Commentary

Elaine Wah

Modern Markets, Modern Metrics - A Blog By IEX

In this blog by IEX's Elaine Wah, the newest public exchange looks to refute public claims that the metrics it uses are designed to inflate its own volume numbers and mislead people.

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November 1, 2002

At Deadline

By Editorial Staff

The Winner?

*Firms listed on the New York Stock Exchange out earn those traded on Nasdaq at least five-to-one. That's the conclusion of a new study published by New York University's Stern School of Business. Between 1997 and 2000, NYSE-listed companies collectively booked $2 trillion in earnings from continuing operations while their counterparts at Nasdaq took in only $378 billion. The NYSE has endorsed the study, saying it underscores the relative unimportance of its chief rival. "Nasdaq companies have contributed surprisingly little of the net value-added of corporations," crowed NYSE chief economist Paul Bennett in an NYSE newsletter. Nasdaq declined to comment. The report does highlight Nasdaq's ongoing purge of financially-troubled companies. Since 1997, when the number of Nasdaq stocks peaked at 5,500, the market has been dropping stocks that trade below $1. Today, it counts about 3,800 names. About 500 of those are in danger of being delisted.

NYSE Crossing

*A new kind of competition seems at hand at the NYSE. Some Big Board floor brokers are trying to raise money to start a crossing system, which is dubbed VIA-NET. The system would compete with a similar system that is under development by LaBranche & Co., the largest New York Stock Exchange specialist, which would be called Linx.

Is the NYSE's action a result of lost business from big firms that can't execute anonymously? Not at all, Richard Grasso, chairman of the NYSE said at the recent STA annual conference. He added that the NYSE had been thinking about this project for a while. Nevertheless, a VIA-NET official said the company hopes the service will become very popular with floor specialists.

Locked Rules

*Nasdaq plans to implement new rules and make changes in its technology to accommodate the pervasive problem of locked and crossed markets. "There is unfinished business at the market opening and close with respect to the trade-or-move rule," Nasdaq's chief information officer, Steve Randich told the crowd at the Security Traders Association annual conference in Boca Raton last month. "There will be improvements in that area." The trade-or-move rule was introduced in 1999 to force dealers to adjust their quotes if they caused the best bid and offer to either lock (bid equals ask) or cross (bid exceeds ask). But many dealers ignore the rule and wind up paying heavy fines to NASD Regulation. In recent months, firms such as Spear, Leeds & Kellogg, Robertson Stephens, Thomas Weisel, Pershing Trading, Goldman Sachs, and Needham & Co. have all paid thousands of dollars in fines for either locking or crossing the market or failing to unlock or uncross it.

Knight

*It was another rough quarter for market makers. In the third quarter, the biggest one, Knight Trading Group, reported a net loss of $3.4 million, which amounted to a three cent per share loss, the company reported. Net loss for the year is now some $39.6 million, compared to earnings of some $25 million in a like period of 2001. Knight executives said they expected the losses, saying the company is "in transition."

Despite the red ink, Knight saw its trade volume - both in total trades and share volume - rise in the third quarter. Average daily equity trades in the third quarter was some 486,000 compared to about 413,000 a year ago. Shares traded also rose to some 51 million in the third quarter compared to 31 million a year ago.