As a pioneer of innovation, the New York Stock Exchange (NYSE) confirms its place in pole position by offering an advanced trading platform and the highest standard of service for issuers of structured products around the world.
The exchange sets itself apart from its peers with its innovative Arca platform, the first all-electronic stock market, which it acquired in March 2006. Tom Haines, managing director of ETFs and indexes at NYSE, says the Arca platform is what distinguishes the exchange in trading structured products. "It was the first time that structured products were primarily listed using a lead market-making (LMM) model," says Haines.
Since moving all exchange-traded notes (ETNs) to the Arca platform last year, NYSE has been at the forefront in listing ETNs. "In the US, there are 39 ETNs and we have 30 of them listed on our exchange," says Haines. "We trade 55% of the ETN volume in the US market, which means we are the lead exchange in this sense."
The platform also plays an important role in pricing structured products, providing lower execution times and an acknowledgement time of less than two milliseconds. "The NYSE Arca LMM model is vital for index-linked securities that include derivatives to create the price-time priority model. It offers excellent execution speed and a one-for-one accountability relationship with the issuer and its market-making firm," says Haines. "We are the first to offer that in terms of structured products."
As well as ETNs, NYSE lists over 500 structured products comprising capital securities, or debt instruments with preferred stock features, with an aggregate market value of US$166 billion. These securities trade on the bond platform and equity floor, says Jennie Dong, director of structured products at NYSE. "The first aspect that distinguishes the equity floor is the value of the listings platform. Our competitive distinction is the specialist, who essentially serves as the provisional liquidity provider," she says. "The specialist participation rate for structured products is above the average rate for other securities," she says.
Since joining NYSE in July 2006, Haines has seen ETN listings on the exchange significantly augment from three in mid-2006 to a product worth US$5 billion in assets under management. "This is still young, but we having 30 of the 39 ETNs is a great accomplishment in terms of volume and the fact that issuers keep coming back to us," says Haines. Indeed, in the past 18 months, NYSE Arca has acquired listings from Barclays Capital, Goldman Sachs, Deutsche Bank, Bear Stearns, the Swedish Export Credit Corp and, most recently, Lehman Brothers.
NYSE Arca has proved popular among issuers. One large issuer of structured investments claims that it has made the biggest difference in the market in terms of "what the NYSE has done, particularly around the Arca platform and by moving the ETNs onto it". The issuer adds that the NYSE has been "very proactive in encouraging issuers and sponsors of ETNs to join the exchange and helping them in registration and listing".
"From an issuing perspective, we've been very innovative, trying to work with our issuers and the regulators in the Securities and Exchange Commission to permit new products," says Haines. One such product is the Goldman Sachs Claymore CEF Index-linked GS Connect ETN launched last December. The note is linked to the Claymore CEF Index, which measures the performance of a basket of closed-end funds selected and weighted according to criteria such as liquidity, distributions and market valuation.
Technological innovation at the NYSE is also vital in maintaining excellent relationships with regulators and issuers. "From a listings perspective, technology is important, because a lot of it is about working with regulators and understanding issuer's needs for the launch," says Haines. Indeed, one large issuer said how the exchange proposes new, inspirational ideas for products, such as an ETN linked to foreign exchange forward contracts.
"We work closely with regulators and issuers to permit the growth of innovation in structured products," says Haines. This relationship is conducive to innovations such as the first double leveraged and double inverse gold ETN, launched by Deutsche Bank in February 2008. The Gold Double Short ETN and Gold Double Long ETN both track the DB Liquid Commodity Index-Optimum Yield Gold and offer two times the leveraged exposure to either the monthly performance or inverse monthly performance of the index.
And NYSE has bolstered its global relations with its acquisition of Euronext, the pan-European exchange, in April 2007. The merger has enhanced NYSE's communication with international colleagues with the aim of understanding the global need of clients.