New York Stock Exchange (NYSE) narrowly pipped its competitors to the post in 2008 to win the Structured Products Americas award for best exchange. This time around, it gave itself a definitive lead by acquiring one of its former competitors. NYSE closed its purchase of the American Stock Exchange in 2008, consolidating its impressive market share and leaving it in an even stronger position than before.
Product listings have been bolstered following the integration, with 220 additional equity and index-linked certificates now trading on NYSE's Arca platform.
Transferring the listings was a formidable task, made as painless as possible for both issuers and investors by the exchange's careful management. Most transfers took place during the weekend so that trading was not interrupted, and one provider estimates that it was so seamless that investors never even noticed the switch.
Ninety-nine percent of providers chose to transfer their listings, rather than take their business elsewhere, with two products remaining de-listed. "They worked closely with us to get everything transferred over, and from there we're working on using some of the features they have that other exchanges hadn't proposed to us," says one dealer. "We found that they had the most services to offer and that they have been the most proactive in trying to get our business in, valuing our business and helping us through these times."
All but three products were voluntarily de-listed, and most transferred without incident to Arca. "Some had to go through a handful of extra regulatory steps," says Beth Kleiman, managing director of exchange-traded products at NYSE, who was formerly with Amex. Kleiman describes the process as a "Herculean effort" achieved by different angles of the group working together.
By the time the transfer was complete in December 2008, issuers Bank of America and Citi had been added to the exchange's existing roster as a result of Amex's integration (which was renamed Alternext following its acquisition). It also gained three new lead market-markers (LMMs). The LMM model is the first designated market-making model for a US electronic exchange.
"There was lots of intellectual product development at Amex but no technological back-up for it - merging with NYSE gives it that back-up and the LMM model," says Kleiman. "We were working with issuers as much as anything, to take them from the trading floor to the electronic platform," says Tom Haines, managing director of exchange-traded funds (ETFs) and indexes at NYSE.
The NYSE now boasts a behemoth exchange-traded marketplace, incorporating 662 ETF listings, 87 exchange-traded notes (ETNs) and 236 certificates on its Arca platform. In 2008, it streamlined its listings processes, which makes regulatory approval of new products quicker and simpler. Some products can now be launched, priced and listed in just seven days.
"There is a supplemental listing process, so that if companies have listed before, the whole process can be managed in a week," says Haines. The exchange has worked with the regulator to develop a fast-stream approval system, so that it can be quicker to get regulatory approval for a product if the structure has been approved before by the Securities and Exchange Commission - one example was a generic standard introduced for reverse convertibles that track ETFs.
This approach to the regulatory and listing process has made NYSE a beacon for innovative products. NYSE has worked to educate the regulator to permit the listing of such products, such as the S&P Vix Futures Indexes, to which two Barclays ETNs were linked, options tracking index-linked securities (which are still pending approval by the Options Clearing Committee) and notes linked to 40 Act ETFs. Explaining the concept of implied volatility, for example, is no easy task. "We're in discussion with and educating the SEC in innovative new products, and using different tools to do that," says Haines.
Equally, the exchange has engaged with the investors to improve their education about structured products. "There's a responsibility to educate the public so that they can go into it with their eyes open," says Kleiman. Subsequently, the exchange held a panel on structured products made up of industry heavyweights, such as representatives from Deutsche Bank and Morgan Stanley, to an audience of both clients and traders.
One tool aimed at both investors and issuers to improve transparency is the Arcavision website, which provides current and historical trading data. "With Arcavision, you can see the performance and compare other lead market makers, looking at the liquidity of different issuers," says Haines. Equally, for issuers it has been a key tool in keeping up to date with product performance.
"We just started using ArcaVision last week, and it's very useful in finding trading information for our products," says one provider. "It's a very good way for us to understand how the market sees our individual issues."