Editor's Note
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More Substance, Less Gossip!
Despite the NYSE's overwhelming dominance of equity trading in the U.S., it has long seemed to me that it would eventually be a matter of "go electronic or get out of the way." And it looks like it seemed that way to the folks at the NYSE, too. Interestingly, indexing is playing a key role in this transformation, thanks primarily to ETF arbitrage (although things like closing crosses and market impact are also playing a role). The truth is that it's not rocket science to price ETFs-at least for the more liquid funds. A monkey (well, a machine anyway) can tell from the underlying shares where the ETF should be priced, and can automatically hit and cover when there are arbitrage opportunities. That is why the vast majority of ETF volume has already left the traditional exchanges and gone electronic. Prior to the merger, everyone was talking about Archipelago soon picking up its own listings. The NYSE, at least, doesn't have to worry about that anymore. In fact, now it has the opportunity to become an ETF listing and trading juggernaut. Don't count out the AMEX, of course, which is still ticking and working diligently on innovative products, or the Nasdaq, which has bought Instinet, and shows signs of continuing to build its ETF listing and trading business. Finally, I should briefly mention the firing of Gus Fleites at State Street Global Advisors (who manage the SPDRs). It was a stunning development in the ETF industry. Gus has long been the face of SSgA's ETF effort, and he spoke about ETFs with energy and passion. To see him suddenly departing from SSgA, just as he was talking about ramping up SSgA's effort, was jolting. Though this event happened just before press time, we've been able to put together a very intriguing back page Q&A with the new leadership team of Jim Ross and Greg Ehret, together with a brief analysis of the situation and its implications. The remainder of the issue is filled with a number of very meaty articles and columns. It includes an exposition by David Lerman of the CME on equitization using derivatives, and an article by Meric Koksal of Goldman Sachs discussing index-related trading opportunities caused by intraday corporate actions. In addition, a highly pedigreed team of four examines various index optimization strategies, while Chih-Wei Huang weighs in on alternative index methodology. The issue also includes Blitzer and Bogle columns, and research pieces by Professors Haslem, Israelsen and a host of their collaborators. Enjoy the issue, it's a nice one-and for goodness sakes, get some sun. You're looking very pale, even for an index wonk. Jim Wiandt
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More substance, less gossip! I have made up my mind this issue to try to beat the backlog and publish as much of the great content we've had on hand as possible. But the past couple of months have been ripe for great Inside Scoop material, and I can't possibly pass up on all the gossip. So if you don't mind, I'll turn this editor's note into bit of an Extra! special, but for indexers. First, how can I not comment on the stunning transformation of the NYSE? Over the past few years, the NYSE has gone-unthinkably!-from allowing unlisted trading privileges (UTPs) to registering small electronic block trades to … purchasing the anti-Big Board, Archipelago.
