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December 18, 2007

Upon Further Review

By Michael Scotti

One evening this past summer, I ran into Duncan Niederauer on the train system that connects lower Manhattan and New Jerseythe PATH. I was coming off a deadline, and Duncan was on his way home from the BIDS launch party (the crossing network now starting a block-trading joint venture co-owned by the NYSE, as it happens). An unexpected meeting, indeed, as few execs choose mass transit.

The meeting allowed me to catch up with him for the first time since he'd left Goldman Sachs to become co-president of NYSE Euronext's U.S. trading arm. We chatted, said our goodbyes, wished each other luck. He exited, fittingly, at Exchange Place. Seems his preferred mode of transportation to work is driving his pickup truck to Jersey City and taking the PATH, or driving right to the NYSE. No daily car service for this exec.

Well, I doubt I'll be running into Duncan Niederauer on the PATH going forwarddespite his regular-guy approachnow that he's running the show at parent NYSE Euronext. I wish Duncan the best in his new endeavor leading a global organization. As last month's cover story pointed out, he's got his work cut out for him.

Niederauer replacing John Thain at NYSE Euronext was one of the big stories of the year. Our cover story this month takes a look at the top trends and stories of 2007. In an era of rapid change, due to increased regulation and advancing technologies, it made perfect sense to put this year in perspective, providing context to the issues in one tidy package. We hope you find the analysis useful.

One favorite story of mine this year probably ran under everyone's radar. It was actually a tidbit from a story on, of all things, money laundering. The story appeared in the Wall Street Journal on Friday, Sept. 21. It described how drug traffickers are using ATM machines to avoid detection by the authorities: "The deposits and withdrawals are so small, they can pass for ordinary ATM transactions. It's an extreme practice sometimes called smurfing'the breaking down of large transactions into many smaller ones to evade detection."

That strategy"smurfing"bears a strong resemblance to algorithmic trading, doesn't it? It's certainly worked in equities, allowing traders to lessen market impact and avoid predatory traders. I find it fascinating how a similar strategy can work in two different businesses. Don't get me wrongI'm not calling for a new term to take the place of "algorithmic trading," despite the fact that "smurfing" is just two syllables, compared with six, and that it rolls off the tongue more smoothly than "algorithmic trading." We'll just have to wait until next year to see what 2008 has in store for algos and everything else.