OK, I know it’s early, but you’ve been waiting for a headline like that for a long time, so I wasn’t going to sit on it. From today’s Wall Street Journal: NYSE Plans to Revise Specialist-Trader Rules. Excerpt:

The New York Stock Exchange is planning to unveil a series of proposed new rules Friday in an effort to turn around its falling market share. …

…Now, NYSE is essentially proposing to end the hybrid model and replace it with new rules that give the specialists less privileges, but more freedoms, in the way they trade.

Specialists would be called “designated market makers” under the new rules, and would no longer be able to have their computer algorithms receive electronic orders before their display publicly.

“The current system doesn’t work very well,” says Lawrence Leibowitz, head of U.S. markets at NYSE. “This positions the specialist to actually add value in the market again.” The proposed changes require Securities and Exchange Commission approval, but Mr. Leibowitz hopes they can be completed by the end of September.

The move is an acknowledgment that many customers prefer speedy trading without the presence of an intermediary, and that the intermediaries could trade more effectively if they were able to pick their spots more carefully.

Much more information to follow on this later today.

Happy Friday the 13th, folks. William Butler Yeats was born On This Day (NYTimes.com) in 1865 (died 1939). From the great man’s “The Second Coming”:

Things fall apart; the centre cannot hold;
Mere anarchy is loosed upon the world,
The blood-dimmed tide is loosed, and everywhere
The ceremony of innocence is drowned.
The best lack all conviction, while the worst
Are full of passionate intensity.

There were some questions in the comments space last week about recent news on the market-data front, and I mentioned that I would let you know when there is any news from us on that front. Here’s a press release we just issued: New York Stock Exchange Proposes to Offer NYSE Realtime Reference Prices. It’s too brief to excerpt, so here’s the whole text, minus the boilerplate. Sorry, LCs (lawyer colleagues).

The New York Stock Exchange (NYSE), a subsidiary of NYSE Euronext (NYX), has proposed to the Securities and Exchange Commission (SEC) to introduce a new data product called NYSE Realtime Reference Prices that will allow media and Internet organizations to buy real-time, last-sale market data from the NYSE and provide it broadly and free of charge to the public. The NYSE anticipates that several major information providers will offer the data, and plans to launch the new product on or before July 1, 2008 for a four-month pilot program, pending SEC approval.

“NYSE Realtime Reference Prices will increase the transparency of the world’s leading equities exchange for the benefit of investors and issuers,” said Ronald Jordan, executive vice president, Market Data. “At the same time, our proposal provides for a fair and reasonable economic incentive to the Exchange to produce this data, which we believe is consistent with the approach recently outlined by the SEC.”

In contrast to the administration of traditional data products, providers disseminating NYSE Realtime Reference Prices will not have to count and report the number of users to the Exchange, nor contract with each user. Instead, the providers will be able to purchase the data from the NYSE for a flat monthly fee. The NYSE was the first exchange to propose such an approach when it originally submitted a proposal to that effect in January 2007.

Apologies, too busy at the moment for my usual trivia and nonsense. More good stuff to follow shortly. Enjoy your Wednesday.

There were some questions in the comments space last week about recent news on the market-data front, and I mentioned that I would let you know when there is any news from us on that front. Here’s a press release we just issued: New York Stock Exchange Proposes to Offer NYSE Realtime Reference Prices. It’s too brief to excerpt, so here’s the whole text, minus the boilerplate. Sorry, LCs (lawyer colleagues).

The New York Stock Exchange (NYSE), a subsidiary of NYSE Euronext (NYX), has proposed to the Securities and Exchange Commission (SEC) to introduce a new data product called NYSE Realtime Reference Prices that will allow media and Internet organizations to buy real-time, last-sale market data from the NYSE and provide it broadly and free of charge to the public. The NYSE anticipates that several major information providers will offer the data, and plans to launch the new product on or before July 1, 2008 for a four-month pilot program, pending SEC approval.

“NYSE Realtime Reference Prices will increase the transparency of the world’s leading equities exchange for the benefit of investors and issuers,” said Ronald Jordan, executive vice president, Market Data. “At the same time, our proposal provides for a fair and reasonable economic incentive to the Exchange to produce this data, which we believe is consistent with the approach recently outlined by the SEC.”

In contrast to the administration of traditional data products, providers disseminating NYSE Realtime Reference Prices will not have to count and report the number of users to the Exchange, nor contract with each user. Instead, the providers will be able to purchase the data from the NYSE for a flat monthly fee. The NYSE was the first exchange to propose such an approach when it originally submitted a proposal to that effect in January 2007.

Apologies, too busy at the moment for my usual trivia and nonsense. More good stuff to follow shortly. Enjoy your Wednesday.

My MDDCs (market-data-disseminating colleagues) recently announced two new products designed to give customers faster and greater information about the New York Stock Exchange’s order book and order imbalances, respectively, and also make that information easier to use. Here is an edited transcript of a conversation with one of the MDDCs — Mark Schaedel, vice president, NYSE Data Products — about how the products will help the trading community.

Exchanges: Let’s start with NYSE OpenBook Ultra. How is it different from NYSE OpenBook Real-Time?

Mark: Ultra is an answer to customers who need low latency or want more detailed information about NYSE order flows. Ultra provides information about every order that enters or leaves the book. OpenBook Realtime is more of a snapshot of the book taken every second and distributed in real time. Ultra is event driven and updates with each order and distributes each message with extremely low latency — less than half a millisecond to SFTI [Secure Financial Transaction Infrastucture, our communications network]. We are seeing speeds in the microsecond range, which makes OpenBook Ultra one of the fastest books available, if not the fastest.

Ultra was also meant to conform to the behavior of other markets’ depth-of-book products from a data standpoint. NYSE recognizes the impact of fragmentation on customers, and in a Reg. NMS world, customers’ information needs have changed rather dramatically.

Exchanges: What else is different about Ultra?

Mark: Ultra provides additional information about what happened when something comes off the book. When changes take place today in all the other markets, you just process them and accept them as changes. You may also possibly read the tape to see if the change resulted in a trade. Sometimes those trades are reported late to the tape, leaving some holes in the picture. Ultra makes this task easier by indicating why something left the book — was it traded or cancelled? — and if it traded, show the trade link ID, which is a unique identifier that NYSE will begin using in all of our data products. That information is very interesting for people who study order flows and market behaviors. We’re appealing to the quant crowd in that respect.

There’s also this additional timestamp. The same crowd that’s looking at the microstructure of the market is looking at timestamp alignments and when these events actually took place. So we’ve added microsecond resolution and also added these internal timestamps that come right out of the matching engine that show when event actually took place. In most other markets, the timestamp you see on the message is from the outbound side or publishing mechanism.

The other added feature is what we call self-healing. With each new message that contains the order and information about each change, we send the total amount of shares currently bid or offered at that price, so the customer doesn’t have to do that aggregation. We call that self-healing because if you fall behind in your processing or miss some messages, you can pick up very easily by waiting for the next message and reading the current state. This was designed to appeal to all of the various uses of data.

Exchanges: OK, how about NYSE Order Imbalances?

Mark: Order Imbalances provides a great deal more transparency around the opening and closing auctions, which have always been NYSE strong points. Our ability to hold auctions is what our market structure is based on, and what our competitors have been unsuccessfully trying to re-create in their electronic models. Wacky things happen before the open and after the close, but we set the bar at 9:30 and 4. NYSE Imbalances are all about adding transparency to the process which we believe always benefits the customer.

Exchanges: What are these imbalances and how will we disseminate them?

Mark: Prior to an open or close, imbalances are often created by the influx of orders on one side of the market — the buy or sell side. Today, we distribute those imbalances by rule under certain conditions but only at 5- and 10-minute periods before the open or close. The new messages are distributed every 5 seconds and are always published for any imbalances of significance to customers.

Each message contains the symbol, the size of the imbalance, the side of the imbalance and the quantity that’s paired off. The product is designed to make trading around the open and close much easier and add to the quality of the auctions by attracting more informed participation. More participation leads to better prices.

Exchanges: When and how are these products available?

Mark: OpenBook Ultra is live now. All OpenBook customers are getting Ultra automatically; they don’t have to sign up or pay anything additional to get Ultra. Order Imbalances is in testing right now and goes live on July 1. You just have to let your account manager know you want Order Imbalances and it will be added to your OpenBook feed. There are currently no additional fees for either product. The Exchange plans to add a modest fee increase for Ultra along with a simplified fee structure that will lower the all-in cost for customers.

Thanks for your time, Mark. I hope Exchanges readers found that conversation useful. If you did, there will be more Q&As in the future. Your comments are welcome, as always.

Happy Tuesday, folks. On This Day (NYTimes.com), two legends came and went, respectively. Judy Garland was born on this day in 1922 (died 1969); and Ray Charles passed away four years ago today.

There has been some Q&A in the Exchanges comments space in the last few days about making real-time, last-sale data available to the public for free. There’s news on that front this morning:

SEC lays ground for real-time Web stock quotes (Reuters) Excerpt:

The U.S. Securities and Exchange Commission on Wednesday laid the groundwork that could lead to Web sites such as Google Inc and Yahoo Inc publishing real-time stock quotes.

Most sites not associated with a broker now show U.S. stock quotes with a 15- or 20-minute delay, unless end users pay.

The SEC said it published for public comment an order approving a proposal from NYSE Arca, NYSE’s online exchange, that would give Internet sites real-time trading data for a fee.

NYSE Arca’s 2006 proposal has been central to a debate over how much stock exchanges can charge websites for real-time last-sale prices. Larger sites have pushed vigorously for SEC approval of a fee structure, but smaller sites argue the fees would be too expensive for them also to list real-time quotes.

An SEC spokesman said the draft order approving NYSE Arca’s proposal sets forth an approach for the SEC to evaluate the reasonableness of trade data fees that rely primarily on market forces, so long as the market is sufficiently competitive.

The SEC’s action is is not a final approval, but it is a big step forward. It’s been a long process, but it’s leading to the right result for investors.

Here’s a link to the SEC’s page containing the order and comments form.

There has been some Q&A in the Exchanges comments space in the last few days about making real-time, last-sale data available to the public for free. There’s news on that front this morning:

SEC lays ground for real-time Web stock quotes (Reuters) Excerpt:

The U.S. Securities and Exchange Commission on Wednesday laid the groundwork that could lead to Web sites such as Google Inc and Yahoo Inc publishing real-time stock quotes.

Most sites not associated with a broker now show U.S. stock quotes with a 15- or 20-minute delay, unless end users pay.

The SEC said it published for public comment an order approving a proposal from NYSE Arca, NYSE’s online exchange, that would give Internet sites real-time trading data for a fee.

NYSE Arca’s 2006 proposal has been central to a debate over how much stock exchanges can charge websites for real-time last-sale prices. Larger sites have pushed vigorously for SEC approval of a fee structure, but smaller sites argue the fees would be too expensive for them also to list real-time quotes.

An SEC spokesman said the draft order approving NYSE Arca’s proposal sets forth an approach for the SEC to evaluate the reasonableness of trade data fees that rely primarily on market forces, so long as the market is sufficiently competitive.

The SEC’s action is is not a final approval, but it is a big step forward. It’s been a long process, but it’s leading to the right result for investors.

Here’s a link to the SEC’s page containing the order and comments form.

I recently posted some news reports that came out of our CEO Duncan Niederauer’s appearance at the Reuters Summit last month, but the part about NYSE trading was rather limited.

Almost a month later, my RSS reader turned up a transcript of the entire conversation. Again, it’s mostly about NYSE Euronext as a company and our initiatives across multiple products and geographies, and I recommend it as such for anyone interested in that broad view. The transcript also includes all of the discussion about trading on NYSE and the trading floor, and I replay that excerpt below for anyone interested in the full context and flavor of what was reported earlier.

Two caveats: one, the conversation dates back to May 5; and two, the transcript appears to be unedited, and I have corrected a couple of words transcribed incorrectly.

UNIDENTIFIED PARTICIPANT: I understand that you gave a press conference last week and you talked about how — saying I think maybe I am (inaudible) your words but have been more focused on doing things like closing down trading floors and the like and that you were going to put a stop to this. And you thought that was still a very important piece of the value proposition in the exchange. Does that mean specialists are not going to be let go at all at this point; you’re not going to try to trim that operation? What is exactly the future of the specialists?

DUNCAN NIEDERAUER: We will start with what I said because I’m sure everything is, I won’t say anything about the media in this room, but I think a lot of things don’t come out the way we want them to. So what I simply said is actually the last two trading rooms I’ve been responsible for closing, not John [Thain]. And it was my decision that when I got there we had people spread out in four rooms and I thought we would have a much tighter community and it would be easier to get things done if we put everybody in the two larger rooms. So we then encouraged all the brokers to find space in the two larger trading rooms, and we took a three or four-step process and we consolidated the specialists in the front two rooms.

My point at the press conference last week was I don’t plan to close the trading floor. It is not on my even long list of things to do. I think it is an important part of our brand and of our value proposition. I think we — is it something where we use as a lever, every day, human judgment? No, there are days when it is very quiet; where I think I would be the first to admit and some of most of the floor community that it is not a differentiator. In periods like expirations, in periods of higher volatility like we saw last August and this past January, I think it is quite a differentiator because everyone else doesn’t have a lever they can pull. So when you get into volatile periods like that, people want to use the floor or they want to get human judgment involved or they want to use the experts. So I don’t see that going anywhere. And in fact, on the back of the AMEX acquisition we will be reoccupying two of the rooms that we vacated. They will have a small equity floor in the back and a small options floor in the back. So we will be back to where we are
using four rooms again.

That shouldn’t be interpreted to suggest that we don’t embrace technology. We do. We are improving the technology all the time. But the decision on how the floor is staffed is not up to me and Christian’s question is one that we get a lot. Remember no one in the specialist community actually works for NYSE Euronext. So their staffing decisions are reasonably independent ones. All we ask is that they have enough people that as we improve the technology they are able to do things more efficiently. We just ask that they have enough people that they can do their job effectively and that is really their job and that is how we work it out.

The same with the broker community. I view my job as giving the broker community on the floor the opportunity to run a business and to be successful. What they do with that opportunity is up to them. The guys that leave have said to me, I see you giving us the opportunity. I just can’t evolve my business model or I don’t have the relationships to make it work in the new era. Other people have said, thanks for the opportunity. we’re going to make it work, and they are really running what I would call agency brokerage businesses just like you would have right here in an office in midtown; they just happen to have their office on the floor of the New York Stock Exchange instead.

So I think the floor population certainly could get smaller as we roll out more technology, but it is not our plan to close it or to make it all electronic all the time. That is not even anything we are contemplating.

UNIDENTIFIED PARTICIPANT: How much smaller do you think it could get?

DUNCAN NIEDERAUER: I think you could consolidate the two rooms into one. Because I think as we roll out more technology and we change some of the rules, it is easier for more of the risk management of the specialists books to be done remotely. So I think they would need fewer people on the floor, and I wouldn’t stand in the way of that — so I could see us just being in the main room eventually. Again, not imminent but I could see that.

UNIDENTIFIED PARTICIPANT: In terms of numbers what does that mean?

DUNCAN NIEDERAUER: We are at about 650 now; in terms of this is not including the AMEX people who will come, so we are about 650 license holders now. And there is probably another 200 people down there every day you don’t hold a license, that are just clerical and things like that. So could that go down by another 15% or 20%? Sure. Is it going to zero? No time soon, probably never.

UNIDENTIFIED PARTICIPANT: Over what period is this new technology going to be rolled out?

DUNCAN NIEDERAUER: We’re in the process of doing it, and we’ve been doing it for the last year and I would say the rest of it will be rolled out kind of by October and November this year.

UNIDENTIFIED PARTICIPANT: So that 15%, 20% could be (multiple speakers).

DUNCAN NIEDERAUER: By the end of the year, yes, I could see that.

UNIDENTIFIED PARTICIPANT: But you could see a situation where you keep the floor but really it is not the main operating center in any way. It is like your marketing –.

DUNCAN NIEDERAUER: Yes, you could argue it is not — 90% of the business is done electronically now. So you could argue that whether that number is 10 — in August and January that 90% was 70%. So all I have said to the floor personnel is you are not needed in every trade anymore. So let’s get you involved when you are needed and when you’re adding value; let’s not force the equation, let’s try to find equilibrium, and let’s not create disequilibrium. So I think by us keeping it some people think we are overprotecting it. We are not. We just say the market is going to tell us what to do. The market is telling us get faster. The market is saying this is the market model I want you to have; we think we’ve got the pricing about right and then people just decide and they do what they want to do. But I like the lever.

UNIDENTIFIED PARTICIPANT: Is there a danger from a marketing perspective that there won’t be enough people there and there are occasions when (inaudible) and doesn’t seem quite like the old (multiple speakers).

DUNCAN NIEDERAUER: There were 2000 people there and now there are about 800. So it is not like the old NYSE, and it’s never going to be like the old NYSE. If it were that would mean we completely did not embrace technology and we failed to evolve and we are not going to make that mistake and I think everybody gets it. So we will probably have closer to 1000 people when we bring the AMEX folks over and the equity group will probably come over in November and the options group will probably come over in February and then we will just see what has happened with our own technology between now and then and ultimately you take what the market gives you. You can’t take more.

UNIDENTIFIED PARTICIPANT: Is there a danger that my kid’s kids will be shown this kind of almost like Disneyland type of thing in 20 years time?

DUNCAN NIEDERAUER: I don’t know. It doesn’t seem that way to me, but I am in the minority. So everybody certainly thinks that’s the case. I don’t — even if it just ends up being for the brokers, I think it is quite an interesting proposition for an agency brokerage that they can’t have anywhere else in the world. So as long as there is price discovery and periods of volatility or at the open and close every day, I think those agents down there can run as successful a business as someone could in midtown if they’ve got the right relationships. And yet they have proximity to another feature of their business model that no one else sitting here [in midtown] can have. But look, I said when I got there, I thought I would be there for four or five years and so would the floor. And one year down the rest to go, see how they go.

Happy Monday, folks. Or is that an oxymoron? On This Day (NYTimes.com) in 1897 came perhaps the greatest quote in journalism history, when Mark Twain told the New York Journal that the “report of my death was an exaggeration.”

Today also is the 67th birthday of the excellent Charlie Watts, drummer for the Stones. I’ve always admired his ability to perfectly match his performance to the tune, no matter whether it’s a propulsive rocker or a subtle ballad.