King of The Club
Say what you want about Dick Grasso, former NYSE CEO, but you have to admit that the man kept the NYSE market share at a steady 80%. In the pre Reg-NMS days, the NYSE was the place to trade for NYSE listed stocks. Liquidity was centered at the specialists posts. While many buy side clients had a love/hate relationship with the floor, at the end of the day, they were usually satisfied with their trading. One group that often gets forgotten are the corporate issuers. Back in the days of Dick Grasso, investor relations executives received “color” on their stocks. They knew what was going on. They were not often surprised by 3% up and down moves with no apparent news to explain it like they are now.
Dick Grasso was, as Charlie Gasparino called him, “King of The Club” . For years, when we were at Instinet in the 90’s, we tried increasing our NYSE listed market share but the battle was futile as Grasso seemed always to have a few tricks up his sleeve. We wonder if the black-sock wearing, Client #9, New York Attorney General had not gone after Grasso, what would the NYSE look like today? Would Grasso have been able to see through the destructive forces of Reg NMS? Would he have rallied his troops and been able to show the folks in DC that Reg NMS was about to destroy a central place of liquidity and create a fragmented market that would create artificial arbitrage situations? As we all know by now, Grasso never had the chance and resigned before Reg NMS was implemented.
So what does Dick Grasso think about our current equity market structure? In this very telling Bloomberg television interview with Betty Liu, Dick Grasso lets us know what he thinks:
“I think you’ve got to segment HFT into different buckets. There is a bucket that I’ll call the “trend following” or the “scalping” bucket. Clearly, that hurts the public’s confidence in the market.”
“It’s basically a deployment of technology to follow patterns in the market and run quickly and in front of the public’s participation in the market. That, I think has no place.”
Grasso goes on to say that there are market makers on the NYSE and they need to “be constrained in their definitions to what they can do, by the exchange, and Duncan (Niederauer) I think has a plan to do that.”
“I think that the SEC has to set market making expectations and guidelines.”
“I think we have to find which are the good participants, encourage them, codify them and impose market making standards on them. The rest, “the scalpers”, I think there is no place for them.”
Sounds to us like the NYSE has some plans. Real market maker expectations, standards and guidelines would be a good place to start.