A Linkstock of items I’ve been meaning to post:

Measuring arbitrage in milliseconds (Dow Jones Newswires) — High-frequency traders (who do the majority of the share volume these days) talk about arbitraging between one exchange and another that is milliseconds faster in trade execution.

How to look at the Dow (Portfolio) — Felix Salmon calls it “silly but ubiquitous.”

Adapt, Change, Survive - The DJIA Needs Adjustment (Ticker Sense) — Laszlo Birinyi a bit earlier on the same topic.

Ian Bremmer on sovereign defaults (Portfolio) — The peerless Felix again, interviewing the head of Eurasia Group, which particularly caught my eye because we recently announced that NYSE Euronext is offering Eurasia’s global political risk assessments to listed companies.

New York museum opens exhibit on credit crisis (Reuters) — Sounds like a good effort by the museum to demystify the crisis.

Tails of Manhattan (New Yorker) — Delicious tale (tail?) of revenge against Bernie Madoff, served up by Woody Allen. And to think that Paul Kedrosky was saying just last week that no one writes anything funny about finance.

And one more to close out your made-it-through Monday:

Today in NYSE History
30 March 1981– President Ronald Reagan was shot in an assassination attempt; as the news reached the trading floor, the market closed at 3:17 p.m.

Every now and then your humble blogger still hears mention of Nasdaq’s closing cross, such as this past Tuesday when the cross never crossed, as reported by Bloomberg here.

That event came up in a conversation yesterday with an SAC (strategic-analysis colleague) that went something like this:

Me: On an average day, how many NYSE-listed issues does Nasdaq conduct a closing cross in, assuming the cross is working?

SAC: Twenty-eight.

Me: Twenty-eight, as in twenty-eight hundred?

SAC: No, as in twenty-eight, period.

Me: Oh. So why would people look to use it?

Me: Hello? You still there?

When he gave up trying to answer that question, he informed me that NYSE’s share of trading in its listed issues at the close was 99.95 percent last month. The same measure for NYSE Amex equities was 98.5 percent. NYSE Arca had 99.7 percent of the close in its listed exchange-traded funds (ETFs). My ETF colleagues hasten to remind me that on 12 Jan., the NYSE Arca closing auction crossed a record 31 million shares in SPY, with a notional dollar value of $2.7 billion. The iShares Emerging Market ETF (symbol EEM) consistently crosses more than 1 million shares.

Why such high numbers here? When Nasdaq did compete with us on a close, we had much lower price slippage in our markets — as much as 1/7th that of Nasdaq. Deeper liquidity, more accurate price discovery, broader participation, all at one of the most critical times of the trading day. I don’t know why you’d look to trade the close anywhere else. For that matter, for those of you representing issuers: since setting a fair price for your investors is pretty important too, why would you list anywhere else?

Faithful readers of Exchanges (and I am nothing but grateful for the faithful) know that since last autumn we have talked about the need to reinstate some form of the uptick rule (the rule that until being rescinded in 2007 prohibited selling short on a downtick, which is a downward movement in a stock’s price). Most recently, we discussed this here.

Recently, the Securities and Exchange Commission recently announced that at its April 8 open meeting, it will consider whether to propose short-sale price-test rules. In response, NYSE Euronext’s U.S. markets have joined with the other U.S. exchanges to develop a modernized application of the former uptick rule. This joint proposal for the SEC’s consideration, which is outlined in this letter, calls for:

• A modified version of the “uptick rule,” in which short selling can be initiated only at a price above the highest prevailing national bid and only on a “passive” basis (i.e., through posting a quote and not by “hitting” a bid).

• In combination with this updated tick test, a “circuit breaker” that would trigger the application of the tick test only after the price of a stock has experienced a precipitous decline by a certain percentage, perhaps 10 percent.

In making this proposal, we and the other exchanges are working to balance the interests of investor protection and the liquidity and efficient operation of the markets.

Your comments are welcome, as always.

For those who can’t bear to link away to another page, here’s the full text of the letter:

March 24, 2009

The Honorable Mary Schapiro
Chairman
U.S. Securities and Exchange Commission
100 F Street NE
Washington, DC 20549

Dear Chairman Schapiro:

The United States national securities exchanges welcomed the announcement that the Securities and Exchange Commission (the Commission) will consider a proposal to adopt a rule to combat abusive short selling. Abusive short selling harms investors and the companies listed on our exchanges, and destroys the overall confidence in our capital markets. Our challenge is to restrict abusive short selling while still permitting liquidity creating short selling that continues our status as the most efficient capital market in the world. As you know, we worked closely with the Commission to implement new rules and emergency measures to combat abusive short selling during 2008. We also applaud the Commission for pursuing new restrictions while permitting a full opportunity for comment given the complexity of our markets and the technology that currently supports our markets. Continuously attacking abusive short selling and other manipulative activities is critical to restoring public confidence in the US equities markets.

First, let us commend the Commission in its efforts to attack an abusive form of short selling; “naked short selling” in combination with failures to deliver. On September 17, 2008, 2008, the Commission adopted interim final Rule 204T under Regulation SHO to restrict and penalize brokers and their customers for failures to deliver securities.1 As a result, the number of securities with significant failures to deliver on the “Threshold” lists has decreased by over 95 percent, from over 400 prior to the adoption of the rule to fewer than 20 today.

More recently, there has been a great deal of discussion around reintroducing old rules that were designed to regulate short selling. As operators of the US equities markets that applied the original Short Sale Rule (the “Uptick Rule”) in our trading systems and enforced broker-dealer compliance with that rule, we are well-positioned to help the Commission to review possible short selling restrictions. The original Uptick Rule, whereby short selling could occur only when the last sale was at or above the previous sale, operated for a long period of time, is understood by the trading community, and is supported by issuers. However, the original Uptick Rule would likely prove difficult to implement and enforce in our current penny increment market structure and would not be as prohibitive in today’s market where transaction prices change multiple times in a single second and message traffic has exploded to billions of messages storming down on our markets every day. As such, we are proposing a slightly altered and modernized version of the previous Uptick Rule, which we will refer to as the
“Modified Uptick Rule.”

The Commission can, we believe, adopt a similar but simple, effective and more
prohibitive Short Sale restriction that takes into account how equity trading has changed
over the past several years since the original Uptick Rule was eliminated. The exchanges
have worked in a coordinated and unified approach to craft a proposal that will deliver
appropriate restrictions on abusive short selling practices. Under our Modified Uptick
Rule, short selling can only be initiated at a price above the highest prevailing national
bid by posting a quote for a short sale order priced above the national bid. As such, the
execution of a short sale would occur only at a higher price than the prevailing market at
the time of initiation, and only on a passive basis (i.e., short sales cannot hit bids). This
restriction would greatly assist the prevention of manipulative short selling, which is so
harmful to the markets.

This Modified Uptick Rule is superior to the original Uptick Rule in several ways.
It is conceptually simple, likely to be more effective in dampening downward price
pressure, and easier to program into trading and surveillance systems than the original
Uptick Rule. We understand that no solution is perfect but we believe the Modified
Uptick Rule that we are proposing is the most effective solution to deal with the fastermoving,
post-Regulation NMS trading environment and to reduce downward pressure on
stocks created by abusive short selling. In addition, we believe the most practical and
effective way to structure adherence to the Modified Uptick Rule would be similar to
oversight of the Trade-Through Rule under Regulation NMS. In this vein, the Modified
Uptick Rule would be a policies and procedures requirement, and brokers would have
responsibility for ensuring compliance with the rule before sending a short sale order into
the marketplace. Exchanges could offer order types to assist brokers in performing their
compliance duties, but would rely on a broker’s indication that they had performed the
required due diligence on the order when so indicated.

In combination with the adoption of this Modified Uptick Rule or any short sale
price test, we urge the Commission to also adopt a “Circuit Breaker” that would trigger
the application of the Modified Uptick Rule only after the price of a stock has
experienced a precipitous decline by a certain percentage, perhaps ten percent. Our
national markets and many foreign markets have successfully used circuit breakers on
both broad indexes and individual securities for many years. A Circuit Breaker permits
normal market activity while a stock is trading in a natural range and short selling is more
likely to benefit the market (by, for example, increasing price discovery and liquidity). Conversely, a Circuit Breaker will restrict short selling when prices begin to decline substantially and short selling becomes more likely to be abusive and harmful. The Circuit Breaker is particularly efficient in stable and rising markets because it avoids imposing continuous monitoring and compliance costs where there is little or no corresponding risk of abusive short selling.

We focus here only on the broad concepts of the Modified Uptick Rule and a Circuit Breaker to highlight their importance. There are, of course, details of the Modified Uptick Rule about which the exchanges can and will comment further. For example, with respect to the Modified Uptick Rule, the exchanges have views regarding the benefits of bona fide market making in both equities and options markets, and on the need for clear and precise guidance on what constitutes bona fide market making and for an exemption for market makers. Additionally, we believe firms need to know what policies and procedures they must adopt to promote compliance with the Rule, and whether exchanges can assume that short sale orders have been checked properly for compliance with the Rule.

With respect to the Circuit Breaker, questions exist about the proper reference price for calculating it and about the duration of the Circuit Breaker once triggered. Also, the network processors must determine how to disseminate an indication that a Circuit Breaker has been triggered and, later, lifted. The exchanges, member firms, and network processors must also provide estimates of programming and testing requirements for both the Circuit Breaker and the Modified Uptick Rule. As always, we know the Commission will consider implementing rules in a time-line that carefully balances the risks of the behavior being regulated against the risks of disrupting the very markets that operated efficiently throughout this crisis.

We applaud the Commission for tackling this important and difficult issue. Commission leadership and expertise, along with active engagement by investors, issuers, firms, and exchanges, will lead to a positive outcome and help restore investor confidence in the US equities markets.

Sincerely,

Duncan Niederauer, CEO
NYSE Euronext

Robert Greifeld, Pres. & CEO
The NASDAQ OMX Group, Inc.

Joe Ratterman, CEO
BATS Exchange, Inc.

Joseph Rizzello, CEO
National Stock Exchange

cc: The Hon. Kathleen L. Casey, Commissioner
The Hon. Elisse B. Walter, Commissioner
The Hon. Luis A. Aguilar, Commissioner
The Hon. Troy A. Paredes, Commissioner
Dr. Erik R. Sirri, Director, Division of Trading and Markets

1 See Exchange Act Release No. 58572 (Sept. 15, 2008); Exchange Act Release No. 58166 (July 15, 2008).

There are 3 billion people in 109 countries at risk of getting malaria. In 2006, tuberculosis killed 1.7 million people and there were 9.2 million new cases of the disease. More than 15 million people have been orphaned as a result of AIDS.

“The numbers are almost unbelievable – millions of deaths from some of these diseases, and millions of orphans. The easy or the jaded reaction might be to throw up your hands and say, ‘What can we possibly do? It’s too big,’” says Joerg Reinhardt, CEO of Novartis, in the current issue of nyse magazine.

What Novartis and more than 200 other companies have done — beyond their individual efforts — is to begin working together on these problems under the auspices of the Global Business Coalition on HIV/AIDS, Tuberculosis and Malaria (GBC). Our magazine includes a CEO roundtable among the leaders of four GMC member companies: Novartis AG; Becton, Dickinson and Co.; The Brink’s Co. ; and NYSE Euronext; plus GBC Executive Director John Tedstrom.

I grabbed the magazine for some in-flight reading material on a quick business trip, and was hardly expecting a glimpse at global, life-and-death problems and the necessity and value of working cooperatively to solve them. But there it was, followed by the thought to share this with anyone who hasn’t seen it. So out came the laptop, and here are a few learnings from the article.

Employees are motivated by community involvement. “Our employees – whether they’re nurses, laboratory scientists or just someone who is good with a hammer and can help build a facility – oversubscribe to volunteer programs so they can use their skills, says Becton, Dickinson’s Ludwig.

You don’t have to be a pharmaceutical or medical company to contribute. Michael Dan, CEO of Brink’s, says these diseases are a safety issue for the company’s 50,000 employees around the world, so Brink’s educates its people, makes sure they have access to health care and testing, and localizes its charitable efforts. In the same vein, NYSE Euronext CEO Duncan Niederauer says global health issues are a natural fit an increasingly global company, which is using its visibility to generate attention on these problems, for example hosting a World Malaria Day event.

Big problems can be broken into manageable pieces. “…By working together, breaking actions down to a micro level, we can make some progress with one intervention in one country in one area, then move on to the next one,” says Ludwig. Reducing the health crisis to something that’s actionable will bring more people into it. They’ll say, ‘Okay, I can do that.’”

We have to keep at it. “To put this bluntly, part of it is just that everyone’s attention span is short,” says Duncan. It was more than a decade ago when public figures were providing a very effective messaging campaign. Then it seemed like the world moved on to other issues.”

There’s help for companies thinking about where to start. The GBC recently established a team of five people who help members determine which programs offer companies the biggest impact for their investment of time, money or resources.

As always, your thoughts are welcome, in the comment box below. Have a good weekend, folks.

There are 3 billion people in 109 countries at risk of getting malaria. In 2006, tuberculosis killed 1.7 million people and there were 9.2 million new cases of the disease. More than 15 million people have been orphaned as a result of AIDS.

“The numbers are almost unbelievable – millions of deaths from some of these diseases, and millions of orphans. The easy or the jaded reaction might be to throw up your hands and say, ‘What can we possibly do? It’s too big,’” says Joerg Reinhardt, CEO of Novartis, in the current issue of nyse magazine.

What Novartis and more than 200 other companies have done — beyond their individual efforts — is to begin working together on these problems under the auspices of the Global Business Coalition on HIV/AIDS, Tuberculosis and Malaria (GBC). Our magazine includes a CEO roundtable among the leaders of four GMC member companies: Novartis AG; Becton, Dickinson and Co.; The Brink’s Co. ; and NYSE Euronext; plus GBC Executive Director John Tedstrom.

I grabbed the magazine for some in-flight reading material on a quick business trip, and was hardly expecting a glimpse at global, life-and-death problems and the necessity and value of working cooperatively to solve them. But there it was, followed by the thought to share this with anyone who hasn’t seen it. So out came the laptop, and here are a few learnings from the article.

Employees are motivated by community involvement. “Our employees – whether they’re nurses, laboratory scientists or just someone who is good with a hammer and can help build a facility – oversubscribe to volunteer programs so they can use their skills, says Becton, Dickinson’s Ludwig.

You don’t have to be a pharmaceutical or medical company to contribute. Michael Dan, CEO of Brink’s, says these diseases are a safety issue for the company’s 50,000 employees around the world, so Brink’s educates its people, makes sure they have access to health care and testing, and localizes its charitable efforts. In the same vein, NYSE Euronext CEO Duncan Niederauer says global health issues are a natural fit an increasingly global company, which is using its visibility to generate attention on these problems, for example hosting a World Malaria Day event.

Big problems can be broken into manageable pieces. “…By working together, breaking actions down to a micro level, we can make some progress with one intervention in one country in one area, then move on to the next one,” says Ludwig. Reducing the health crisis to something that’s actionable will bring more people into it. They’ll say, ‘Okay, I can do that.’”

We have to keep at it. “To put this bluntly, part of it is just that everyone’s attention span is short,” says Duncan. It was more than a decade ago when public figures were providing a very effective messaging campaign. Then it seemed like the world moved on to other issues.”

There’s help for companies thinking about where to start. The GBC recently established a team of five people who help members determine which programs offer companies the biggest impact for their investment of time, money or resources.

As always, your thoughts are welcome, in the comment box below. Have a good weekend, folks.

From Todd Wilemon: In a short eight months, the Amex got a complete makeover. The magnitude of what happened was staggering. A new trading floor, a new trading platform, and a new broker trading system all went live on March 2nd despite a winter storm that dumped seven inches of snow on Lower Manhattan. What it means for NYSE Amex Options retail customers and professional traders alike is vastly improved speed, capacity and reliability, with the tighter markets and more liquidity that comes along with superior technology.

Ed Boyle, senior vice president, NYSE Euronext U.S. Options put it best in describing how the new NYSE Amex Options exchange is “customer centric.” Public customers have priority. Whether accessing the exchange via electronic connectivity or through on floor open outcry representation, customers trade first, and they never pay to trade.

Action on the new floor is exciting. As the opening bell rings, brokers are moving around the floor getting quotes and sizing up interest as market makers start streaming quotes electronically into the markets. Phones are ringing, people are yelling and trades start to hit the tape. The distinctive tones of a new IM (instant message) can be heard over the din of activity.

The new floor is in two rooms with circular posts in both. Floor broker operations are located in booths around the perimeter of the rooms. Standing inside the posts are Specialist market maker firms streaming quotes into the electronic market. Gathered around the outer part of the posts are market makers also streaming in electronic market quotes. Everyone has at least two screens to look at and some have even more, all the while keeping an ear out for a Floor Broker sprinting into the crowd with an order for open outcry execution.

Following one of the floor brokers around really gives a taste of what trading is like on the new floor. Imagine dashing into a trading crowd, calling for a market, sizing up interest, executing a trade in open outcry. You clear the book of any customer interest at your price, add the contra parties (those who are taking the other side of the trade) and send the trade to the tape. Whew! All of this on your tablet p.c. hanging from your neck.

The first few days were an adventure, to say the least. Some glitches, both technical and human, were to be expected as people got used to the new digs and new technology. Anyone who has ever connected a new printer or set up a new DVD player knows how one missed setting or one crossed wire leads to frustration and time spent problem solving, but with a fiercely dedicated staff working overtime to provide real time solutions wherever difficulties arose in those first few days, the trading floor quickly gained airspeed and elevation—Lift Off! The brand new NYSE Amex Options exchange, a 21st century marvel of technology and human innovation, is a success story, and it has been a big thrill to be part of this transition.

To all the people who have been involved getting the NYSE Amex options up and running including: exchange staff across all departments and many cities, to trading officials, brokers and clerks, market makers and specialists – GREAT JOB!

Enjoy the new home. The future looks bright.

Trade ‘em up!

TW

From Todd Wilemon: In a short eight months, the Amex got a complete makeover. The magnitude of what happened was staggering. A new trading floor, a new trading platform, and a new broker trading system all went live on March 2nd despite a winter storm that dumped seven inches of snow on Lower Manhattan. What it means for NYSE Amex Options retail customers and professional traders alike is vastly improved speed, capacity and reliability, with the tighter markets and more liquidity that comes along with superior technology.

Ed Boyle, senior vice president, NYSE Euronext U.S. Options put it best in describing how the new NYSE Amex Options exchange is “customer centric.” Public customers have priority. Whether accessing the exchange via electronic connectivity or through on floor open outcry representation, customers trade first, and they never pay to trade.

Action on the new floor is exciting. As the opening bell rings, brokers are moving around the floor getting quotes and sizing up interest as market makers start streaming quotes electronically into the markets. Phones are ringing, people are yelling and trades start to hit the tape. The distinctive tones of a new IM (instant message) can be heard over the din of activity.

The new floor is in two rooms with circular posts in both. Floor broker operations are located in booths around the perimeter of the rooms. Standing inside the posts are Specialist market maker firms streaming quotes into the electronic market. Gathered around the outer part of the posts are market makers also streaming in electronic market quotes. Everyone has at least two screens to look at and some have even more, all the while keeping an ear out for a Floor Broker sprinting into the crowd with an order for open outcry execution.

Following one of the floor brokers around really gives a taste of what trading is like on the new floor. Imagine dashing into a trading crowd, calling for a market, sizing up interest, executing a trade in open outcry. You clear the book of any customer interest at your price, add the contra parties (those who are taking the other side of the trade) and send the trade to the tape. Whew! All of this on your tablet p.c. hanging from your neck.

The first few days were an adventure, to say the least. Some glitches, both technical and human, were to be expected as people got used to the new digs and new technology. Anyone who has ever connected a new printer or set up a new DVD player knows how one missed setting or one crossed wire leads to frustration and time spent problem solving, but with a fiercely dedicated staff working overtime to provide real time solutions wherever difficulties arose in those first few days, the trading floor quickly gained airspeed and elevation—Lift Off! The brand new NYSE Amex Options exchange, a 21st century marvel of technology and human innovation, is a success story, and it has been a big thrill to be part of this transition.

To all the people who have been involved getting the NYSE Amex options up and running including: exchange staff across all departments and many cities, to trading officials, brokers and clerks, market makers and specialists – GREAT JOB!

Enjoy the new home. The future looks bright.

Trade ‘em up!

TW

From Scott Cutler: I have just returned from my first trip to Brazil. Brazil is the world’s fifth-most populous country and the world’s 10th-largest economy in GDP terms. During this trip, I had the opportunity to meet with many of our listed companies, key private and public companies executives and government officials. We also hosted a successful conference in Sao Paulo entitled, “Capitalize on the Potential: The Value of a U.S. Listing for Brazilian Companies.” The trip was covered by key financial newspapers and magazines.

Some key takeaways from my trip:

Strong Brazilian Franchise at the NYSE

NYSE’s partnership with Brazil began in 1992 with the listing of Aracruz Celulose (NYSE: ARA), one of the largest pulp and paper companies in the world. Since then, many Brazilian companies from different sectors have joined our franchise. In fact, the number of Brazilian companies listed on the NYSE has increased six-fold, from five in 1997 to 32 today. Brazil is the third-largest country in terms of number of listed companies, after Canada and China. The combined market capitalization of all Brazilian companies on the NYSE is approximately $700 bn. These companies represent the diversity of the Brazilian economy.

Trading of Brazilian stocks on the NYSE has increased dramatically in the last few years at a compound annual growth rate of 80% during 2002-2008. In 2008, the average daily trading value reached $3.7bn, representing 25% of the total trading among all non-US companies listed on the NYSE. This is a reflection of the large interest by US institutional and retail investors in the Brazilian economy. The average daily trading value of the 32 Brazilian companies on the NYSE far exceeds the value of the 400+ Brazilian companies listed on the Brazilian exchange, BM&FBovespa.

Brazil’s Strong Financial System

I was very impressed with the soundness of the Brazilian financial system. Brazilian banks have shown no signs of being contaminated by problematic assets and are showing healthy balance sheets. Interest rates remain relatively high at around 12%, with expectations that rates may dip below 10%, a rate that “had never been seen” by tenured executives at the largest banks. However, Brazil today is very different from its turbulent past. Before the economic stabilization plan was introduced in 1994, Brazilian banks had successfully adjusted to operating in an environment of hyperinflation where they overextended their branch network throughout the country in order to benefit from deposits. When the stabilization plan became effective, banks had to readjust to new market conditions to survive. The Brazilian government stepped in to stabilize the situation by (1) reducing the number of banks as it encouraged consolidation, (2) allowing foreign ownership; and (3) transferring control of troubled banks. These changes taken by the Brazil’s Central Bank were key in preventing the failure of the Brazilian financial system. The rest of the world could learn from Brazil’s experience in separating good assets from bad assets. In 2009, creditors are still realizing returns from bad assets.

Brazil’s Economy is Massive and Will Continue to Grow

Brazil has become a powerhouse in the last decade. GDP has grown 5% consecutively in the last three years (2% on average in the last 10 years), and Brazil has done a phenomenal job by diversifying its exports and not relying on commodities alone. The strong domestic market, fueled by a growing middle class, is keeping the economy moving. However, the global crisis has not left Brazil untouched. GDP contracted 3.6% in the fourth quarter of last year when compared to previous quarter, and economists are predicting that Brazil’s growth for 2009 could be less than 1%.

In meetings with key government finance officials, we heard that the Brazilian stimulus plan consists of nearly 300 shovel-ready projects and $90 bn of investments in the pipeline, the Petobras (NYSE: PBR) investment program of approximately $10 bn and a doubling in investment in credit and subsidies for housing and large investments in agribusiness.

The Brazilian Central Bank has been proactively monitoring the economy. Last week it cut rates100 basis points, lowering Brazil’s interest rate to almost 11%, still one of the highest in the world. Inflation is low in comparison to previous years; it is currently around 5.5%. Brazil does have many challenges ahead: the real, Brazil’s currency, has lost more than 30% against the US dollar since the summer of 2008; there is much poverty, high taxes and a strong need for improvement in the education and health-care system.

Nonetheless, Brazil is better prepared than ever to get through the global crisis, and is expected to emerge from it earlier than other countries, because of its solid financial system, and the government investment programs in key areas such as infrastructure, housing and agriculture.

This trip left me very bullish on the growth prospects of the Brazilian economy. We at the NYSE Euronext remain extremely committed to Brazil.

From Scott Cutler: I have just returned from my first trip to Brazil. Brazil is the world’s fifth-most populous country and the world’s 10th-largest economy in GDP terms. During this trip, I had the opportunity to meet with many of our listed companies, key private and public companies executives and government officials. We also hosted a successful conference in Sao Paulo entitled, “Capitalize on the Potential: The Value of a U.S. Listing for Brazilian Companies.” The trip was covered by key financial newspapers and magazines.

Some key takeaways from my trip:

Strong Brazilian Franchise at the NYSE

NYSE’s partnership with Brazil began in 1992 with the listing of Aracruz Celulose (NYSE: ARA), one of the largest pulp and paper companies in the world. Since then, many Brazilian companies from different sectors have joined our franchise. In fact, the number of Brazilian companies listed on the NYSE has increased six-fold, from five in 1997 to 32 today. Brazil is the third-largest country in terms of number of listed companies, after Canada and China. The combined market capitalization of all Brazilian companies on the NYSE is approximately $700 bn. These companies represent the diversity of the Brazilian economy.

Trading of Brazilian stocks on the NYSE has increased dramatically in the last few years at a compound annual growth rate of 80% during 2002-2008. In 2008, the average daily trading value reached $3.7bn, representing 25% of the total trading among all non-US companies listed on the NYSE. This is a reflection of the large interest by US institutional and retail investors in the Brazilian economy. The average daily trading value of the 32 Brazilian companies on the NYSE far exceeds the value of the 400+ Brazilian companies listed on the Brazilian exchange, BM&FBovespa.

Brazil’s Strong Financial System

I was very impressed with the soundness of the Brazilian financial system. Brazilian banks have shown no signs of being contaminated by problematic assets and are showing healthy balance sheets. Interest rates remain relatively high at around 12%, with expectations that rates may dip below 10%, a rate that “had never been seen” by tenured executives at the largest banks. However, Brazil today is very different from its turbulent past. Before the economic stabilization plan was introduced in 1994, Brazilian banks had successfully adjusted to operating in an environment of hyperinflation where they overextended their branch network throughout the country in order to benefit from deposits. When the stabilization plan became effective, banks had to readjust to new market conditions to survive. The Brazilian government stepped in to stabilize the situation by (1) reducing the number of banks as it encouraged consolidation, (2) allowing foreign ownership; and (3) transferring control of troubled banks. These changes taken by the Brazil’s Central Bank were key in preventing the failure of the Brazilian financial system. The rest of the world could learn from Brazil’s experience in separating good assets from bad assets. In 2009, creditors are still realizing returns from bad assets.

Brazil’s Economy is Massive and Will Continue to Grow

Brazil has become a powerhouse in the last decade. GDP has grown 5% consecutively in the last three years (2% on average in the last 10 years), and Brazil has done a phenomenal job by diversifying its exports and not relying on commodities alone. The strong domestic market, fueled by a growing middle class, is keeping the economy moving. However, the global crisis has not left Brazil untouched. GDP contracted 3.6% in the fourth quarter of last year when compared to previous quarter, and economists are predicting that Brazil’s growth for 2009 could be less than 1%.

In meetings with key government finance officials, we heard that the Brazilian stimulus plan consists of nearly 300 shovel-ready projects and $90 bn of investments in the pipeline, the Petobras (NYSE: PBR) investment program of approximately $10 bn and a doubling in investment in credit and subsidies for housing and large investments in agribusiness.

The Brazilian Central Bank has been proactively monitoring the economy. Last week it cut rates100 basis points, lowering Brazil’s interest rate to almost 11%, still one of the highest in the world. Inflation is low in comparison to previous years; it is currently around 5.5%. Brazil does have many challenges ahead: the real, Brazil’s currency, has lost more than 30% against the US dollar since the summer of 2008; there is much poverty, high taxes and a strong need for improvement in the education and health-care system.

Nonetheless, Brazil is better prepared than ever to get through the global crisis, and is expected to emerge from it earlier than other countries, because of its solid financial system, and the government investment programs in key areas such as infrastructure, housing and agriculture.

This trip left me very bullish on the growth prospects of the Brazilian economy. We at the NYSE Euronext remain extremely committed to Brazil.

CDS pool deep, cross-Atlantic rules may vary-execs (Reuters) Excerpt:

Top executives of the exchanges vying to clear credit derivatives say there is room for several to succeed, and they expect to deal with different regulators in different regions as the global market evolves. …

… Garry Jones, NYSE Euronext’s head of global derivatives, said it is very likely there will be different CDS regulatory solutions in Europe and the United States. “It is so complicated that it is impossible to bring in a global solution at this stage,” he said.

Autism Speaks Celebrates Second Annual World Autism Awareness Day with an Array of International Events on April 2; New York Stock Exchange Bell-Ringing, Yoko Ono Lennon Event at the UN, and “Walk on the Web” Highlight Global Autism Awareness Activities (PR Web) Excerpt:

Autism Speaks, the world’s largest autism science and advocacy organization, today announced a series of national and international events to mark the second annual celebration of World Autism Awareness Day, a global effort to heighten awareness about a disorder affecting millions of individuals and families around the world. WAAD is a result of a resolution passed unanimously by the United Nations General Assembly in 2008, making autism one of only three health issues to be recognized by the UN with its own “day.” The April 2 events will take place on multiple continents and in venues ranging from the floor of the New York Stock Exchange to the United Nations and the Worldwide Web.

Autism Speaks Co-Founders Bob and Suzanne Wright, together with Autism Speaks Board Member Alison Niederauer - who has a son on the autism spectrum and is the wife of NYSE Euronext CEO Duncan Niederauer - will join other families affected by autism to kick off World Autism Awareness Day (WAAD) at the New York Stock Exchange, where they will ring the opening bell for the second consecutive year.

The Great Fire of 1835 (The Bowery Boys: New York City History) Excellent blog post with illustrations, and even better podcast; excerpt:

The Great Fire of 1835 devastated the city during one freezing December evening, destroying hundreds of buildings and changing the face of Manhattan forever. It underscored the city’s need for a functioning water system and permanent fire department. So why were there so many people drinking champagne in the street?

Hope your Monday has not been not too manic. Will be traveling the next day and a half, so posting here will be a little quiet.