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April 25, 2006

A Club No More

By Michael Scotti

It would be hard to find an industry that's more dynamic than the securities business. Right now,

equities are undergoing a sea change brought on by technology, competition and new trading rules. Change may be happening faster now than in the past, but it's been a long process.

An interesting point of reference to today's changing market structure is the book, "The Last Days of the Club." Written by Chris Welles, the book is a true classic of financial journalism. Welles describes the days before and after Mayday (the unfixing of commissions), the back-office crunch (firms couldn't keep up and settle trades), and of course, the power the New York Stock Exchange wielded. It might come as no surprise that the issues of importance then, are still being discussed today, namely competition. Wall Street is now an efficient, technologically driven industry. In 1975, it was an embarrassment.

"The Club," as the NYSE was once called, is gone. The NYSE just merged with Archipelago, a once upstart firm that was part of the ECN revolution. ECNs helped to break the dealer stronghold on Nasdaq. While creating a successful ECN took great business acumen, it wasn't like the technology ECNs used was revolutionary. Welles points out, quoting an engineer from Nasdaq's technology vendor, Bunker Ramo, how automatic execution was possible 35 years ago: "All you have to add are a few enhancements," the engineer said. The book puts today's current issues in context.

The NYSE is undergoing its own overhaul, making auto-ex the centerpiece of its hybrid system. This issue features a story that discusses what traders on the floor are facing, including their insights into hybrid.

All these technology "enhancements" have traders concerned. This month's cover story discusses what traders need to do in order to survive in a trading world that is compressing. Michael Santucci, the president of the Security Traders of New York (STANY), talks about traders needing to pick up new skills to outlast the next round of job cuts. Santucci explains that futures and options are two areas traders should investigate.

With that line of thinking, this issue also offers an options review on straddles from the International Trading Institute. Test your knowledge. ISI has been around since the early 90s, and the Chicago-based company has trained thousands of options traders worldwide. In conjunction with Traders Magazine, ISI will be presenting web-based classes on options in May. Education, we believe, is also part of this publication's charge. Enjoy this bonus April issue.

Michael Scotti

Editorial Director