Permit me a brief stroll down memory lane.
Embattled NYSE Chair and CEO Dick Grasso resigned on September 17, 2003 amidst controversy over his alleged $190 million compensation package. On May 24, 2004, Grasso was sued by New York State Attorney General Eliot Spitzer, who sought repayment of the bulk of the pay package. In 2008 the New York State Court of Appeals dismissed all claims against Grasso.
Contemporaneous with the Grasso affair, there was a great deal of concern about regulatory failures at the NYSE. If you forgot about all of that, you might refresh your memory by reading the Securities and Exchange Commission's April 12, 2005, Press Release. Here's the snappy title to that press release:
SEC CHARGES THE NEW YORK STOCK EXCHANGE WITH FAILING TO POLICE SPECIALISTS
NYSE Agrees to Settlement With SEC, Including Censure, Cease and Desist Order, $20 Million Fund for Regulatory Auditor, and Audio-Video Surveillance
In pointed language, the SEC press release stated:
Specifically, the Commission's Order finds that from 1999 through 2003, various NYSE specialists repeatedly engaged in unlawful proprietary trading, resulting in more than $158 million of customer harm. The improper trading took various forms, including "interpositioning" the firms' dealer accounts between customer orders and "trading ahead" for their dealer accounts in front of executable agency orders on the same side of the market. From 1999 through almost all of 2002, the NYSE failed to adequately monitor and police specialist trading activity, allowing the vast majority of this unlawful conduct to continue. The illegal trading went largely undetected because the NYSE's regulatory program was deficient in surveilling, investigating and disciplining the specialists' trading violations.
Some seven years ago, on January 5, 2004, New York Senator Charles Schumer issued a press release about the future of the New York Stock Exchange. No, that's not a typo -- it was 2004. Rather than risk being accused of editorializing or putting a spin on the Senator's January 2004 comments, I have reprinted them verbatim here
Its Future In Question, Political, Business, And Labor Leaders Rally To Keep NYSE The Number One Equities Exchange In The World
Bloomberg, Spitzer, Hevesi, Silver, Thompson, REBNY, ABNY, Alliance for Downtown New York, New York City Partnership and New York City Central Labor Council join Schumer to affirm that reform must occur for the New York Stock Exchange's own good - but can't undermine exchange's pre-eminence
Many competing financial interests are out to undo the NYSE - tens of thousands of New York jobs
US Senator Charles E. Schumer was joined today by political leaders including New York City Mayor Michael R. Bloomberg, New York State Attorney General Eliot Spitzer, New York State Comptroller Alan G. Hevesi, New York State Assembly Speaker Sheldon Silver and New York City Comptroller William C. Thompson, Jr. in support of reforming the New York Stock Exchange to ensure that it remains the number-one equities exchange in the world. Schumer was also joined by New York City Central Labor Council President Brian McLaughlin and business leaders including Dr. Henry McKinnell - Chairman and Chief Executive Officer of Pfizer, Robert Catell - Chairman and CEO of KeySpan Energy, Eugene Mc Grath - Chairman, President and CEO of ConEd, Thomas Renyi - Chairman and CEO of The Bank of New York, Steven Spinola - President of the Real Estate Board of New York, Kathy Wylde - Chief Executive Officer of the New York City Partnership, Carl Weisbrod - President of the Alliance for Downtown New York, and Michelle Adams - Executive Director of the Association for a Better New York.
The leaders affirmed that reform must occur for the New York Stock Exchange's own good, but that reform cannot in any way undermine its preeminence. With competing financial interests out to undermine the Exchange, Schumer and the others said that tens of thousands of New York jobs could be at risk if the needed reforms are done in the wrong way.
The following is Senator Schumer's remarks on reform at the New York Stock Exchange:
Good morning. I want to thank everyone who is here today, and I want to acknowledge two people who were not able to be here today. First, my friend and colleague Senator Hillary Clinton. We've spoken about the importance of the NYSE so many times, and while she could not stand with us today in person, she stands firmly with us in spirit and in commitment to preserving the NYSE as the premier equities exchange in the world. And Governor George Pataki - who also could not join us today. The Governor and the Mayor laid the groundwork, literally, for today's event in November, when they announced a new vision to maintain and even improve the security of the Wall Street area while improving the street scape around the New York Stock Exchange. At that time, the Governor said "The New York Stock Exchange is the heart and soul of Lower Manhattan - the nexus of the Financial Capital of the World." I don't think any of us here could agree more.
But in addition to needing a physical refurbishment, I think we all know that Wall Street needs an institutional refurbishment, and that's why we are here today.
The New York Stock Exchange is vital to New York's future. It employs thousands and creates tens of thousands of ancillary jobs. The fifteen hundred NYSE employees and three-thousand-plus trading floor personnel are just the beginning. I think we all know that so many business in Lower Manhattan and thousands more across the region owe at least part of their revenue to the financial services associated with the NYSE.
The NYSE is vital to the recovery of New York's downtown. More than any other institution, its presence helps make New York City the Financial Capital of the World. If you take away the NYSE, New York could well lose its centrality as the Financial Capital of the World. One could not even think of a greater blow to New York's economy than the demise - or even the diminution - of the NYSE.
It is not a certainty that the NYSE will stay here forever. History is replete with examples of exchanges losing their edge and vanishing within a short period of time. For much of the 19th century, the New Orleans Cotton Exchange was America's premier cotton trading market. But when new communications innovations enabled an upstart site in New York to offer better prices, New Orleans found itself under siege. Within a few years, all the trading on the New Orleans market had shifted to New York, and New Orleans was never able to recover.
So today the New York Stock exchange NYSE is the world's largest equities market; with more than 2,700 listed companies, with a total global market capitalization of more than $16 trillion, with almost $50 billion changing hands each trading day, and with an average daily volume of 1.4 billion shares, But just like it was not always this way, it might not always be this way.
There are two issues swirling about the exchange. One is reform. Reform relates to the governance of the exchange and to issues of enforcement, how the board should be structured, how brokers should be disciplined and how executives should be paid. The other is structure. Structure relates to how stocks should be traded; how much should be done electronically and how much should be handled by humans (specialists). Reform and structure are often confused.
Reform is clearly warranted at the exchange. There clearly have been excesses and these must be corrected. Some of us think the changes that are in the process of being made thus far should be tried before moving further along, others of us think more change is needed now. But we agree that reform must occur for the exchange's own good. And every wrongdoer should be punished, and rules and governance must change to make sure they don't happen again. But we must not throw out the baby with the bathwater. In the zeal to reform the exchange we must not undermine its role as the deepest, most liquid and most transparent market for equity trading in the world. There are many institutional competitors within the financial services industry who are using reform to undermine the existence of the stock exchange itself. And the Frankfort and the London Exchanges would each be all to happy to take the mantle of number-one-in-the-world away from New York Stock Exchange.
Changes in the structure of how stocks are traded (as opposed to reform) will also have to occur to keep the exchange preeminent, but those should proceed carefully and slowly to avoid fragmentation of the markets and to avoid elimination of the exchange.
We have faith that the new team of Reed and Thain will address this issue carefully and thoroughly. They should not be pushed into wrong and untenable solutions by those who seek the replacement of the exchange with something else. And speaking of John Reed and John Thain, I should note that this event was planned independent of the NYSE - they weren't even informed until the weekend, by which time the event had been fully set-up.
In conclusion, we are here united to stand behind keeping the NYSE the preeminent equity trading exchange in the world. We may disagree on the details of reform and even on the details of structure, but every one of us stands here to say that we will do everything we can to keep the NYSE as number one equities exchange in the world. Thank you.
What can I say? I mean, really? Talk about too little, too late. Talk about seeing a train barreling down the tracks at you and not getting out of the way.
For starters, let's consider some of Senator Schumer's reform-minded colleagues who joined him during his speech or were cited by him in his remarks.
Quite a cast of characters involved in that 2004 effort to reform the NYSE and keep it "The Number One Equities Exchange In The World." Still, it must have been a stirring day on January 5, 2004, with all those civic leaders giving some fine speeches and posing for the cameras. Sadly, the speechifying was simply that: hollow words.
Schumer's Big But
If you carefully read Senator Schumer's remarks, you will note the "buts." He calls for reform but. But it can't be too dramatic. But it can't hamstring the NYSE. But it shouldn't be one-sided. But. But. But. But. Well, guess what? Senator Schumer and others ensured that Wall Street reform came with a huge BUT. After the rhetoric of 2004 died down, the stock markets skyrocketed and no one really cared about drafting the tough language of regulatory reform. Leave it for a rainy day. The Grasso thing will fade. Who really cares about another SEC regulatory initiative?
And then the markets crashed. And then the Great Recession came perilously close to another Great Depression. Then, one by one, those great pillars of New York's financial community -- Bear Stearns, Lehman Brothers, and others -- collapsed. And now there's a huge "For Sale" sign on the NYSE.
Perhaps you read Senator Schumer's most recent comments about the NYSE? Yes, his points and tone have changed dramatically in seven years. As reported by Aaron Elstein in, "Schumer Calls for New York Stock Exchange to Retain Its Name" (Crains New York Business, February 13, 2010), the Senator said:
Sen. Charles Schumer said the New York Stock Exchange brand must not only survive if the company merges with Deutsche Borse, but it must also come first in whatever name the combined company adopts.
"Some may say what's in a name, but I say a lot," Sen. Schumer said Sunday in his first public remarks on the merger talks, which were revealed last week. "The New York Stock Exchange is a symbol of national prestige, and its brand must not suffer under this merger."
He warned that if Deutsche Borse, whose shareholders stand to own about 60% of the combined company, do not give way on this matter, the entire merger could run into significant regulatory and political roadblocks.
My, how times change! It's no longer a concern that the NYSE be first among international stock exchanges. Now we're up in arms about where the NYSE acronym will be positioned in the new name for the new exchange that will have a majority German owner. You must understand that for the New York Senator, preserving the primacy of the name "New York" in this new exchange is of national urgency. Of course, this coming from the Senator of a state whose two professional football teams play in New Jersey.
Institutions are not guaranteed permanence. Tastes change. Fashions come and go. New technology brings obsolescence. Inept management propels businesses into insolvency. Lax regulation damages credibility and consumer confidence. All of which Senator Schumer apparently saw coming in 2004, when he noted:
It is not a certainty that the NYSE will stay here forever. History is replete with examples of exchanges losing their edge and vanishing within a short period of time.
The senior Senator from New York was quite prescient, if only he had been more forceful in leading the reform of Wall Street. Alas, no point crying. What's done is done.
Let me tell you and the good Senator a tale from history. I think you all might enjoy this one.
Legend has it that as Boabdil abandoned the last of Moorish Spain and went into exile, he turned for one final view of his beloved Granada. It is said that he cried upon setting his eyes upon his home for what he knew would be the last time.
In one of the great reproaches of history, Boabdil's mother savaged her son for time immemorial with these scathing words:
"Thou dost weep like a woman for what thou couldst not defend as a man."
Senator Schumer, take one last fond look at the Alhambra that is the New York Stock Exchange. Wipe your eyes.