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June 30, 1999

Institutional Equity-Trading Pros Say:The Big Board Will Rule in Near Future Survey Probes OptiMa

By John A. Byrne

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  • Institutional Equity-Trading Pros Say:The Big Board Will Rule in Near Future Survey Probes OptiMa

The New York Stock Exchange trails behind the Nasdaq Stock Market in the average number of shares traded daily. In several other areas, the Big Board seems vulnerable to Nasdaq's more modern-looking image.

Nasdaq's far-flung computer network, for one thing, may leave the impression that the Big Board is just a brick-and-mortar edifice stuck in the past. And Nasdaq's recent global outreach just deepens that impression.

But if you think Nasdaq will still rule in the new millenium, a survey of buy-side and sell-side institutional equity pros may shock you. The Big Board, the survey says, will triumph amidst the current technological upheaval on Wall Street.

More Fat

As technology trims more fat from the cost of running an equity-trading desk and lets loose a barrage of machines for matching, routing and processing trades, the two major U.S. stock exchanges are feeling the winds of change.

Twice as many institutional equity pros choose the Big Board over Nasdaq as the leading U.S. stock exchange of the future, according to the survey recently conducted by Enterprise Technology Corporation (ETC), a New York-based consulting firm and software developer for Wall Street firms.

While 60 percent of respondents thought the Big Board will emerge as the reigning champion, a significant minority, 15 percent, felt that an exchange other than Nasdaq and the Big Board will eventually lead the pack. That, presumably, reflects regulatory change that allows alternative trading systems to register in the U.S. as stock exchanges.

Making an intelligent interpretation more complicated, the survey reveals that almost 60 percent of the respondents believed fully-electronic stock exchanges will replace the traditional U.S. floor-based stock exchanges within a decade.

The firm that conducted the survey does not see a contradiction between that and the earlier question about exchange supremacy.

ETC sees in the seeming contradiction confirmation of what an unnamed high-ranking Big Board official once confided.

"I ask him face to face what is going to happen to floor-based trading," explained Joseph Rosen, a managing director at ETC. "These are his exact words, I don't think floor-based trading will last forever. But how about the NYSE surviving as an institution? That's another question.'"

ETC sees a high probability of the NYSE morphing into a for-profit utility, serving as a power plant of sorts for institutional trading firms executing customer orders.

The ETC survey is much more than a scorecard for pundits interested in the slugfest between Nasdaq and the Big Board. But since all roads in the institutional equity-trading world eventually lead towards these two monolithic powers, the findings on them are perhaps the most significant results.

ETC asked 62 questions, which were sent to a roughly equal number of pros in the buy-side and sell-side community at a cross-section of U.S. institutional equity-trading firms.

Cross-Section

Of almost 900 pros who received the survey, 89 answered at least some of the questions, an overall response rate of roughly 11 percent. In the accompanying tables and charts, Traders Magazine selected the results of the 20 most interesting questions for our readers.