhance the value of our market. Again, there’s more to come. Will keep you posted. Hope this one will be of help to our brokers, from a perspective of competing, adding liquidity to the market, and providing a valuable service to customers — actually they’re all intertwined.

Happy Friday, my friends. Unless you’re long, it seems at the moment. Hey, just remember, things can always change. Consider how different things are today from not so long ago:

Financial Flashback (WSJ.com)
February 29, 2000 — The euro’s oft-cited “potential to appreciate” is becoming more of a joke than a mantra. The only thing appreciating Monday was sales volume, as “panic selling” sent Europe’s single currency to an all-time low.

BlueNext sees first phase two carbon trade (Reuters.com) — I keep meaning to find out more about this, as I remain interested in how our ability to convene markets can actually reduce pollution. I’ll get to it one of these days. In the meantime, here’s the latest, via a Reuters report (excerpt):

The first spot transaction of EU allowances for phase two of the EU Emissions Trading Scheme was conducted on BlueNext on Friday, the exchange said in a statement.

The trade was concluded at 21.10 euros per tonne for a total volume of 1,000 tonnes of carbon, it said.

The counter-parties of the trade were Electrabel and STX Services, the carbon rights exchange said. . . .

Exchange operators are eyeing a piece of the global carbon trading market as governments and industry step up efforts to reduce pollution.

Boston-based research firm Celent expects the carbon trading market to be worth more than 40 billion euros by 2012, up from 22 billion euros in 2006.

Hope you’re having a groovy Tuesday, downer market notwithstanding.

Financial Flashback (WSJ.com)
March 4, 1998 — Have stock investors gone crazy? Less than four months after October’s precipitous plunge in stock prices, culminating in the largest-ever point decline in the Dow on Oct. 27, stocks have rocketed to a string of records.

Hey, it’s also Knute Rockne’s birthday (1888-1931). The great football player and coach was famous for revolutionizing the game, and for talking about it. Some quotes from the official Rockne Web site (the best known is the first; my favorite is the last):

“Let’s win one for the Gipper.”

“Build up your weaknesses until they become your strong points.”

“No star playing, just football.”

“One man practicing sportsmanship is far better than fifty preaching it.”

“Show me a good and gracious loser and I’ll show you a failure.”

“Win or lose, do it fairly.”

“The best thing I ever learned in life was that things have to be worked for. A lot of people seem to think there is some sort of magic in making a winning football team. There isn’t, but there’s plenty of work.”

“I’ve found that prayers work best when you have big players.”

I’m just back from an extended holiday weekend and wanted to share a couple of timely items from the last couple of days:

First item: NYSE Euronext enters valuation race (FT.com) Excerpt:

NYSE Euronext, the world’s largest stock exchange group, has entered the race to establish the industry standard platform for evaluating complex structured products and illiquid securities.

The launch yesterday of the exchange’s new Prime Source valuation service is designed specifically to meet the needs of large buy-side market participants’ to value large, global portfolios of such securities.

Regulators and market participants are grappling with the best way to value a range of complex fixed income instruments such as credit default swaps and mortgage-backed securities, which have wreaked havoc in the markets since the middle of last year. Problems with controlling and determining the extent of exposure to such instruments have contributed to huge writedowns at investment banks and have led to several hedge fund blowups and volatility in capital markets.

The launch of the platform comes just weeks after Duncan Niederauer, chief executive of NYSE Euronext, told the FT that the exchange had been approached by US regulators about how its systems might be used to boost transparency in fixed-income markets. …

Roland Bellegarde, head of European cash markets at NYSE Euronext, said: “The hub provides a combination of valuation services that gives users the possibility to find in one independent, neutral place all the information they need to facilitate their valuation process.” …

Appears to me that we’re again diversifying within our space, and just as important, it looks like we’re doing so in a timely fashion, given this from today’s Wall Street Journal:

Gauging the Worth of ‘Market Value’ (WSJ.com) Excerpt:

… Credit Suisse Group yesterday said it expects to take a $2.85 billion write-down of financial instruments affected by the credit crunch, which will result in a $1 billion drop in quarterly profit, just a week after telling investors it had largely escaped the worst of the financial crisis. American International Group Inc. was forced a week ago to increase by about $3.6 billion estimates of potential losses it had made to investors in late 2007.

The quick about-faces highlight the problem that companies, even those that are supposed to be financial experts, are having with a seemingly straightforward question: How much is something worth?

The difficulty lies in part in the increasing use of so-called market values to determine prices for items that companies aren’t necessarily selling. This has become especially tough since the debt crisis has caused large parts of markets to seize up, meaning there often aren’t any prices to use as reference points.

Second item: After my rant last week about XBRL, here’s a good item to follow up: SEC Makes Analyzing Corporate Performance Easier for Investors; A Whole New Way to Look at Financial Data (SEC.gov) Excerpt:

Securities and Exchange Commission Chairman Christopher Cox today announced the launch of the “Financial Explorer” on the SEC Web site to help investors quickly and easily analyze the financial results of public companies. Financial Explorer paints the picture of corporate financial performance with diagrams and charts, using financial information provided to the SEC as “interactive data” in eXtensible Business Reporting Language (XBRL).

At the click of a mouse, Financial Explorer lets investors automatically generate financial ratios, graphs, and charts depicting important information from financial statements. Information including earnings, expenses, cash flows, assets, and liabilities can be analyzed and compared across competing public companies.

The software takes the work out of manipulating the data by entirely eliminating tasks such as copying and pasting rows of revenues and expenses into a spreadsheet. That frees investors to focus on their investments’ financial results through visual representations that make the numbers easier to understand. Investors can use Financial Explorer by visiting www.sec.gov/xbrl.

Hat tip to the folks at ShopYield, where I spotted this news.

A bit of trivia for your wonderful Wednesday, folks (and speaking of timely, given the news from Havana):

Today in NYSE History
20 Feb. 1961 — The securities of five Cuban railroad and sugar companies were delisted after the Fidel Castro’s communist government expropriated their assets.

Let me disclose up front that NYSE Euronext participates in the SEC’s pilot program for using eXtensible Business Reporting Language (XBRL) to tag financial statements, as I blogged about here. XBRL tagging is designed to make it easier to search for companies’ financial information, download it, compare the data of various companies or compare the data over a period of time, and more.

Let me also remind you that the views expressed here are my own, not necessarily my employer’s.

Having stated those caveats, there is news on the XBRL front:

SEC Urged to Ease Push To ‘Tag’ Corporate Fiscal Data (WSJ.com) —

A private advisory committee to the Securities and Exchange Commission urged SEC Chairman Christopher Cox to slow down his effort to “tag” corporate financial data.

The panel voted yesterday to issue an interim report calling for changes in U.S. accounting and financial reporting, and stuck with its recommendation for a slow approach to data tagging.

It is unclear whether the recommendation will make much difference to the SEC chairman, a promoter of data tags. Data-tagging technology, which some liken to bar codes for financial information such as net income, makes it easier to find and compare corporate results.

The SEC yesterday posted the panel’s preliminary report. I’ve read only the section that deals with XBRL (the entire report is more than 100 pages). The report cites time and cost to implement tagging as the reasons for the recommended go-slow approach.

The SEC also posted a dissenting voice, that of committee member Peter Wallison. An excerpt:

I am concerned about our recommendation for a long phase-in for XBRL implementation, and our recommendation that XBRL material be furnished rather than filed with the SEC during this phase-in period. The reason for this recommendation, as you know, is the Committee’s concern about the possible cost of assurance that might be necessary if the XBRL material is required to be filed, and thus subject to the full scope of liability under the 34 Act.

I will not re-argue the question of whether assurance will be costly. As I noted at length in my Separate Statement [at the end of the preliminary report], I believe that there is no reason to expect that assurance will be costly, and many reasons to believe it will not be. Members of the Committee, however, have doubts about this question. I cannot remove these doubts. But the plain fact is that we don’t know for sure. Once we make our recommendation, it will be up to the SEC to find out.

Under these circumstances, it does not make sense, I think, for our report to limit the SEC’s options. Our recommendation will make it more difficult for them—if they determine that assurance will not be costly—to implement a filing requirement for XBRL or doing it on a faster track. They will have to explain why they are ignoring the views of our Committee.

In the last few days, the SEC has received a letter from EDGAR Online, a company that is in the business of converting audited financials to XBRL. They report that they have done this conversion for 40% of the filers in the voluntary filing program, and that it has taken an average of 10 hours for the conversion and assurance (confirmation of the conversions accuracy) by management and auditors. They also express concern that furnishing rather than filing XBRL material will adversely affect the quality and usefulness of XBRL for investors and analysts. A copy of the letter is available. This is important new evidence about the cost of both XBRL tagging and assurance that the Committee should consider.

Personally, I hope the SEC can work out a solution that will address the committee’s concerns but get the implementation on a faster track. Seems to me that the benefits can be enormous. In the January Institutional Investor magazine, the Tech Notes column was devoted to “Cox’s Crusade: SEC chief pushes a data standard — and tries to pull all U.S. companies along.” Excerpt:

To date, however, fewer than 100 out of 10,000 registered public entities have participated in the SEC’s voluntary pilot program for XBRL. The vast majority appear reluctant to invest in the software, which John Stantial, director of financial reporting at United Technologies Corp., a pilot participant, regards as a “disconnect.” Stantial likes XBRL because “data that is trapped and lacking in context, such as PDF or HTML files, can now be electronically accessed and manipulated in seconds.” He says many companies are uneducated about XBRL or have not done cost-benefit analyses. The open-standard software can cost as little as $1,000, and once users get past the learning curve, tagging and filing an 8-K earnings release requires about four person-hours, Stantial wrote in a UTC case study.

Amid today’s recognition that greater transparency can help investors better understand and trust corporations, you would think that more companies would be going XBRL. In particular, you would think that publicly traded stock markets would show some leadership to their listed issuers by adopting XBRL themselves. If you’ll permit me a competitive jab, it’s ironic that the folks with the electric billboard uptown — the oh-so-high-tech Nasdaq — have not seen fit to advance toward greater electronic transparency by using XBRL, unless I’m missing something. A check of Nasdaq’s site turns up only a 2002 news release on the subject, in which Nasdaq announced it was launching a pilot with Microsoft and PricewaterhouseCoopers to “demonstrate the power of XBRL.” Tagging data with XBRL involves a matter of hours, but five years later, still no XBRL for Nasdaq itself?

Time for companies to step up and demonstrate their commitment to transparency and investors by adopting XBRL.

Let me disclose up front that NYSE Euronext participates in the SEC’s pilot program for using eXtensible Business Reporting Language (XBRL) to tag financial statements, as I blogged about here. XBRL tagging is designed to make it easier to search for companies’ financial information, download it, compare the data of various companies or compare the data over a period of time, and more.

Let me also remind you that the views expressed here are my own, not necessarily my employer’s.

Having stated those caveats, there is news on the XBRL front:

SEC Urged to Ease Push To ‘Tag’ Corporate Fiscal Data (WSJ.com) —

A private advisory committee to the Securities and Exchange Commission urged SEC Chairman Christopher Cox to slow down his effort to “tag” corporate financial data.

The panel voted yesterday to issue an interim report calling for changes in U.S. accounting and financial reporting, and stuck with its recommendation for a slow approach to data tagging.

It is unclear whether the recommendation will make much difference to the SEC chairman, a promoter of data tags. Data-tagging technology, which some liken to bar codes for financial information such as net income, makes it easier to find and compare corporate results.

The SEC yesterday posted the panel’s preliminary report. I’ve read only the section that deals with XBRL (the entire report is more than 100 pages). The report cites time and cost to implement tagging as the reasons for the recommended go-slow approach.

The SEC also posted a dissenting voice, that of committee member Peter Wallison. An excerpt:

I am concerned about our recommendation for a long phase-in for XBRL implementation, and our recommendation that XBRL material be furnished rather than filed with the SEC during this phase-in period. The reason for this recommendation, as you know, is the Committee’s concern about the possible cost of assurance that might be necessary if the XBRL material is required to be filed, and thus subject to the full scope of liability under the 34 Act.

I will not re-argue the question of whether assurance will be costly. As I noted at length in my Separate Statement [at the end of the preliminary report], I believe that there is no reason to expect that assurance will be costly, and many reasons to believe it will not be. Members of the Committee, however, have doubts about this question. I cannot remove these doubts. But the plain fact is that we don’t know for sure. Once we make our recommendation, it will be up to the SEC to find out.

Under these circumstances, it does not make sense, I think, for our report to limit the SEC’s options. Our recommendation will make it more difficult for them—if they determine that assurance will not be costly—to implement a filing requirement for XBRL or doing it on a faster track. They will have to explain why they are ignoring the views of our Committee.

In the last few days, the SEC has received a letter from EDGAR Online, a company that is in the business of converting audited financials to XBRL. They report that they have done this conversion for 40% of the filers in the voluntary filing program, and that it has taken an average of 10 hours for the conversion and assurance (confirmation of the conversions accuracy) by management and auditors. They also express concern that furnishing rather than filing XBRL material will adversely affect the quality and usefulness of XBRL for investors and analysts. A copy of the letter is available. This is important new evidence about the cost of both XBRL tagging and assurance that the Committee should consider.

Personally, I hope the SEC can work out a solution that will address the committee’s concerns but get the implementation on a faster track. Seems to me that the benefits can be enormous. In the January Institutional Investor magazine, the Tech Notes column was devoted to “Cox’s Crusade: SEC chief pushes a data standard — and tries to pull all U.S. companies along.” Excerpt:

To date, however, fewer than 100 out of 10,000 registered public entities have participated in the SEC’s voluntary pilot program for XBRL. The vast majority appear reluctant to invest in the software, which John Stantial, director of financial reporting at United Technologies Corp., a pilot participant, regards as a “disconnect.” Stantial likes XBRL because “data that is trapped and lacking in context, such as PDF or HTML files, can now be electronically accessed and manipulated in seconds.” He says many companies are uneducated about XBRL or have not done cost-benefit analyses. The open-standard software can cost as little as $1,000, and once users get past the learning curve, tagging and filing an 8-K earnings release requires about four person-hours, Stantial wrote in a UTC case study.

Amid today’s recognition that greater transparency can help investors better understand and trust corporations, you would think that more companies would be going XBRL. In particular, you would think that publicly traded stock markets would show some leadership to their listed issuers by adopting XBRL themselves. If you’ll permit me a competitive jab, it’s ironic that the folks with the electric billboard uptown — the oh-so-high-tech Nasdaq — have not seen fit to advance toward greater electronic transparency by using XBRL, unless I’m missing something. A check of Nasdaq’s site turns up only a 2002 news release on the subject, in which Nasdaq announced it was launching a pilot with Microsoft and PricewaterhouseCoopers to “demonstrate the power of XBRL.” Tagging data with XBRL involves a matter of hours, but five years later, still no XBRL for Nasdaq itself?

Time for companies to step up and demonstrate their commitment to transparency and investors by adopting XBRL.

Thought I’d share the latest with those of you who closely follow the ongoing changes in the NYSE market model (and, may I say, bless you). I know that many of you don’t have a spare hour to do things like listen to our quarterly financial-results conference calls. Which is why you have your humble blogger, because my time is either priceless, or worthless, depending on how you look at it. Anyway. So here is an excerpt from the Tuesday 5 Feb. call that I thought would be of interest:

Roger Freeman, analyst, Lehman Brothers: Okay, and Duncan, lastly, can you give me an update on discussions that you’ve been having with the SEC around changes of the specialist market structure and specifically, as you look at buying the AMEX here does that give you any additional ability to drive an agenda since effectively you’re going to be taking care of all of the equity exchange specialist operations, modernizing them?

Duncan Niederauer, CEO, NYSE Euronext: Sure, the first part of your question, Roger, is the dialogue continues very regularly and very actively. I think we’re down to where we really just have two or three rules left. One has to do with their ability to hedge and really run their business as an integrated market maker which there’s a follow-up meeting on tomorrow and I think we’ll be filing a rule on that front fairly soon about, then the other two changes that we’re contemplating making that will be concurrent with the next phase of the technology that rolls out that Larry was referencing earlier will be tied to what I would call the elimination of the look that the specialist has had pretty much forever, in exchange for probably slightly better treatment on the parity side. I think that’s where we’re going to head with that.

In terms of the AMEX integration, I think that should over-simplify the landscape because it is the only other model that has what I would call close to a high-tech, high-touch model, and I think we intend to bring that over here as possible. The ETF business - I don’t think we’ll reinvent the wheel. I think you’ll see that go to Arca. The listings business - I think you’ll see us create
just a slightly different approach on the listings side to account for all the different companies. And then as far as with their model with the specialist is, many of the specialists there are also specialists here, so we imagine that if the initial conversations are any indication, they will just consolidate their businesses and do it in one place instead of two and many of the ETF specialists are also LMMs on the NYSE Arca platform so we would imagine that they would just move over as well. So I think that’s all kind of to be determined but that reflects the initial conversations we’ve had with some of the issuers and some of the market participants over at the AMEX.

And on the technology rollout that Duncan referenced, here is that commentary from Larry Liebowitz, our executive VP in charge of U.S. Markets and Global Technology:

So turning to page four [of the slide presentation]. This is a diagram similar to what we’ve shown you in the past but now we’re going to lay out exactly how each layer occurs and when it will probably occur. So the top line is CCG [Common Customer Gateway]. That’s how our clients reach us. That’s also going to be how any client in any geography reaches any of our products ultimately, and what it also does is it makes it easier for us to make the technology transitions in the layers beneath because the customers will only be affected by the top layer. As we’ve talked about in the U.S., we expect to roll this out in the first quarter and I’m happy to report that our specialists are already converting to the system, that should be done by this week and that we should be able to rollout to our first clients by next week so that’s proceeding on path and then in Europe, we hope to be rolling this out to customers by the second half of the year, specifically in the July time frame, we’ll start to roll that out. That is absolutely critical to us in terms of getting–not only getting positioned for a platform consolidation but in the U.S. that gets us off our first wave of non-stops which we’ll talk about in a minute.

BTW, if you do have the time and if you’re interested in NYSE Euronext as a whole, here are the full transcript and the audiocast (free registration required for the latter).

I don’t have anything more definitive right now about the approvals or the timing, but obviously the next few months are going to be busy, and, I expect, productive. Will continue to keep you posted on new developments.

In the meantime…

Today in NYSE History
07 Feb 1967 — A blizzard caused the NYSE to curtail the trading day, opening 15 minutes late and closing 90 minutes early.