At a roundtable with journalists this week, two of NYSE-Euronext’s top officials discussed their intentions to recruit more Israeli companies for its exchanges in New York, London, and beyond, as well as their thoughts regarding the role of stock exchanges in a world that has, many feel, lost its faith in the ability of financial markets to fairly allocate money and bring prosperity to companies and individual investors.
One of the reasons for that loss of faith is because, according to polls, many people believe that the market is rigged. What the financial world needs now is trust, according to Larry Leibowitz, one of the top officials of NYSE-Euronext, the global stock exchange organization. And if financial markets – and, indeed, capitalism as we know it, are to survive – everyone, from government on down, is going to have to do something to regain the trust that was squandered over the past decade.
And for that to happen, “business has a responsibility to win trust again. If they do not take responsibility, they will not get that trust,” and the small investor, burned by the Internet bubble, the bank crisis, the mortgage crisis, and most recently, the Facebook crisis, will just continue leaving their money in the bank, where it will earn a half a percent interest per annum. That responsibility to trust consists of many things, including ensuring transparency in trading, making sure that no trader has an unfair advantage in the market, and keeping shady characters off exchanges.
But taking responsibility, it turns out, isn’t so simple. As it happens, some of the worst offenders in the 2008 banking crisis were members of the NYSE, the world’s most prestigious trading platform. But don’t blame the exchange for the book-cooking that companies like JP Morgan and AIG engaged in that triggered a credit crisis that nearly brought the system down. “We’re not regulators,” said Leibowitz, the Chief Operating Officer of NYSE-Euronext. “It’s not our job to investigate JP Morgan. We set the requirements for companies issuing stock,” he said, and it is up to regulators to make sure that companies can back up their business plans and stock-issuing activities with assets.
One lasting effect of the crisis, though, has been to make the question of who is responsible for what – especially when things go wrong – one of the most important for Leibowitz, who was in Israel with Diederik Zandstra, NYSE-Euronext’s Head of International Listings for the exchange. In fairness, it’s impossible to expect the company (which operates over 13 securities exchanges in the U.S. alone, along with many more around the world) to be able to control all aspects of trading. Besides the fact that regulators, government, taxes, and so on are beyond the company’s control, the trading process today makes it very difficult to keep tabs on all aspects of the system.
That seems to be what happened with the Facebook IPO debacle. Technical problems abounded, trading started late, and customers complained of trades that didn’t go through. “The market that was being put out was wrong, as well,” said Leibowitz. “It became very clear very early on that things were very confused.” In retrospect, he said, it might have been better to stop trading for a while. “The worst thing is when things happen that investors don’t expect. That’s where you lose trust.” While stopping trading may have undermined confidence, going through with the “bad trading” undermined it even more. “You have to be as transparent and responsible as possible,” he added. And Leibowitz takes no comfort from the fact that the Facebook mess-up occurred on another exchange. “I can only hope our standards would have been better.”
That striving to restore trust – or at least to prevent it from dissipating further – is a big part of how Leibowitz and Zandstra see their jobs, the two said. “We realize that people are putting their retirement money in the market, and we have to send out the message that this is not a game rigged by insiders,” Leibowitz said. “If you look back at the 1930s, the last time there was such a lack of trust, it took decades to restore trust in the markets. In a way, things are even worse now, because coverage is 24/7, every second of the day. Anybody can get up and say anything they want at any time.” For financial markets, where rumors, tips, and “inside” information (or what people claim to be such) often leads markets, the openness of the Internet presents a real challenge.
That desire to be seen as a positive force – plus the fact that, due to competition, the old days of the “Wall Street insiders” who could afford to turn away business, is long gone – has led the New York Stock Exchange, and the other exchanges to remake themselves not just as places where stocks are traded, but as business development companies. “When a company wants to expand beyond a certain point, to raise money as a public company, we are there to help them, whether it’s with our connections, our technology for fast transactions, and our other capabilities.We help them cultivate their companies,” said Leibowitz.
Israeli technology companies, especially, could benefit from their approach. The prestige of the NYSE-Euronext exchanges can help raise the profiles of companies, said Zandstra; it certainly seemed to have worked for Teva, which jumped from the Nasdaq to the New York Stock Exchange several months ago. “Teva came to us because we are bigger and better.” But there is plenty of room for smaller companies as well. “Smaller companies have a harder time raising money, and we can help them.” And listing with the NYSE-Euronext exchanges doesn’t mean that companies have to lose their local identities. “We actually encourage companies to remain with the exchanges in their own countries, and to dual-list with us.” That, said Zandstra, can help companies grow in their home countries, while benefiting from the “luster” of larger exchanges.
“Israel, for us, is definitely more of a focus now than it was before,” said Leibowitz. “Five years ago we had no presence here. High-tech companies asked us why we were seeking them out for listings, considering our reputation for being the home of large-cap companies.” It took time, but now high-tech companies realize that the NYSE-Euronext exchanges can provide them with the backing and prestige they need to grow. Right now, said Leibowitz, there are several Israeli companies in the IPO pipeline, and several of them may announce their intention to list, possibly after the summer, as memories of the Facebook IPO begin to fade.
The idea of working with companies to help them grow, whether through technology, connections, or sheer reputation, is a cornerstone of NYSE-Euronext’s formula for growth, and a part of its strategy for restoring trust to the market; now more than an aloof, disinterested platform, as stock exchanges were in the old days, NYSE-Euronext is actively interested in the success of its listed companies, and of industry in general. Working with companies is the best way to gain their trust, and working with regulators to ensure that things are done properly is the best way to regain the trust of investors, which is in short supply today. And Leibowtiz feels that the company has what it takes to restore that confidence, and bring investors back to the market in droves. “It’s going to be a gradual process,” he said. “Americans are often impatient with matters economic, and I have the feeling Israelis are a bit impatient as well. But if we handle things right, I think we can get things back on track.”