NYSE Double Downs on a Bad Bet


It really is sad to watch the once venerable New York Stock Exchange continue to stoop to new lows in order to protect their fragmented and conflicted business model.  Earlier this week, NYSE President Stacey Cunningham was on Fox Business complaining about how unfair the transaction fee pilot was for the NYSE. She claimed the pilot would hurt investors and issuers since they would be “ending up in a worse price”. However, she did concede that the complexity of the market “hurts investor confidence” but complained the SEC was only focusing on the lit market and not the off-exchange markets. In the original Fox News article about this interview, they quoted Ms. Cunningham as saying she was going to present her case directly to President Trump. The article was titled, “NYSE president seeks Trump help for iconic exchange”:


But for some reason, the original article was changed and the talk about visiting the President was dropped. Maybe NYSE changed their mind? Or, maybe someone told NYSE how weak and desperate it made them look?

Yesterday, NYSE filed another comment letter about the transaction fee pilot.  But this time, rather than bringing new facts to their argument, they chose to directly attack one of their competitors, IEX.  Here is one example of their attack from the letter:

“By any objective measure, IEX has failed to have a meaningful impact as an exchange. So how does it try to cling to relevance when its high-cost, low-volume business model is jeopardized? By blaming others and disparaging NYSE’s name to attract attention.”

We have no idea what NYSE is talking about but it’s clear from their letter that IEX has gotten under their skin. Unfortunately, rather than act in a civil manner, NYSE has decided to pick a fight with IEX and they have used the SEC’s public comment section of the proposal to sling their mud. We don’t think they are doing themselves any favors with the SEC by using this forum to fight with a competitor.  NYSE should know better than this and we think they made a serious mistake here. 

In addition to fighting with another stock exchange, NYSE has convinced more than two dozen public companies to write letters against the pilot which puts them at odds with some of their largest institutional shareholders who are supporting the pilot.  Yesterday, Gretchen Morgenson from the Wall Street Journal wrote a piece on this titled “NYSE Opposition to Trading-Fee Review Puts Companies and Some Shareholders at Odds” where she notes:

 “By following the NYSE’s direction, these companies are aligning themselves against some of their biggest investors. Because the NYSE also acts as regulator of its listed companies, it brings considerable leverage when it urges listed companies to oppose a program it is against.”

This is a critical point.  Since NYSE acts as a regulator for companies that list on their exchange, are they using their influence to push companies to support their agenda?  Based on the cookie-cutter letters that have been written by these public companies, it appears to us that they really don’t understand the inner workings of the US equity market and were simply writing a letter to please their listing exchange.  NYSE has an inherent conflict of interest since they are both a regulator and a for-profit company.  We think NYSE should seriously think about their next move in this battle.  They seem to be digging themselves a rather deep hole and might want to consider rethinking their position.