The Impact of America Ceding Capitalism’s Bastion, New York Stock Exchange, to German Deutsche Boerse on High-Frequency Trading

As reported by Bloomberg’s  Bob Ivry, Whitney Kisling and Max Abelson, the 219-year-old symbol of American capitalism, now called NYSE Euronext, is about to complete a $9.42 billion merger with Deutsche Boerse AG (DB1) that will give the Frankfurt-based firm 60 percent of what would be the biggest exchange company in the world. The deal is the culmination of a decade of scandal, regulatory mandates and a technology arms race that opened the industry to electronic upstarts and forced the old Wall Street boys’ club to become an international company that makes most of its money from businesses other than stock trading.

NYSE

NYSE, Symbol of American Capitalism <http://www.thewallstreetexperience.com/&gt;

“When I started in the business, Deutsche Boerse was open for two hours a day and the New York Stock Exchange was THE NEW YORK STOCK EXCHANGE,” said Thomas Caldwell, chief executive officer of Caldwell Securities Ltd., a money-management firm in Toronto, who has worked in the industry since 1965. “You just have to stop and say, ‘Wait a minute here — Deutsche Boerse, New York, equal partners? How did that happen?’”

Over the years, trading has gotten cheaper and faster, benefiting investors. Buying 1,000 shares of AT&T before 1975 would have cost $800 in commissions, Charles Schwab, who founded discount brokerage Charles Schwab Corp., told the U.S. Senate in February 2000. That’s about 100 times more than the fees paid by some retail stock-pickers today.

Even so, many of those same investors abandoned equities after the Standard & Poor’s 500 Index, the benchmark measure of U.S. stocks, plummeted 6.2 percent in 20 minutes on May 6, 2010. Though the NYSE was the only exchange that didn’t have to cancel transactions after the so-called flash crash, the plunge created the perception that markets in general weren’t safe because high-frequency traders, who buy and sell in milliseconds, are beyond the reach of regulators and enjoy trading advantages on exchanges, said Joe Saluzzi, co-head of equities trading at Themis Trading LLC in Chatham, New Jersey.

“We have a two-tiered market,” Saluzzi said. “Some traders have information and speed, and the exchange caters to them because that’s where it makes its money.” The merger won’t change that formulation, he said.

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