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CNBC TRANSCRIPT: DUNCAN NIEDERAUER, NYSE EURONEXT CEO, ON CNBC'S "SQUAWK ON THE STREET" TODAY

Jennifer Dauble
Friday, 7 May 2010 | 2:15 PM ET

WHEN: TODAY, FRIDAY, MAY 7TH AT 9:05 AM ET

WHERE: CNBC'S "SQUAWK ON THE STREET"

Following is the unofficial transcript of a CNBC interview with NYSE Euronext CEO, Duncan Niederauer, today on CNBC's "Squawk on the Street." The full interview is available on CNBC.com: http://www.cnbc.com/id/15840232/?video=1487758629&play=1.

All references must be sourced to CNBC.

HAINES: DUNCAN NIEDERAUER, HEAD OF THE NYSE EURONEXT JOINS US NOW. DID YOU JUST HEAR WHAT GREIFELD SAID?

NIEDERAUER: I DID.

HAINES: I JUST WANTED TO MAKE SURE.

NIEDERAUER: I HEARD IT. I'M GOOD HERE. YEP.

HAINES: FIRST OF ALL, WHY DON'T YOU WALK US THROUGH VERY -- WITHOUT BEING TOO ARCANE --

NIEDERAUER: RIGHT.

HAINES: THIS SLOWDOWN PROCESS THAT OCCURRED YESTERDAY AFTERNOON.

NIEDERAUER: RIGHT, BECAUSE I GOT TWO OBSERVATIONS TO MR. GREIFELD'S COMMENTS. ONE IS, LET'S STOP THE FINGER-POINTING. THIS IS ABOUT TRYING TO MOVE THE BALL FORWARD, SO LET'S TRY TO BE CONSTRUCTIVE. NUMBER TWO, LET'S JUST BE CLEAR ABOUT WHAT THE FACTS OF WHAT HAPPENED YESTERDAY WERE. THERE'S NO WALKING AWAY. THERE'S NO ABANDONING OUR OBLIGATIONS. WE'VE HAD A MARKET MODEL IN PLACE FOR YEARS THAT INCLUDES EXACTLY WHAT BOB IS ADVOCATING FOR, WHICH IS A CIRCUIT BREAKER STOCK BY STOCK. IT'S CALLED AN LRP. WE'VE HAD THEM FOR YEARS. THEY'RE FOR USE IN EXTREME VOLATILITY SITUATIONS. I LOVE WHAT NAJARIAN SAID THIS MORNING ON "SQUAWK BOX." HE SAID, YOU KNOW, YOU COULD MAKE THE RACE CARS GO FASTER, BUT YOU THROTTLE THEM. YOU KNOW, YOU TAKE THE PLANE OFF AUTOPILOT SOMETIMES AND YOU FLY THE PLANE. SO, WE'VE HAD THESE LRPs IN PLACE. THAT'S WHAT IT IS. IT'S A STOCK-BY-STOCK CIRCUIT BREAKER.WE ANNOUNCED TO THE MARKET THAT, HEY, GUYS, IT'S A VOLATILE PERIOD. YOU CAN TRADE THROUGH US FOR THE NEXT 30 OR 60 SECONDS OR YOU CAN WORK WITH US TO DISCOVER THE RIGHT PRICE AND LET'S HAVE PEOPLE ON THE OTHER SIDE HAVE TIME TO COME IN. WE INVOKED THEM YESTERDAY IN A LOT OF STOCKS, FIVE DOW STOCKS IN PARTICULAR. IT WAS 30, 60, 90 SECONDS, AND GUESS WHAT? WHEN THEY REOPENED HERE, THEY OPENED BASICALLY WHERE THEY HAD TRADED 30, 60 OR 90 SECONDS AGO, AND WE THINK WHAT BOB'S ADVOCATING FOR, GREAT NEWS, WE ALREADY HAVE IT.

HAINES: I DON'T KNOW WHERE TO BEGIN.

NIEDERAUER: OKAY.

HAINES: THE PROBLEM COMES BECAUSE, IF THERE'S A CIRCUIT BREAKER IN EFFECT HERE, THE SPECIALIST IS BASICALLY STANDING WAITING BECAUSE HE REALIZES THAT SOMETHING WEIRD IS GOING ON AND HE WANTS TO SEE THE DUST SETTLE BEFORE HE'S GOING TO LET THE STOCK TRADE AGAIN.

NIEDERAUER: YEAH. NOT EXACTLY, RIGHT? GO AHEAD, SORRY.

HAINES: CLOSE ENOUGH?

NIEDERAUER: YES.

HAINES: BECAUSE AGAIN, WE CAN'T GET TOO ARCANE. THE OTHERS TRADE THROUGH THAT, AND THE COMPUTERS THAT ARE RUNNING THESE THINGS, THEY DON'T DISCRIMINATE. IF A STOCK WAS TRADING AT $40 --

NIEDERAUER: RIGHT.

HAINES: AND IT GOES LOOKING FOR A BID AND THE ONLY BID IT CAN FIND IS FOR $5, IT'S GOING TO HIT THAT BID.

NIEDERAUER: IT'S GOING TO HIT THE BID, RIGHT.

HAINES: WHEREAS A HUMAN SPECIALIST WOULD NOT DO THAT.

NIEDERAUER: OUR DESIGNATED MARKET MAKER INVOKES THE RULE, AND IT'S ALL CLEAR. EVERYONE KNOWS WHAT THE LRP IN EVERY STOCK IS.THAT'S WHAT THE CIRCUIT BREAKER STOCK BY STOCK IS.

HAINES: RIGHT.

NIEDERAUER: WE PUT THE NOTE OUT TO THE MARKETS AND THEY HAVE TWO CHOICES IN THAT NEXT 30 TO 60 SECONDS. THEY CAN WAIT AND WORK WITH US, AND I THINK WHAT BOB'S PROPOSING ACTUALLY IS THAT THE INDUSTRY SHOULD ALL WORK TOGETHER AND HAVE THESE CIRCUIT BREAKERS, ANDINDUSTRYWIDE, THEY SHOULD BE RESPECTED. YET, YESTERDAY, THE OTHER CHOICE THE ELECTRONICS MARKET HAVE IS TO TRADE THROUGH US AND THAT'S EXACTLY WHAT THE MARKETS DID YESTERDAY, TRADED THROUGH US.

HAINES: HOW DID IT GET STARTED?

NIEDERAUER: THERE'S RUMORS THAT IT GOT STARTED WITH SOME TRADE IN THE FUTURES MARKET. I CAN TELL YOU, MARK, IT DIDN'T GET STARTED HERE. NO EVIDENCE OF A FAT FINGER TRADE IN THE EQUITY MARKETS FROM WHAT I CAN SEE. THE VOLUME IN THESE STOCKS ACTUALLY DURING THE VOLATILE PERIOD WHERE IT WENT DOWN AND UP, SOMETHING LIKE 30 MILLION SHARES OUT OF THE 20 BILLION THAT TRADED YESTERDAY.SO, IT WAS A LOW-VOLUME MELTDOWN AND THEN A QUICK MELT UP. SO, WE INVOKE THESE RULES. THE OTHER MARKETS TRADED THROUGH US. YOU'RE EXACTLY RIGHT, BECAUSE THE DEPTH TO BOOK ON THESE OTHER ELECTRONIC MARKETS HAVE VERY THIN. THOSE COMPUTERS JUST GO OUT AND IF IT'S A MARKET SELL ORDER, THEY'RE GOING TO FIND THE NEXT BID THEY FIND IT MAY NOT BE DOWN 10 CENTS. IT MAY BE DOWN $10, AND THAT'S WHAT HAPPENED AND THEN TRADES END UP GETTING TAKEN OFF THE TAPE AT THE END OF THE DAY

HOBBS: WHY DON'T YOU HAVE UNIFIED BREAKS?

NIEDERAUER: WE PUT THEM IN PLACE. WE THINK IT'S PART OF OUR MARKET MODEL --

HOBBS: WHY ISN'T IT ACROSS THE INDUSTRY?

NIEDERAUER: THE OTHER ELECTRONIC MARKETS HAVE CHOSEN TO SAY -- IT'S ALL COMPETITIVE, RIGHT? WE DO IT. WE THINK IT'S A VALUABLE PART OF THE MODEL. MY GUESS IS THE REGULATORS WILL NOT TAKE A LOOK AT THIS AND SAY, IF IT'S JUST 30 OR 60 SECONDS, THAT'S NOT A HALT. NO ONE'S WALKING AWAY. WE'RE SIMPLY SLOWING DOWN THE RACE CAR WHEN WE THINK IT'S DANGEROUS AND I THINK IT'S THE RIGHT THING TO DO.

HOBBS: HAVE YOU ATTEMPTED TO HAVE A CONVERSATION TO GET --

NIEDERAUER: WE ALREADY HAVE. WE'VE BEEN TALKING TO THE REGULATORS ALL DAY YESTERDAY --

HOBBS: NO BEFORE THIS.

NIEDERAUER: BEFORE THIS, WE HAVE TALKED ABOUT IT, BUT ULTIMATELY, IT'S A FREE MARKET. PEOPLE COMPETE THE WAY THEY WANT TO I THINK YESTERDAY'S SITUATION BRINGS TO LIGHT THAT IF WE'RE GOING TO REALLY HALT THE STOCK ON SOME NEWS OUT FOR AN HOUR, PEOPLE SHOULD BE FREE TO TRADE AROUND IT. SO, IF IT'S GOING TO BE 30 OR 60SECONDS, MAYBE IT'S BETTER FOR THE INDUSTRY TO RESPECT THAT AND NOT TRADE THROUGH US. WE'LL SEE.

HOBBS: I SEE THAT ON THE HIGH FREQUENCY TRADING, IT'S NOW 50% TO 75% OF TOTAL TRADES. AND OF COURSE, MOST OF THE TRADES ARE NOT DONE HERE AT THE NYSE ANYMORE. AND THAT PUTS YOU, AS YOU ALLUDED TO, IN A VERY COMPETITIVE SITUATION. DO YOU THINK THAT THERE'S A CONFLICT OF INTEREST IN HAVING TO COZY UP INEVITABLY TO THIS NUCLEAR ARMS RACE THAT WE HAVE WITH TECHNOLOGY AND SIGHTING, TRADING SYSTEMS, SPECIAL TRADING SYSTEMS THAT SHAVE MILLISECONDS OFF, WHICH IS A HIGH-MARGIN BUSINESS? YOU'RE ENCOURAGING THIS NUCLEAR ARMS RACE.

NIEDERAUER: I THINK EVERYBODY HAS TO COMPETE ON TECHNOLOGY AND I THINK WHAT WE'RE ALL GOING TO ASK OURSELVES IS HOW FAST IS TOO FAST, WHEN IS ENOUGH ENOUGH, RIGHT? BUT AS LONG AS THERE'S TECHNOLOGICALLY ENABLED MARKET-MAKING OUT THERE, EVERYONE'S GOT TO COMPETE FOR THE MARKET SHARE. YOU'RE EXACTLY RIGHT, SIMON. I THINK THAT'S WHAT WE'RE TRYING TO FIGURE OUT. GOING BACK TO YESTERDAY, WE'LL TELL YOU, GIVEN THE LIMITED VOLUME THAT TRADED, THIS WAS NOT SOME HIGH-FREQUENCY ALGORITHM THAT SEEMS TO HAVE TRIGGERED ALL THIS STUFF. THERE JUST WASN'T ENOUGH VOLUME. IF YOU LOOK AT A STOCK LIKE P&G THAT TRADED AWAY FROM HERE FROM THE MID-50s DOWN TO JUST BELOW $40 IT WAS ONLY A FEW HUNDRED THOUSAND SHARES IN THAT 90-SECOND PERIOD. IT WASN'T LIKE IT WAS TENS OF MILLIONS OF SHARES. AND ANOTHER FACT THAT I HAD THE GUYS LOOK UP FOR ME -- YOU KNOW, P&G AND MMM ALONE, THE MOVE IN THE AWAY MARKETS IN THOSE TWO STOCKS THAT WAS 400 DOW POINTS. AND WHEN YOU CAME ON THIS MORNING, MARK, YOU SAID, YOU KNOW, IT DIDN'T FEEL LIKE THAT WAS REALLY A DOW DOWN 1,000.

HAINES: NO, I DON'T THINK IT WAS.

NIEDERAUER: YOU'RE RIGHT. THOSE TWO STOCKS ALONE THE MOVE FROM WHAT WE'RE TRADING AND WHAT THE AWAY MARKETS TRADED WITHIN THOSE 90 SECONDS, THAT WAS 400 DOW POINTS.

HOBBS: BUT THAT'S WHAT WAS REPORTED TO THE AMERICAN PUBLIC.

NIEDERAUER: RIGHT.

HOBBS: SO, YOU'RE ACTUALLY -- SO, PEOPLE ARE CORRECT TO HAVE LOST CREDIBILITY IN THE DATA THAT WAS COMING OUT OF THE EXCHANGES YESTERDAY. THAT WAS THE CORRECT, LOGICAL THING FOR THEM TO DO?

NIEDERAUER: YES, RIGHT.

HOBBS: NOT BELIEVE THAT DATA.

NIEDERAUER: I'M GOING TO DEFEND US A LITTLE BIT. WHEN YOU SAY EXCHANGES, LET'S NOT PAINT EVERYBODY WITH THE SAME BRUSH. WE NEVER TRADED P&G DOWN TO -- BUT YOU'RE RIGHT. THE NATIONAL MARKET SYSTEM REPORTED TRADES -- AND THIS GOES BACK TO WHAT SANTELLI SAID A FEW MINUTES AGO -- THE NATIONAL MARKET SYSTEM REPORTED TRADES THAT WERE LATER TAKEN OFF THE TAPE. I DON'T KNOW EXACTLY WHAT THE CUTOFFS WERE STOCK BY STOCK, BUT I CAN PROMISE YOU, THOSE TRADES IN A STOCK LIKE ACCENTURE, WHICH TRADED IN PENNIES, I'M SURE THEY DIDN'T STAND. AND WE CAN ARGUE ABOUT WHETHER THAT'S RIGHT, WRONG OR OTHERWISE, BUT IT CERTAINLY REDUCES CREDIBILITY IN THE SYSTEM.

HOBBS: SO, WHO'S THE BASTION THEN? WHO IS LOOKING AFTER THE SYSTEM? IF YOU'RE CHASING THE HIGH-FREQUENCY TRADERS, WHICH YOU ARE FOR MARGIN, INCREASEING INCREASINGLY, YOU'RE BECOMING A SMALLER PLAYER. NOBODY'S DISCUSSED HAVING UNIFIED CIRCUIT BREAKS. WHO'S STANDING UP FOR THE AMERICAN INVESTOR?

NIEDERAUER: WE'VE TRIED TO. WE'VE HAD CIRCUIT BREAKERS HERE ALREADY. WE THINK IT'S THE RIGHT MARKET MODEL. YOU HEAR OUR PRIMARY COMPETITOR AGREEING THAT'S THE RIGHT MODEL. HE'S EFFECTIVELY COMPLIMENTING US THIS MORNING, WHICH IS GREAT. MAYBE THAT WILL GET SOME MOMENTUM. THE REGULATORS ARE POISED TO DO THE RIGHT THING. LET'S LET THEM DO THEIR WORK HERE, RIGHT?WE'VE BEEN LIVING WITH REG NMS FOR A WHILE. THEY'RE CONSTANTLY RE-EVALUATING IT THEY'VE JUST PUT TOGETHER OUT A CONCEPT RELEASE AND I'M SURE THIS WILL BE PART OF IT. SO I EXPECT MARY SCHAPIRO AND HER TEAM TO LEAD THE FRONT OF THIS. I'M SURE THEY WILL.

HAINES: I'M NOT SURE FROM A BUSINESS STANDPOINT, FROM YOUR STANDPOINT, THAT THAT IS THE THING TO DO, BUT FOLLOWING UP ON WHAT SIMON'S TALKING ABOUT, YOU FACE A LARGER PROBLEM HERE, IT SEEMS TO ME, ESPECIALLY THE TIMING, AFTER THE COLLAPSE OF THE LEGITIMATE COLLAPSE OF PRICES FROM THE HIGHS IN 2000 AND 2001 AND PEOPLE GETTING MURDERED IN THEIR 401(k)s.

NIEDERAUER: RIGHT.

HAINES: SO, YOU ALREADY HAD A FEARFUL, TENTATIVE RETAIL INVESTMENT COMMUNITY. THIS IS GOING TO HURT EVEN MORE.

NIEDERAUER: I THINK IT IS, AND I THINK THAT'S WHY I THINK YOU'RE SEEINGTHE REGULATORS AND ALL THE MARKETS COORDINATING TO SAY WAS THERE A PROBLEM IN ONE OF THE OTHER MARKETS THAT TRIGGERED IT OVER HERE? BUT WHAT IS CLEARLY -- WHAT CLEARLY CAN HAPPEN IS IF YOU HAVE A LACK OF DEPTH ON THESE ELECTRONIC MARKETS, AND AS YOU SAID A FEW MINUTES AGO, MARK, A COMPUTER PRESSES THE BUTTON. IT'S INDISCRIMINATE. IT'S LOOKING FOR A BID. AND I THINK WHAT WE'VE GOT TO EDUCATE PEOPLE ON IS A LOT OF RETAIL CUSTOMERS WILL JUST PUT IN A MARKET BUY OR SELL ORDER AND IT CAN HAVE A LOT MORE IMPACT THAN THEY PROBABLY THINK IT HAS, AND THAT'S WHERE I THINK WE AS AN INDUSTRY HAVE JUST GOT TO SAY, HOW MUCH IS TOO MUCH OF THIS TECHNOLOGY? AND THAT'S WHY I'M PLEASED TO HEAR THEM TALK ABOUT CIRCUIT BREAKERS AND I THINK IT'S RIGHT.

HOBBS: BUT IN THE MEANTIME, THE LITTLE GUYS THAT BOUGHT P&G ON THE CHEAP YESTERDAY, YOU'RE CANCELING THEIR TRADE?

NIEDERAUER: I'M NOT -- THE NYSE IS NOT CANCELING ANY TRADES.

HOBBS: BUT THE TRADES WILL BE CANCELLED --

NIEDERAUER: THE ELECTRONIC MARKETS, INCLUDING OUR ONE AT ARC, JUST WANT TO BE CLEAR, WE CANCELED ABOUT 4,000 TRADES. IT SOUNDS LIKE THE DECISION THEY MADE WITH THE OTHER EXCHANGES IN THE S.E.C. WAS P&G -- AND THIS IS GOING TO SOUND ODD, GUYS -- P&G ONLY WENT DOWN ABOUT 30%.SOUNDS LIKE THOSE TRADES ARE GOING TO STAND IT SOUNDS LIKE THEY PICKED THE 60% CUTOFF.

HAINES: 60%.

NIEDERAUER: SO, YOU'RE RIGHT. AS NAJARIAN SAID THIS MORNING ON "SQUAWK BOX," IF YOU BOUGHT ACCENTURE AT A DIME, THAT TRADE'S NOT STANDING, AND YOU PROBABLY COVERED IT AT, LET'S SAY $30. YOU'RE SHORT AT $30 COMING IN. IT'S SOMETHING WE'VE GOT TO FIX AS AN INDUSTRY, RIGHT? BECAUSE IT'S JUST -- THINGS CANNOT -- IT'S NOT SUSTAINABLE.

HAINESl LESSON NUMBER ONE FOR THE PUBLIC -- DO NOT USE MARKET ORDERS. WOO!

NIEDERAUER: TRADE ON THE PRIMARY EXCHANGE.

HAINES: YOU'VE GOT -- WELL, HOW DOES A RETAIL CUSTOMER, THOUGH, ESPECIALLY, LET'S SAY YOU'RE ONLINE WITH SCHWAB OR TD AMERITRADE OR SOMETHING OF THESE PEOPLE, YOU CAN'T SPECIFY WHAT EXCHANGE YOUR ORDER IS ON--

NIEDERAUER: THERE ARE WAYS TO TAKE MORE CONTROL OF YOUR ORDER FLOW, BUT A LOT OF THE ROUTING ENGINES DO TAKE OVER. I THINK WHAT THERE WILL BE A CALL FOR OFFER THIS IS, IF WE'REFOLLOWING OUR MARKET MODEL AND IT'S RELL PUBLISHED -- AND I REITERATE, WE'RE NOT WALKING AWAY FROM ANYTHING -- I THINK YOU'LL SEE A MOVEMENT THAT IN THAT 30 OR 60 SECONDS, LET'S HAVE THE INDUSTRY RESPECT THOSE -- IT'S A SENSIBLE PAUSE.

HOBBS: JUST A CLARIFICATION. PEOPLE THAT BOUGHT P&G AT $39 --

NIEDERAUER: I THINK THAT TRADE STANDS.MY IMPRESSION, SIMON, IS THAT TRADE STANDS. IF I UNDERSTAND WHAT THE DECISION WAS YESTERDAY, THAT TRADE STANDS.

HAINES: ALL RIGHT. THANK YOU VERY MUCH. DUNCAN, THANK YOU VERY MUCH. DUNCAN NIEDERAUER, HEAD OF THE NYSE EURONEXT.

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