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`Investors have confidence in NYSE companies' — Mr Georges Ugeux, Group Executive Vice-President, International, NYSE

Anup Menon
S. Muralidhar

Mr Georges Ugeux, Group Executive Vice-President, International, NYSE

THE New York Stock Exchange's Group Executive Vice-President, International, Mr Georges Ugeux was recently in India scouting out for potential future listings. He spoke to Business Line about various market issues. This is the concluding part of the interview that appeared on May 19.

Excerpts from the interview:

Can you tell us why companies prefer to list on the NYSE as against, say, the London Stock Exchange? Doesn't the LSE work out cheaper?

Listing on the NYSE is more expensive because of the US registration fees. The registration process is a very costly proposal. But people prefer to come to the NYSE because they get the three elements mentioned earlier (visibility or the seal of approval, a strategic move, and getting funds or capital).

Let us put it this way, the Global Depository Receipts (GDR) experience has not been very good. 50 per cent of the GDR's see very little volumes.

The moment the GDR's were converted into American Depository Receipts (ADR's), volumes started to pick up. One thing happened in the middle — the companies that went through the registration became much more transparent and, therefore, the investors have a higher level of confidence in these companies.

What about ECNs? What is their present status? Do you think it is a workable model?

ECNs can either be a broker dealer or an exchange. Being an exchange means that they have order so that they have two sides of a trade. The moment this happens they have to have their own regulations, which is a serious additional cost. The Nasdaq is not an exchange.

They are applying for exchange status and have been doing this for several years. However, they have not been successful.

The second element is if you do not pick the exchange status, which is one of the options given by the SEC to the ECN, then you become a broker dealer. This means that the competition is not with the exchanges but rather it is with other broker dealers. They are another way to access liquidity, which compete with other brokers.

What can you tell us about price discovery at the NYSE?

The price discovery at the NYSE requires, for instance, to open a stock that all buyers and sellers at a certain price are served and we pick the time it needs to get there. But, when the buyer and the seller meet, the price is reasonably serious, I mean it is balanced both ways.

In a dealer system, you can buy at the price of the dealer and that may be different with various dealers.

So you do not have what I would call a single price. The result is that they trade generally faster but the investor is never sure whether he is getting the best price.

There are studies that show that for certain stocks volumes are higher at the Nasdaq compared to the NYSE. Can you explain this?

We recently published a study in The Exchange explaining the technicality of this issue. The reason for this is the accounting system of the trades. The market capitalisation at the Nasdaq is $2.7 trillion and ours is $11 trillion for domestic stocks. If you add international stocks it is $3.1 trillion and ours is $16 trillion. I would like somebody to explain to me as to why with this level of market capitalisation the volume at the Nasdaq is superior when we are four times bigger.

There have been instances of trading being halted at the NYSE. Have you taken any measures to avoid this in future?

What has changed is that the circuit breakers, as we call them, are no longer expressed in points but in percentages.

The problem was that we had fixed the parameters in points in 1987. The market had gone up substantially and the relative value of the points was much more. Therefore, you did not need much to trigger that. We have placed the first trigger point at 10 per cent, which means that the Dow now has to fall by around 1,000 points to hit the trigger.

Do you foresee the NYSE as being a 24-hour global market for securities?

I do not foresee the NYSE itself operating on a 24-hour basis. But I do foresee the NYSE being connected to other markets so that our customers can send orders to our systems on a 24-hour basis. The technicalities are still being worked out. It is an extremely complex undertaking and it will take a little time.

How would you rank emerging markets in terms of their openness?

I think that the Latin American markets are more open than the Asian markets. We have four Asian markets that do not have full convertibility including China, India, Korea and Taiwan. While this could have been on account of the crisis in 1997, from an emerging markets standpoint, even with the crisis they went through Brazil and Mexico have been more open.

Can you tell us something about possible consolidation among US exchanges?

I am not sure we can call it consolidation. But it is clear that there are many exchanges that do not necessarily have a great level of investor business. But that does not mean that we want to buy them.

What can you tell us about the business outsourcing you are looking at in India?

The only thing that I can tell you is that the exchange decided last year to look at outsourcing. The Exchange's Chief Technology Officer came for last year's NASSCOM conference in India. He took advantage of the presence to see several of the big technology companies in the country and came back with the conclusion that we should try some pilot projects with a few Indian companies.

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