If Nasdaq/ICE won the bid for the NYSE, what would the trading floor look like?
Nasdaq chief Robert Greifeld told me on the media conference call he intended to keep the NYSE trading floor open.
This has been met with open skepticism on the trading floor. Most traders do not believe he would be able to achieve $740 million in cost synergies (a number far higher than the $400 million synergies claimed by the Deutsche Boerse deal) without closing the floor.
But that may not be the case...the question is, what would the floor look like if it remained open? The answer is, not at all what it looks like today.
Based on my discussion with traders, let me theorize what might happen:
1) the Times Square Nasdaq building is closed; all Nasdaq staff moves to 11 Wall Street (NYSE HQ).
2) ICE, which has some floor operations in Chicago they currently lease from the CME, moves those operations to the NYSE.
3) the Designated Market Makers (DMMs) on the floor — the successor to the specialists — are abolished. All trading becomes decentralized under the market maker model that Nasdaq currently uses.
What does doing these three things do?
1) definite cost synergies — combining the staffs would certainly lead to layoffs at the NYSE, possibly as many as a thousand (there's about 2,000 people who work in the U.S. for the NYSE). Eliminating the DMM system eliminates all the staff that supports them. It will be a dealer-based, electronic system.
2) you turn the floor from an equities operation toa derivatives operation.
Does this get you to $740 million in cost savings? No, but it's a big start. Remember, there are two different trading platforms, two different market structures: DMMs and market makers. Eliminating one is a big cost saver.
From there you go to integration of technology...one system with a series of data centers....indeed whatever ICE has in Chicago may come to New York. By doing that, you ease the loss of jobs in New York; that might be helpful in getting Sen. Schumer on board.
Back to my point: the floor still exists under this plan, but it's really just a big TV studio because there will be no traders...they'll all be decentralized in the market maker model. If it just becomes a TV studio like Nasdaq and the entire system goes to a decentralized market maker model...that's hardly keeping the floor open.
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