The new Nasdaq marketplace

183 Pages·2007·1.32 MB·English

by  Robert A. Schwartz

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
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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.