A transcript of the FT's interview with Duncan Niederauer, of NYSE Euronext. He speaks to US managing director Chrystia Freeland about derivatives trading, New York versus London and the global economy.
Financial Times: You've suggested recently that the exchange might be used somehow by regulators to help monitor what's going on in the derivative space.
Duncan Niederhauer: Right.
FT: How would that work?
DN: I think it's very premature. I think it's very informal discussion so far. We were simply asked in the wake of something that we just went through this summer, one of the big issues seemed to be a lack of transparency around a specific part of the market. Now, that could come in a lot of shapes and sizes. I don't think we can force liquidity into the equation, but I do think that we could ask some of the liquidity providers to think about providing more accessible quotes that were viewable to the public and at a minimum, if transactions are done being responsible to report those transactions so that they be visible to the public at large. I think what's made some of the officials and government authorities here nervous is we seem to have gone from point A to point B overnight and everyone who's involved in the markets know that didn't happen overnight. It would have been more visible to people that we were sliding a bit if there were more transparency around quoting and reporting. So that was really the sum and substance of the conversation. I think we stand prepared to play whatever role the industry wants us to play to do that.
FT: The industry or the government or both?
DN: I think if we're all smart here, it should be a collaborative effort. When something like we've just all lived through happens, I think it's incumbent on everyone to sit at the table. I'm happy to sit at the table. I would encourage the key liquidity providers to sit at the table. I think the government officials should sit at the table. Rather than wait for somebody to prescribe what should be done, I like to think we're all better than that and we'll all sit down together and come up with a great solution that makes sense for everybody.
FT: Which is voluntary as opposed to mandated by regulators?
DN: I would imagine. It's too early to predict. I always think those are better to come up with some agreed upon set of rules, some of which might be mandatory, but you strike the right compromise that gets investors what they want, doesn't over prescribe it so you don't kill the liquidity in the business. At the same time you just make more information available to investors so they're not operating completely in the dark. That's all.
FT: Sounds like something that should happen sooner rather than later. How quickly could we imagine a process like the one you're describing to really take shape?
DN: Boy, that's a great question 'cause these things, even if we think they should happen quickly, they rarely do. You've got a lot of constituents who would have to come to the table. There's obviously a lot of other important issues that all the constituents I just mentioned are wrestling with. So I think we'd be prepared to make some suggestions and we'd be prepared to deploy resources very quickly, but I think you've got -
FT: Have you done that already? Has anyone asked you for policy papers or anything like that?
DN: Not yet. They know that we have a fledgling bond business. So it's not that hard for us to use that facility we've built for fixed-income instruments to get involved in dissemination of quotes or dissemination of trades. So it's pretty easy for us and I've just let the officials know we're ready and we're ready to engage at any time. I don't know if it's our place to write a policy paper. I fear that if we did that it might look a little self-interested. Although I do believe we're a good independent arbiter to be the place where some of these types of things could be housed, but we just want to be an industry participant and get to the right answer.
FT: Among the regulators and the government authorities, who do you see leading those discussions? Is that clear?
DN: I think it's very unclear. I mean one thing we have in the United States is sometimes it's not clear who's going to take the baton on various issues. There's lots of choices. You could have Treasury lead the charge on this. You could have the SEC lead the charge on this. You could even have the CFTC or another regulatory authority get involved in this. Depending on what they want the end game to look like. I think it's too early to predict right now.
FT: Do you think that the key liquidity providers are prepared to come to the table? Have they been sufficiently jolted by the recent events?
DN: I would hope so. As one until about a year ago, I would say in my old seat certainly would have been coming to the table saying it's time to -
FT: When you were at Goldman.
DN: - Yeah. It's time to be part of the solution. Let's try to figure out what that solution looks like and let's not over regulate it so that all the liquidity gets sucked out of the business, but let's figure out if there's a middle ground here that we can all get comfortable with. Let's be actively involved rather than passively involved. So I hope so.
FT: We're in a hot political season right now. Do you think there is a danger that if there isn't a solution of this sort you've described with industry playing a big part, you'll have politicians coming in?
DN: Boy, that's always a good question, right, because you never know if it's something in a political year like this that's going to be super-charged, does somebody grab onto this issue. Those issues that they tend to grab on tend to be more issues that affect the retail investor. The question is how much do the politicians think that the knock on effect of this liquidity crisis in the credit space was to affect the end homeowner down the chain. I think if they feel that solving this problem would have prevented that problem, you'll find some of them take it on as an issue. If they believe that it was really just an institutional problem, I would have difficulty thinking it rises to their level of interest, but we'll see. You're right. That's always a factor in an election year that is not always the case.
FT: Do you worry about New York losing out to London as the world's premier financial center? And is it easy enough for foreign companies to list here?
DN: I think we proved that last year that it is. Is London a viable competitor for a lot of foreign listings, too? Sure. I think the record in '07 was still NYSE Euronext was number one in terms of growth proceeds rates from IPOs with about 80 billion, but we can't take that lightly. We can't be complacent about it. We fight hard to get these listings. I do think the US regulatory landscape that was sited as a potential impediment to companies listing here, I'm feeling much differently about that than I was nine or ten months ago because -
FT: How come?
DN: We've seen loosening in some of the Sarbanes-Oxley pieces. You've seen the IFRS standard begin to be accepted by the regulators here. I think you need to look no further than no fewer than 20 Chinese companies listed here. You would have argued that well, why would they do that with all the disclosure requirements and all the governance requirements. That's exactly why they did do it. When I asked all those CEOs, you could have picked anybody. We're delighted you picked us. Why are you here, their response was because this is the easiest way for me to access the biggest capital market in the world and at the same time tell shareholders I'm not afraid of transparency and I care deeply about good governance. So I think we're there. We're certainly not resting on our laurels. We know we have a lot more work to do.
FT: From your vantage point you have a great perspective on what's happening with American companies. Do you think we're entering a recession or maybe in one already?
DN: I've learned my lesson to be very careful about talking about these things. So I would probably leave that one to the experts. I will at least give you this much 'cause I don't have enough information to say whether we are or we're not. This is a very interesting perspective here so you hit the nail on the head. In my old job I would have been probably wrapped up in the malaise of the financial services industry the last several months and not picking up my head to have the perspective to look around and see how other industries were doing. This is a very interesting seat to sit in here because you see heads of all different kinds of companies coming through here; some of whom are strictly US businesses; some of whom have quite a big global footprint and I would say there is no consistent response. There's as many that are doing well as are doing poorly right now. So, I don't think the evidence is clear -
FT: Is there any easy division? Who's cheerful? Who's depressed?
DN: I think people who have a bigger global footprint seem to me to be a little more cheerful because they're finding that while the markets are still clearly connected, I think the economy is becoming a little disaggregated. There's that old saying if the US sneezes does everyone catch a cold. I don't know if that's as true as it used to be. It seems to me, and this was a big topic in Davos, there's no question that if the markets hiccup that kind of reverberates around the system. I'm not sure that's true about the economies anymore. So companies who have big global footprints seem to be benefitting from those other economies outside of the US continuing to grow. They seem much more immune to what happens here than they would have been say five or ten years ago.
FT: Have the Fed and the Treasury done the right things?
DN: Again, I leave it to them. I think their priorities are in the right place. From my seat I think they're doing everything they can, yeah.
FT: Now we're going to play long/short, Mr. Niederhauer.
DN: Okay.
FT: Are you ready?
DN: I hope so. I'm nervous.
FT: Manhattan real estate?
DN: Short.
FT: The euro?
DN: Long.
FT: Clara Furse?
DN: Long.
FT: Goldman Sachs?
DN: Long.
FT: Oil?
DN: Short.
FT: The French economy?
DN: Long.
FT: Hillary Clinton?
DN: Neutral.
FT: John McCain?
DN: Neutral.
FT: Merrill Lynch?
DN: Long.
FT: US interest rates?
DN: Short.
FT: Thank you very much.
DN: Thanks.
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