(00:00:00) It's 12 o'clock. Good afternoon, ladies and gentlemen. My name is Dick McFarland. I'm chairman and chief executive officer of inter-regional Financial Group. And it's a pleasure for me to welcome all of you to Minnesota meeting today. We also extend a hearty welcome to the radio audience who will be listening to this presentation on Minnesota public radio broadcast of the Minnesota meeting are on are made possible by the law firm of Oppenheimer wolf and Donley Minnesota meeting today is pleased to present to you dick Grasso who is the president and Chief Operating Officer of the New York Stock Exchange. Dick's presentation is going to be the challenges of the 90s. I've known dick for a considerable period of time he started at the New York Stock Exchange some 20 years ago. I think he has done it all for the exchange. He was named president and Chief Operating Officer in June of 1988. He has reporting to him the seven major. Businesses of the exchange he also sits on the board of the security industry automation Corporation in the National Clearing Corporation and also depository trust. So I think there's a very few people that I know of that have more intimate knowledge of what is taking place in the market system today than dick Grasso following his presentation. There will be a time for some questions and answers and we will have two of the staff of Minnesota meeting will be circulating in the audience to get your questions. I don't think there's any question at least in my mind that the New York Stock Exchange is the linchpin of our market system and the function of the New York Stock Exchange. I think is crucial to Capital formation. So it's with a great deal of pleasure that I introduce to you dick Grasso who will talk to us about the challenges of the 90s and I would assure you there are lots of them so deck. (00:02:19) Thank you very much dick for that kind introduction and good afternoon. Ladies and gentlemen, I'm certainly delighted to have the opportunity to be with you today and would like to thank dick and all involved in the Minnesota meeting for affording me this opportunity when Dick mentioned that I'd have the chance after my brief remarks to field some questions from the audience. I couldn't help but be reminded of a of an incident that occurred some two years ago following the Minor correction in equity prices that occurred in October of 1987. It was just after that event that we dispatched all of our senior officers to form such as this around the country to try and communicate with our various constituent and customer bases. Just what had happened on that eventful day the 19th of October of 1987. One of the most prolific speakers we've ever had amongst our ranks at the exchange was our recently retired Chief Economist who was on the road for some 35 consecutive evening speaking to form such as this to try and communicate the true meaning of the 508 Point decline in the stock market. He was on his way to a group one evening in Upper Manhattan, and he was moaning to his chauffeur of some 25 years how tired he was at giving the same repetitive presentation evening. Evening for the 35 prior evenings he show for turn to him and said Doctor I've been with you a long time. Would you allow me this brief moment? To share with you on a very candid basis something that's been troubling me. He said please do so doctor you thought over all the years and certainly over the last 35 evenings that I've set out in a cold car waiting as you were in a delightfully warm environment enjoyed a fine meal and and delivered a talk on whatever subject when in fact I've been able to gain access to many of the fine Halls that you've spoken at and in the last 35 days, I've heard each of your presentations and if I can be completely blunt with you. I must tell you they were pretty boring. and if I can be Most candid I believe I can do a better job. Not one to pass opportunity. The doctor said by all means we shall trade places this evening and they did. The chauffeur became the doctor the doctor of the chauffeur show for sat on a multi-tiered diocese in this Grand whole enjoyed a fine meal several courses with elegant wines was given a flowing introduction and stood and extemporaneously delivered perhaps the finest talk this group had heard on any subject. He talked about the market break in such eloquent terms that he received a standing ovation from the audience. He went on to questions. There was no subject that could stop him his expertise appeared unlimited. He talked about the world impact of that great Kraken prices. He talked about international monetary flows. He talked about relative economic performance. There wasn't a question that could slow or in any way taxes expertise until a gentleman in the middle of the grand hall stood and said Doctor, I have a multi-part question for you. Do you believe as some have offered that in order for America to avoid falling into the depths of depression which were experienced subsequent to the break-in security prices in 1929 that we must return immediately to a gold standard in this country. And if you believe that to be so should it be the standard that existed in America prior to nineteen thirty three the one which was practiced in the UK prior to 1927 all the Austrian version which prevailed in the pre 1900 period show first aired down for a very brief second and said my friend I've been doing this an awfully long time. That is by far. The most naive question I've ever been asked and just to show how silly a question it is. I'm going to call upon My Chauffeur in the back of the room to respond to your question. Well in reality in the questions and answers that follow I shall call upon dick, McFarland. And I thank dick because he was the the inspiration to me in my early days at the exchange and has been a longtime friend as have so many in this room Ted Piper Who currently chairs are Regional firms advisory committee his dad who's kind enough to be here today Who Sat On The Board of Governors when I was just a trainee at the exchange and I welcome them all and thank them for coming. I thought I'd confine my remarks to the challenges that we at the New York Stock Exchange face in the 90s and building our Marketplace as we evolve to the 21st century. But in order to do that, allow me to give you a brief sketch of what the New York Stock Exchange is and hopefully to share with you as very important constituents of the exchange how broad and how far-reaching an institution such as ours which is close to celebrating its 200th anniversary. Really means to this American economy the New York Stock Exchange is more than just the people who arrive each day at 11:00 Wall Street. It is a community that begins with some 47 million give or take a few individual investors in this country. That was our last census several years ago to try and assess those who own either directly or indirectly Equity Securities. When you add to that number the hundred and thirty million Americans who are in direct participants in our stock market each day, what you find is an institution that touches four out of five Americans each and every day of the business week. We're more than just those Universe of participants were 1600 of America's Finest public corporations in total. We trade some sixteen hundred and fifty listed Securities that truly can be said to represent the core of the American economy. We're an Institutional Investor base some 10,000 strong mm of which are using our services day in and day out some of them invest in what's referred to as the fundamental fashion based on earnings prospects market and economic Outlook some of them invest on indices or passive basis and I'll speak to that issue a little later in my remarks because there's a growing controversy between the two strategies but most important to recognize is that we as an Institutional environment represent some three trillion dollars of managed money, which is either directly or indirectly being impacted by what happens each day at the floor of 11 Wall Street. We're 600 broker-dealer members representing some 130,000 salespersons those 47 million direct investors in this country coming through that Universe to deliver their investment decisions to the floor of the New York Stock Exchange each day. We're a Marketplace that is as an environment for determining security prices the most public in the world each day and a typical day in 1989 is one in which some 165 million shares changes hands with a value of about 6 billion dollars each day. Approximately 91% of that transactional volume is represented by public customers or their intermediaries meeting at point of sale on the New York Stock Exchange trading floor either physically or electronically and discovering and determining security prices the other nine percent of what happens happens as a result of a sign dealers we call them Specialists. There are four hundred and twenty five individuals that make up a universe of some 51 Partnerships that are there to provide liquidity in the absence of public pricing equilibrium all together those 47 million direct investors, the 130 million in direct investors, the thousands and tens of thousands of Institutions the 600 broker-dealer members, the sales force that point of sale on the trading floor where the assigned dealer is making a market of efficiency out of one which is naturally inefficient that represents the world's most visible most active and perhaps most sought after model for exchanging ownership of publicly held securities. It is a Marketplace which we are very proud of but it is a Marketplace which is not owned by 11 Wall Street by the Thirteen hundred and sixty six members of the New York Stock Exchange. It is a Marketplace that's owned by every single American. It's a Marketplace which has as its primary purpose. Setting a foundation for what the American economic engine is all about and that is Raising capital building plant creating jobs and opportunities and raising the overall standard of living in this country. It is a Marketplace. That has no peer in terms of the regulatory oversight to which it's subjected each day each minute of every trading day Moment by moment computers are scanning the sixteen hundred and fifty listed company stocks on a tick by tick second-by-second basis that's can is designed to detect aberrational activity. And whenever there is the flags the bells and whistles the electronic Sirens go off. And our investigatory procedures come into play oftentimes. There are very good reasons why security prices are acting abnormally a recommendation and economic development a world development, but in some small instances, there is no apparent reason and that's when our role as a self regulator in partnership with our direct overseers the SEC in the congress come and are tested to be sure that the integrity The trust that Americans have placed in the New York Stock Exchange continues to be well deserved. We are a Marketplace and the financial services business is an industry, which if you had to describe its generic product. It would not be one one can fly in drive in can eat can consume it is a product that is bound together by a single glue and that glue is integrity. The New York Stock Exchange is very proud that it's Marketplace and it's self regulatory oversight is a model which the rest of the world today uses. Not only in trading methodology, but in surveillance oversight, nothing is undetected no aberrational activity on that trading floor goes without our overseers becoming quickly aware of it and pursuing a pursuit of the regulatory function of course requires us to be in partnership with the SEC and the Congress because many of the The ultimate customers are from without our jurisdiction, but we work very actively almost on a daily basis with the SEC to ensure where we detect instances impropriety that they are quickly referred to the SEC which has the judicial oversight and the ability The subpoena power necessary to bring those who would violate the rules or violate the law to Justice. Without is a brief sketch. Allow me to share with you what I believe to be some of the challenges. We as an institution face in the 1990s and clearly the challenge in front of us as we March to the 21st century will be significantly shaped by the events of the 1980s. The 80s have been truly extraordinary for financial markets in this country recognize we entered we the New York Stock Exchange entered the decade with our average trading volume at less than 40 million shares a day. We will leave the decade with an average daily volume approaching 200 million shares a day, but more importantly is to look at the unpredictable swings that we've experienced. Swings that not only in price valuation, but in volume contribution would have been unheard of in the decade of the 70s realize that it wasn't until 1982 that volume on the New York Stock Exchange first crossed the 100 million share level two years later. It crossed the 200 million share level. In January of 1987. We began the year with 13 consecutive up days, and it was fairly easy to predict that we were in for a rather interesting year. In fact, we entered 1987 with a dow averages that's slightly under 1900. They were somewhere around 1898. They marched uninterrupted from January to August and peaked at 27 22 in that time frame. We experienced our first 300 million shared a Can the level of activity on an average basis was running such that we did not need. To think very long and hard about accelerating or investment program for technological support. In fact in the very early part of February of 1987. We made a decision to accelerate all of our technology Investments for the year 87 in the first quarter 88 into the first half of 1987. And of course that proved to be a very wise investment on our part because in the week between the 16th and 23rd of October of 1987 the New York Stock Exchange handled the same level of trading activity that we experienced in my first full year at the exchange some two-and-a-half billion shares two-and-a-half billion shares traded in five-and-a-half trading days. perhaps not perfect perhaps with not a record of systemic delivery that we wouldn't we wouldn't on reflection want to improve and in fact we have but with a level of output and achievement that we were truly very proud of we were proud not only of our system the technology-based that delivers orders to our Arena, but we were proud of the people both the agents those representing the Danes and the Pipers and the various of the other 600 member firms of the New York Stock Exchange and our dealers who stood And met an unprecedented challenge to provide liquidity at a time when virtually the rest of the world's markets lie dormant. While we were very pleased and proud of that experience. It was an experience which sent a very important signal into the financial Community. It showed to us that we needed to build a much greater level of servicing capacity to our public customer base than ever had been anticipated. And in fact in the two years between October of 1987 and October of 89. We embarked on a program to bring our capacity to a level of approximately 800 million shares a day with a March very very quickly towards our first billion share a day capability and that capacity could not have come all too soon. It seems we have a little problem in the financial markets with the month of October. Whether it was October of 1929 October of 1987 or October of 1989. It appears that for whatever the post some are doldrum. There is a valuation adjustment in the month of October. Some have offered a rather quick solution to our problem simply trade the months of September and then move right to November. Without that ability we simply will do what good business planners will do and that is continue to build continue to realize that the relationship. The behavior of our consumer remains highly unpredictable we can chug along at a 130 million or 150 million share pace and then suddenly have an experience such as the 13th and 16th of October of this year when 252 and 422 million shares changed hands. We as an institution we as the marketplace of some 47 million investors have got to be prepared for that sudden surge in activity. The 80s did some some rather fundamental things to the product menu of financial services. We entered the period with basically five or six products stocks bonds mutual funds several several composite Vehicles representing elements of both fixed income and Equity ownership. The equities rep the 80s represented a product explosion in which we leave the period with almost 200 products on the shelves of broker-dealers. The 90s clearly will be an environment shaped by those developmental activities. We see as the New York Stock Exchange approaches its Bicentennial in 1992 a decade where technology will shape and will create competitive Advantage unlike the period of the 60s 70s and early 80s when technology was simply a facilitator in the back office technology in the 90s and into the 21st century will become a competitive determinant of who survives who thrives and who goes by the wayside. We see the complexity of investment strategies growing. I mentioned earlier the prevailing conflict between the so-called active manager and the passive manager ours has always been a market that has allowed for the diversity of choice choice in the sense that investors may choose to come directly into equities may come in directly through mutual funds may come through institutions institutions may be fundamental investors may be indexation type investors may be enhanced indexation type investors ours has always been a market that has welcomed all types of strategies all types of participants. We continue to believe it is important for us to do that particularly as the markets of the 90s evolved into a global competitive scheme. However, we feel very strongly. That no one strategy or no one market participant or category should have the ability to disrupt the investment choices the patterns and the competitiveness of all the other participants in the market. And so we are going to seek in the short term a number of methods to deal with a critical issue facing not just the New York Stock Exchange, but this country as a whole and that is Marketplace volatility what it is done to investor confidence and what that in turn has done to the primary purpose of markets in this country, which is to support our economic Foundation. I'm very pleased that Roger Smith. The chairman of General Motors has accepted A very significant challenge of chairing a blue ribbon advisory panel to our board of directors, which will include representatives of the corporate Community the institutional investment Community. The academic world The Brokerage Community other exchanges and public investors at large charged with the responsibility of seeking Solutions and initiatives to dealing with the critical issue that we face in this country in terms of our Capital markets and that is Market volatility investor confidence and how we shape our markets into the 90s and on into the 21st century. There's one thing that's very clear to me as I look back in short course of my career and certainly over the history of the New York Stock Exchange. Ours is a market that has always had a dedication and a pursuit of excellence in terms of its service to individual investors to institutional investors to all who choose to use and come to the arena that represents the core of the American economy that challenge will be heightened in the 1990s AS Global markets particularly the markets in Europe and the Pacific Basin grow more competitive. We're in the middle of some very exciting times as political events reshape the face of Europe. We're two years away from the harmonization of the European economic Community a harmonized community that will represent a consumer base of some 320 million individuals. the growth and the Pacific basin Is going at a pace that's (00:26:21) geometric. (00:26:24) What each of those Arenas has in common is that they've looked at the experience in this country the experience of the New York Stock Exchange and have used it as a Model A model for their Reverb and their emerging Capital markets and a model of where they want to be in terms of raising capital and creating economic and social reforms in the 90s and Beyond. Ours is a challenge that I'm very confident will be met not only by the New York Stock Exchange, but in partnership with its broker-dealer members with its institutions because we have a common goal and that is preserving the Primacy of the Capital Market structure in this country, which has truly been the Envy of the rest of the Free World. We have served as a facilitator. As a generator and as a model for the rest of the world's Capital markets over the last 60 years. I feel very confident that as we enter The Next Century the New York Stock Exchange and the capital markets in this country will remain in that leadership role in two short years. My institution will celebrate its bicentennial. and I'm very optimistic that were we sitting here on the try Centennial. my successor hopefully She will have a very very equally optimistic outlook for the institution that has been at the root of America's Economic Development over these past 200 years and will continue to serve each and every American over the next 200 years. I thank you very much for inviting me today, and now I'd like to call upon My Chauffeur dick McFarland to answer any questions you may have. Thank you very much (00:28:35) on the station's of Minnesota Public Radio. You are listening to the Minnesota meeting coming to you from the Hyatt Regency Hotel at the South End of the Nicollet Mall in Downtown Minneapolis. Our speaker is Richard Grasso the president and Chief Operating Officer of the New York Stock Exchange. Anyone with a question? you think we ought to return to the gold standard and if Question, do you have any control or influence over the advertising of your members? I think of one commercial in particular that talks about making money the old-fashioned way. We earn it. And what does that apply imply for your other members who must make it some other (00:29:26) way? Well, that's a two-part question as to as to part one dick McFarland favors the Austrian method pre 1900 as to Part 2. We do not have a an ability to in essence pre-approve the advertising of our broker-dealer members. However, we do have a responsibility as a self-regulatory body to do spot oversight checks to ensure that the accuracy of their ads are not are not in question and certainly from a taste point of view as self Regulators. We would we would play some role there. But as to the content as to their choice of medium as to the message that is entirely competitive amongst the broker dealers. (00:30:26) Dick The Exchange serves two purposes one is to (00:30:33) provide a means of raising new capital in the (00:30:36) other is for liquidity of existing shares. It would seem that the exchange has been a great deal of time with you types of devices (00:30:47) on liquidity and (00:30:48) how Shares are exchanged as we go forward into the next Century. What will the exchange do to assist in raising new capital for the US economy since (00:31:00) right now, we actually have (00:31:01) a shrinking equity-based rather than expanding Equity base. (00:31:06) Well Cliff The Exchange beginning in 1982 amended its listing policies to permit initial public offerings to take place on the exchange. Now that of course is an opportunity that is not very wide in the And that in order to qualify to do that, you must meet all of the listing standards of the exchange which very few initial public offerings. Do I would I would venture a guess that somewhere around 15 to 18 percent of the new offerings that are brought to the public market would qualify where would meet those quantitative standards and those standards test a company's profitability. They test its Equity base. They test the potential for distribution amongst a wide base of stockholders. So there is a there is a rather narrow defined Market, but for those companies who are able to meet those standards. The opportunity to effectively go public on the exchange to simultaneously create both a primary and a secondary Market has proved to be a very cost-effective alternative to the traditional progression from private status to traded in a localized Market to moving to a perhaps smaller exchange and then ultimately graduating to the New York Stock Exchange the ability for those who meet those very rigorous standards to raise an initial capital on our exchange creates an opportunity of Greater liquidity greater investor receptivity and potentially an effective lower cost of raising that initial Capital. So that's a that's a Thrust that we feel very very proud of we will continue that in the 90s and Beyond and hopefully we will have many more companies come to Public market with the opportunity to initially become a big board traded stock. Thank you. Mr. Grasso a question from Andrea Benson. Often times these days. We are getting more of a regulatory and enforcement overlap among the various States and the sros especially as we look to the globalization of the marketplace. Can you speak to whether or not you see a division or separate roles for the sros as opposed to the enforcement and Regulatory procedures now being put forth in oftentimes very rapid succession from the individual states creating a patchwork effect. That makes it very difficult to do business him. Well, I can speak to the efforts of the the New York Stock Exchange in terms of coordinating its various oversight rules and listing standards with the various States. We have worked very closely with the State security administrators Association over the last number of years to try and create a uniformity of registration requirement with regard to companies that are traded or are about to be traded on the New York Stock Exchange clearly. It is in the company's best interest the exchanges best interest and in the interest of the states to have some harmonization at a at a nationalized level not nationalized in the state in the sense of diluting the states rights to to oversee, but particularly in the sense of how the New York Stock Exchange creates listing standards and makes those standards available across The 50 states the question of international regulation is a much broader one and creates greater greater difficulties not so much in the in the case of the state overseers, but in the case of the different practices between us and in foreign country markets as you look around the globe you find that the greatest opportunity to add new companies to the New York Stock Exchange ranks indeed is from the offshore Arena surprising to most people if I were to size the market opportunity in America today those companies that are qualified to be traded on the New York Stock Exchange who are traded either in another exchange environment or in the over-the-counter environment. That number is less than 290. Whereas if you were to look on the international side there. Are over 500 companies major world-class issuers who qualify numerically to be traded on the New York Stock Exchange, but depending upon the country of origin. There are enormous differences in either the corporate governance standards, the accounting rules the auditing standards which preclude harmonization of registration. I'm very encouraged that the SEC and particularly chairman Breeden looks to the international side as a major opportunity for America's capital markets over the next few years and clearly is going to set an agenda designed to stimulate International companies coming to the u.s. And registering in our markets. (00:36:46) Thank you. Mr. Grasso. Here's a question from our Sanford. Thank you. You commented on the New York Stock Exchange surveillance program and yet many people feel you're missing the mark completely when you look at the trading patterns of stocks just prior to Major announcements. Obviously, something is getting out. Also, the major Insider case the boesky case was apparently not uncovered by any of your surveillance programs. You have any comments on that? (00:37:14) I do in reverse order. I think former US attorney Rudolph Giuliani in testimony before Congress made, perhaps the most critical observation on surveillance and oversight of markets particularly in this world where you have enormous trading activities in Securities that can be based on a number of different either forecasts or suggestions or recommendations. What what Rudy Giuliani At the Congress in his testimony on the subject of insider trading was the critical element necessary in the breaking of the boesky case was an informant. There is no greater substitute other electronic technology, whether it's intuitive Market judgment, whether its oversight by either a direct or an indirect agency, there is no greater Source than someone coming forward and sharing information about illegal activities. Make no mistake about the revelations whether it's Levine. Or boesky or any of the other names those were criminal acts and they are not condoned by the Securities industry a very small number a minut number of participants in our markets have broadly characterized in the minds of many public investors the marketplace in its darkest or in its worst fashion that is not representative of the industry that I work in. I think the industry and many in this community will tell you who work in the industry is a group of hard-working honest professionals out there to do a job a credible job on behalf of clients the oversight the electronic mechanisms for detecting illegal activities. Are excellent they're better in America than anywhere in the world, but make no mistake about it. They are not fail safe. They are not 100% accurate the opportunity to have someone come forward as was the case in actually boesky was preceded by the bank Lou case with Dennis Levine having someone come forward as a as a Tippy is a critical element one that can be that can be more powerful than any oversight technology. We've spent millions of dollars on systems not only to detect unusual pricing patterns, but to do analytical backgrounds on people who have been in the market when we have an instance of a stock acting unusually prior to an important announcement we go back to all of those who are on the buy side. Let's assume an important and positive development was announced on a particular company. Go back from many weeks to all of those brokers who are on the buy side and ask for customer identity. We've built a system that matches almost 400,000 names in this country to try and detect whether there has been any illegal activity any misuse of non-public information. It is not a perfect process, but it's one that we're all very proud of and I would not for the moment leave here without saying once again that it is the misdeeds of a very small number of people who have cast this terrible Dark Shadow the shadow does not in any way reflect the wonderful numbers of professionals who are in this business who day in and day out are working at a high level of Integrity on behalf of those 47 million Americans. Thank you. Mr. Grasso a question from Karen Bachmann. Mr. Grasso a number of financial institutions have argued very compellingly for the Banning of program trading because of its potential to be so disruptive in the market and I'm wondering if you could expand on on your position on that issue. Well we have As you might expect been at the center of the discussion on program trading but program trading is only a piece of the issue I refer to earlier and that is Marketplace volatility investor confidence and the primary purpose of markets. What we have asked Roger Smith to do and his panel will be announced very shortly a group of outstanding individuals from their respective disciplines is look at not only program trading not only index all the triage which is in many people's mind that subset of program trading that is most disturbing to the marketplace but to look at the broader or the macro issues that need to be examined in terms of understanding what's happened in our markets over the last few years and particularly how the strategies of enhanced indexation are being employed and in some cases. Eating volatility that perhaps is excess, but in many cases in a perfectly appropriate way, I think what is necessary is for a group of professionals to look at the broad issues in a dispassionate and objective way recognize that program Trading. Or the so-called enhanced indexation strategy is not a strategy practiced by a small group of mathematicians sitting somewhere in a cement bunker many of the largest public pension plans in America are active users of the strategy. I can run the list but just in terms of the two coasts certainly the California Public Employee Retirement System the New York State retirement system the New York City retirement system many of our largest corporations many of those amongst the Fortune 100 are active users of the strategy in terms of how their pension assets are being managed today. So it is a complex question. It is a very important question because the shape of our markets will be heavily determined by investor confidence in those markets and when there is a period of volatility that shakes Confidence to the extent that we lose participation. We lose a truly unique National Asset and so it is very important the charge that we've given mr. Smith and his panel and we expect their report to be rendered to our board within the the next six months. (00:44:08) There's a question from Ron Smith. (00:44:12) Mr. Grasso, you mentioned that since October of 87 at (00:44:15) the capacity of the exchange has been greatly (00:44:18) increased and but I assume that there are a number of other things that have been done by The Exchange to hopefully Shore up investor confidence and to see that the market is a whole has been short up and strengthened by not only their surveillance. But other matters, could you comment on the other things that the exchanges that's absolutely and I'm delighted that you asked the question when I use the term capacity. It's in its broadest sense. I'm speaking not only about technology, but I'm speaking about the process the rules and the communication between our markets and other markets and post the 87 experience. We embarked on a technology plan to build plant capability. We embarked on a Communications plan so that we would more effectively coordinate under It's of Market. Duress between our Market all other Equity markets in this country the Futures markets the option markets the SEC the cftc the treasury and and the fed and those fail-safes have been very effective. We've utilized them on a number of occasions in the last in the last 12 months. We also most importantly had to deal with the perception of the public investor that there was in fact a race to point of sale on the part of sophisticated institutions and large individual investors to the detriment of the small retail customer that they were being innocent in essence crowded out by that sophisticated user that person with access to direct technology. We built a highway in our electronic delivery. Very system that is specifically dedicated to individual investors today. If I walked into dick McFarlane's Dane office in Downtown Minneapolis and placed in order to buy a thousand shares of universal foods that order would route electronically from that office to point of sale on the trading floor. It would be exposed to the auction executed and back in Minneapolis in a total time elapsed for turnaround point to point of sale back to point of entry of 28 seconds within that network is now a specially dedicated highway to individual investors any investor water. Retail customer of 2,000 shares or less gets a special identifiers as that order is entered into the system to the extent that there were any crowding or any if you will static in the process that individual investor order is given priority on routing to point-of-sale and in fact on the 16th of October of this year just another routine 422 million shared a at the New York Stock Exchange with the market moving from down 82 up eighty ninety six thousand individual investor orders took advantage of that special service. So that is I think a very tangible example of the types of fail-safes the types of if you will extensions of service to the retail customer that we believe is so critical to maintaining public investor confidence and thus participation in all (00:47:59) Rockets (00:48:02) Yes. Mr. Grasso. We have a question from John kite Ling ER (00:48:05) are you mentioned that internationally we have no peers. I wondered specifically if you have any contacts with the Japanese Market what you're my wife says it's rigged for example, but just just some comments basically about internationally what you see specifically in Japan there (00:48:23) might well, certainly the the Japanese Equity Market has had an enormously successful run over the last 23 years. In fact, if you go back to 1966 the first time the Dow Jones Industrials in this country. Traded at a thousand so too did the Nikki - ow in Tokyo today. We're at hovering at around the 2700 level. They're at around 37,000. So there's been a considerable differential in the two markets performance. Now, there are lots of very important fundamental reasons for that not the least of which is the price earnings multiple afforded Japanese issuers, which is averaging somewhere above 60 as compared to the American the American Market, which is somewhere around 14 to 15. I think the the equities markets in Tokyo and Osaka have been very effective at courting retail participation while they have a number of non Japanese corporations listed on the Tokyo exchange. There is very little trading activity in those Securities, but clearly they are a Marketplace that is emerging and sir. They will become a an important competitor to the US market as we move into the 21st century on the primary side comparing the two primary Capital markets. There is a very troubling statistic over the last 12 months that somewhere around six times as much new capital has been raised in Tokyo as has been raised in America. I think that's something we have got to deal with as a national issue and certainly the breadth of participation in our markets and the level of investor confidence is going to enhance our ability to return to that primary Capital status role. We've enjoyed (00:50:25) on the station's of Minnesota Public Radio, you're listening to the Minnesota meeting from the Hyatt Regency in Minneapolis. Our speaker is the president and Chief Operating Officer of the New York Stock Exchange Richard grey. So here's a question from Austin Sullivan. Thank you. One of the reasons that we've seen in erosion of equity the equity base is that our tax system currently through interest deductibility makes debt Capital less expensive than Equity capital and I was wondering if you would favor some effort to to correct the advantage currently enjoyed by debt Capital either either in general or in connection with highly leveraged transactions. (00:51:10) Well, I think far greater minds than mine have focused on the issue of the advantages and disadvantages of the deductibility versus versus dividend streaming. I think what is very clear is that the latter part of the 1980s when high yield debt was a very important script in many of the reorganization. Nations and and mbos that occurred have taken on a new risk profile and the recent the recent 6 to 12 months and the desire and willingness on the part of investors to participate in that market I think is is going to going to have to be determined by those factors as we move into the 90s as far as the the leveraging that we've seen in the latter part of the 80s. I think that many of those issuers have incurred significant debt loads, which have been manageable many of incur debt loads, which today are now proving to be unmanageable and there have been some highly visible instances where recapitalizations are teetering on the brink of viability. I think that's best left to the marketplace in terms of what the desire And the propensity for dead assumption is as far as the position of yours truly since we trade 1600 equities with roughly six billion dollars Changing Hands each day and 3,000 bonds with approximately 36 million dollars thirty six million dollars Changing Hands each day. Probably fairly predictable where I might be okay, but then again wine is a narrow based narrow based answer. I think that's for the public policy makers to decide and certainly there are good arguments to be made on both sides of the coin. Thank you. Mr. Grasso question from John (00:53:22) Connelly. Mr. Grasso, I have a two-part question. What is your working definition of an individual investor and secondly on any given day 200 or 300 shares traded what percentage of those shares would be traded by an individual investor or the group of individual investors. (00:53:43) Your question is an excellent one because it is very difficult to profile the typical individual investor looking simply at the behavior in the stock market these days an enormous number of smaller institutions are delivering their investment (00:54:02) judgment on a (00:54:04) fragmented basis to the marketplace and so the profile of trading maybe some what at least at the surface level of the appearance of retail participation and yet that may simply represent a job lauding of institutional participation. I think it's it's very difficult to deal with the issue of an individual investor versus a daytime traitor. There are many people who take the view that the individual investor has either gone dormant or has exited the equities Market in the last two years and yet we have a board level advisory committee of individual investors chaired by Tom O'Hara the chairman of the National Association of investment clubs and that group on occasion such as the to October's take the Viewpoint that it represents to the long term individual investor. A buying opportunity now one can get carried away in terms of running a sale. But I think I think that characteristic or that mindset represents a constituency of investors which overlooked the Peaks and valleys in the short term and are truly time Horizon investors, whether that be 5 10 or how many ever years it is very difficult. If one looks back at the performance of equities over say a 60 year time frame. It is very difficult to make a case to be in other than the equities Market if you are truly a long-term investor on the other hand, if you're going to have a more active turnover of your portfolio, you've got to be prepared to recognize the periodic eccentricities that the market undergoes. I think it's I think the To your the second part of your question if I would have profile what we believe to be the markets daily contribution of a pie of a hundred percent roughly 30% is categorized as professional of that 70 percent remaining probably somewhere around half 25 to anywhere between 25 and 50 percent would be the retail participant but that tends to ebb and flow with security prices with the overall behavior of the economy and certainly over the last seven years, which we've had effectively an uninterrupted. Short those those two periods in October and uninterrupted climb from 798 on the Dow in August of 1982 to over 2,800 this year. The flow of Institute of individual participation has been quite significant. (00:57:12) Mr. Grasso. You said we have 47 million investors in the country that New York Stock Exchange Services. We have about a hundred fifteen million people working in the country. We're about to have a public Lottery come into effect in Minnesota that growing all over the country. This educational program you're conducting today is to a very sophisticated group. Most of the people who will use some of their disposable income and lotteries are not so sophisticated. Do you have an education program? Or do you think you should to appeal to the people of the United States who are working and who have some money to invest to invest in America rather than in the short-term payoff or non payoff of a lottery. (00:57:58) Well, we've had a over the course of our history. We've had several very successful educational programs to deal with the value of investment in American in America's economy and specifically in the companies that are traded on the big board from 1952 to 1967. We had a program which was entitled own your share of American Business. That was very effective at communicating the The positives and the shortfalls of equity investment. It came at a time when share ownership grew in this country from under 5 million to almost 30 million. We look at the next few years and clearly. I think we have a role to play educationally on the merits of long-term investment and particularly investment in the in the equities Market on the New York Stock Exchange. So we are in the process of considering an educational program that will be a little broader. It'll be designed to try and translate what happens at eleven Wall Street, and why what happens at eleven Wall Street impacts the lives of so many millions of Americans not just those who are direct participants. (00:59:17) Thank you Richard Grasso president and Chief Operating Officer of the New York Stock Exchange. You've been listening to a live broadcast of Minnesota meeting our live broadcasts made possible by Oppenheimer wolf and Donnelly providing commercial corporate litigation and international legal services to businesses in 40 countries around the world a brief reminder as well that today's broadcast of midday was made possible with financial assistance from the James are Thorpe Foundation. This is Bob Potter speaking. K no W Minneapolis. St. Paul in the Twin Cities. Now five degrees know 7 degrees above zero the high today expected around 10 above or soul. 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