Table Of Content

THE NEW NASDAQ MARKETPLACE Zicklin School of Business Financial Markets Series Robert A. Schwartz, Editor Baruch College/CUNY Zicklin School of Business New York, NY, USA Other books in the series: Schwartz, Robert A., Byrne, John A., Colaninno, Antoinette: Electronic vs. Floor Based Trading Schwartz, Robert A., Byrne, John A., Colaninno, Antoinette: Coping with Institutional Order Flow Schwartz, Robert A., Byrne, John A., Colaninno, Antoinette: A Trading Desk View of Market Quality Schwartz, Robert A., Byrne, John A., Colaninno, Antoinette: Call Auction Trading: New Answers to Old Questions Schwartz, Robert A., Byrne, John A., Colaninno, Antoinette: Regulation of U.S. Equity Markets THE NEW NASDAQ MARKETPLACE edited by Robert A. Schwartz, John Aidan Byrne and Antoinette Colaninno RobertA.Schwartz ZicklinSchoolofBusiness BaruchCollege CUNY JohnAidanByrne AntoinetteColaninno ZicklinSchoolofBusiness BaruchCollege CUNY LibraryofCongressControlNumber:2007921683 ISBN-10:0-387-48600-3 e-ISBN-10:0-387-48601-1 ISBN-13:978-0-387-48600-0 e-ISBN-13:978-0-387-48601-7 Printedonacid-freepaper. ©2007SpringerScience+BusinessMedia,LLC Allrightsreserved.Thisworkmaynotbetranslatedorcopiedinwholeorinpartwithoutthewritten permissionofthepublisher(SpringerScience+BusinessMedia,LLC,233SpringStreet,NewYork, NY10013,USA),exceptforbriefexcerptsinconnectionwithreviewsorscholarlyanalysis.Use in connection with any form of information storage and retrieval, electronic adaptation, computer software,orbysimilarordissimilarmethodologynowknownorhereafterdevelopedisforbidden. The use in this publication of trade names, trademarks, service marks and similar terms, even if theyarenotidentifiedassuch,isnottobetakenasanexpressionofopinionastowhetherornot theyaresubjecttoproprietaryrights. 9 8 7 6 5 4 3 2 1 springer.com Contents List of Participants vii Conference Sponsors ix Preface xi Chapter 1: Reengineering a Marketplace 1 Chapter 2: Keynote Address, Gerald Putnam 13 Chapter 3: Recent Developments at NASDAQ 21 Chapter 4: The NASDAQ Marketplace 37 Chapter 5: Reflections from the Sell-Side 55 Chapter 6: Reflections from the Buy-Side 73 Chapter 7: Dialog with Robert Greifeld 93 Chapter 8: NASDAQ’s Electronic Closing Cross: An Empirical Analysis 103 Chapter 9: NASDAQ’s Closing Cross: Has Its New Call Auction Given NASDAQ Better Closing Prices? Early Findings 133 Participant Biographies 157 Index 173 List of Participants Paul Arlman* *At the time of the conference, Mr. Arlman was Secretary General of the Federation of European Securities Exchanges. Kim Bang Bloomberg Tradebook CEO Andrew Brooks T. Rowe Price Associates VP & Head of Equity Trading Jeffrey Brown Charles Schwab & Co., Inc. Senior Vice President William Christie Vanderbilt University Professor of Finance Chris Church Radianz, Inc. Executive Vice President Christopher Concannon The NASDAQ Stock Market, Executive Vice President Inc. Paul Davis* *At the time of the conference, Mr. Davis was Managing Director at TIAA-CREF Investment Management. Robert Felvinci Alliance Capital Management Senior Vice President Anthony Fortunato* Instinet, LLC *At the time of the conference, Mr. Fortunato was Director, US Equity Sales & Trading at Nomura Securities International. Reto Francioni* Deutsche Börse CEO *At the time of the conference, Dr. Francioni was Chairman of SWX Swiss Exchange. Roger Freeman Lehman Brothers Analyst Adena Friedman The NASDAQ Stock Market, Executive Vice President Inc. Robert Greifeld The NASDAQ Stock Market, President & CEO Inc. Allan Grody Financial Intergroup Advisors President William Harts Banc of America Securities List of Participants viii Frank Hatheway The NASDAQ Stock Market, Chief Economist Inc. Robert Hegarty TowerGroup Securities & Managing Director Investments Group Peter Jenkins New York Stock Exchange Senior Vice President Nari Jote Baruch College, CUNY Professor Andrew Kagan Lava Trading Inc. VP, Product Management David Krell International Securities President & CEO Exchange Matthew Lavicka Goldman Sachs Managing Director Mark Madoff Bernard L. Madoff Investment Director of Listed Trading Securities Miranda Mizen American Stock Exchange Vice President Michael Murphy* Piney Run Capital LLC Founder and President *At the time of the conference, Mike Murphy was Institutional Client Relationship Manager at Wachovia Securities. Terry O’Connor Cedar Creek Management Investment Manager Michael Pagano Villanova University Assoc. Professor of Finance Gerald Putnam* NYSE Group, Inc. President and Co-COO *At the time of the conference, Mr. Putnam was CEO of ArcaEx. In March 2006, ArcaEx merged with the New York Stock Exchange to form the NYSE Group. Brett Redfearn Bear, Stearns & Co., Inc. Senior Managing Director Richard Repetto Sandler O’Neill & Partners Principal C. Thomas Richardson Citigroup Managing Director Howard Ross Baruch College, CUNY Professor Dan Royal Janus Capital Group Co-Head of Equity Trading Stephen Sax Floor Brokers Network Vice President Justin Schack Institutional Investor Magazine Reporter Jamie Selway White Cap Trading Managing Director Jeffrey W. Smith The NASDAQ Stock Market, NASDAQ Economic Inc. Research Benn Steil Council on Foreign Relations Senior Fellow and Director of International Economics Bruce Turner CIBC World Markets Corp. Managing Director Lisa Utasi* Legg Mason *At the time of the conference, Ms. Utasi was Senior Equity Trader at Citigroup Asset Management. Wayne Wagner* ITG, Inc. Consultant *At the time of the conference, Mr. Wagner was Chairman of Plexus Group. On January 3, 2006, Plexus Group was acquired by ITG, with whom Mr. Wagner is now a consultant. Don Weeden Weeden & Co. L.P. Executive Vice President Henry Yegerman ITG, Inc. Director Ken Zimmer Frontier Capital Management Senior Trader Conference Sponsors ArcaEx Bloomberg Tradebook LLC INET ITG, Inc. Liquidnet, Inc. The NASDAQ Stock Market, Inc. New York Stock Exchange Pipeline Trading Systems LLC Plexus Group Putnam Lovell NBF Securities Inc. Security Traders Association SWX Swiss Exchange Preface This book is based on the proceedings of The New NASDAQ Marketplace, a conference hosted by the Zicklin School of Business at Baruch College on May 3, 2005. The text contains the edited transcript of the panel discussions and two major presentations, one by Gerald Putnam, President and Co-Chief Operating Officer of the NYSE Group; the other by Robert Greifeld, Chief Executive Officer of the NASDAQ Stock Market. Putnam was CEO of Archipelago at the time of the conference. As with the other books in this popular series, this book is more than an historical record. The manuscript has been heavily edited for clarity and unity of ideas. New material is included from interviews after the conference with many of the speakers. The intention has been to round out the discussions while being careful not to sacrifice the essential nature of the original dialogue. A paper is included by Pagano and Schwartz1, and a separate paper by Jeffery Smith on the NASDAQ crosses is also provided.2 The former paper is the basis of Michael Pagano’s remarks on the first panel, “Reengineering a Marketplace.” All through the editing process, we worked closely with the panelists so that we did not to put words in their mouths. They have all approved the final draft and we thank them here for their assistance. We also gratefully 1 Reprinted, with permission, from Pagano, M. and Schwartz, R., “NASDAQ’s Closing Cross: Has its new call auction given NASDAQ better closing prices? Early Findings,” Journal of Portfolio Management, Volume 31, Number 4, Summer 2005, pp. 100-111. 2 This article is reprinted with permission from Institutional Investor, Inc. It originally appeared in the Summer 2006 issue of the Journal of Trading. It is illegal to make unauthorized copies of this article. For more information please visit www.iijournals.com. All Rights Reserved.