That said, I'm honored to be in Texas, the home of 203 NYSE listed companies. Clearly, your Society represents the best in business reporting from the east and west coasts, and for scores of papers and publications in between.
That's important as those of us from Wall Street must do more to reach out to Main Street not only to tell our story, but to listen to what our constituents, first and foremost investors, have to say. I look forward to your questions after my remarks. The most valuable take-away for me today will be hearing what's on your mind and the minds of your readers, the American investing public.
Eighty-four million Americans are invested in equities. They're investing a portion of their earnings and savings for themselves, their families and their future. That is a tribute to economic democracy, and a powerful vote of confidence in this nation's economy and markets.
I believe we share a common stake in fostering success. We share responsibility for creating an environment that provides confidence, that encourages investment and growth, and that rewards prudence, patience and profits.
As CEO of the New York Stock Exchange, I believe in those ideas. I want the New York Stock Exchange to be the market of choice for every investor whether that means a pension fund, investment club or individual investor. And I also want our listed companies to be the companies of choice in which to invest. The NYSE values the business of all our investors. We will do our utmost to earn the confidence of investors, and to protect their interests.
To deliver on that pledge, we must set the standard for best practices. Put simply: the NYSE must be viewed as a symbol of integrity. Its technologies, service and efficiency must be unsurpassed.
We must ensure a fair and honest market for every investor, large and small. These are my goals. And I believe they represent what most investors want and expect in all of our markets, not just in the NYSE. Wall Street and Main Street stand together in the demand for fair and honest markets.
Today, we are engaged in a debate over questions of market structure that will directly impact the future of our markets. If we act wisely, America's capital markets will remain the broadest, deepest, most liquid, efficient, and fair in short, the envy of the world.
On the other hand, a movement afoot would have the SEC abandon or weaken one of the principles that protects the investing public, and that has enabled U.S. markets to gain global preeminence. I have confidence in the ability of people to make wise choices when informed by the facts. So, today I will present the facts as I see them.
Then, it is my hope that investors will send a message to our leaders in Washington to do what is right for investors and markets.
Mark Twain once said, "Always do right. This will gratify some people and astonish the rest. We may astonish the world, but we can be sure we'll be doing what's right by concentrating on three core principles:
* Principle number one: the interests of investors must come first.
* Principle number two: competition must prevail on a level playing field.
* Principle number three: every investor has the right to the best price.
Let me discuss these principles from the perspective of our own commitment at the NYSE. Then I'll lay out the challenges of market structure before us, and close with an appeal to the investing public.
When I arrived at the NYSE, just over 100 days ago, my most urgent task was to restore investor confidence. As you know, the Exchange had weathered a stormy year. Of course, we weren't alone. We'd seen a breakdown of ethics and governance in many important places. Speaking for the NYSE, the failures of the Exchange's governance system were painful. Fortunately, at a critical moment, John Reed stepped in to arrest the downward drift. John helped to create a new governance architecture that was adopted by the NYSE membership and approved unanimously by the SEC.
That was a clear turning point. Incidentally, in that same spirit of renewal, we've made significant changes in this year's Annual Report and proxy. They were released yesterday and signified the start of a new era in transparency and disclosure. Never before has the Exchange embraced this degree of openness and disclosure regarding its financials and the compensation of its executives. We know that it is important to lead by example. We will strive to do so.
Now, during my first 100 days, I've initiated changes to make the exchange more responsive to our customers, our listed companies and other constituents. Without going into detail, let me say that I began by breaking with the tradition that made it very difficult for companies to change their assigned specialists.
We're making that possible. At the same time, we're developing benchmarks for companies to help determine what it means to be a good specialist. We've also eliminated any possibility that specialists can trade alongside a customer, thereby enhancing a basic protection for investors.
Finally, I am committed to making the NYSE a hybrid market. Now, this is a big, important and necessary change. As Chairman Donaldson told you Sunday, The leadership of our market depends on gaining the benefits of technology while maintaining the advantages of the floor auction model for all investors.
Many of our institutional customers have said that they want to trade electronically and anonymously. So we have petitioned the SEC to expand our electronic offerings.
We're going to become a fast market. As one who spent years working on technology platforms, I find this an exciting prospect. Our new NYSE Direct + will offer almost instantaneous electronic execution with no limitations on size. However, even as we transform the NYSE into a fast market, we want to maintain all of the benefits of the continuous auction market. You see, I believe the hybrid market marries the best of both worlds.
The hybrid market gives investors a choice. They can access the auction for price improvement or they can execute immediately electronically. I know some question, why do we need an auction market at all? The answer is that sometimes we need the human element to provide what technology cannot.
We all know that buyers and sellers can come together on electronic markets. But only in the auction market are there specialists ready with a firm obligation to provide liquidity when there are no buyers or sellers at a particular price. Only NYSE specialists are obligated to trade against the trend, trades that most other market participants choose not to make.
The result is that investors are better protected. Better protected on opens and closes; better protected against disruptive events such as earnings surprises, mergers, and takeovers, that can lead to order imbalances and heighten volatility. Taken together, these changes have strengthened the integrity of the Exchange, as well as confidence in the Exchange. They speak to my determination to listen to our clients, to respond to their needs, and to place the interests of investors first.
So that's principle number one. Now, it is generally true that the interests of investors are served best by competition. Competition is a good thing.
Of course, there are different ways to compete. Henry Ford once said the competitor whose motive is merely to drive some other fellow out of business is not the most dangerous. The competitor to be feared is the one who goes about making his or her business better, growing by improving at every opportunity. This is our commitment at the NYSE to satisfy others without ever being satisfied ourselves, to keep on improving. We don't always succeed. But we don't fear competition, we welcome it-both in executing trades and soliciting new business.
Over the past 24 years, the Exchange has gone from trading 17 million shares a day to 1.5 billion with the same number of people. But our goal is not just doing more with less, but doing it better.
We offer investors the lowest execution costs, because we attract deep liquidity across all types of stock, large cap, medium or small cap, and across all sizes of orders. We have the highest fill rates and the tightest spreads. Over the past year, the average spread of the National Best Bids and Offers on the NYSE- listed stocks in the S&P 100Index shrank from 5 cents to 2. These narrowed spreads are proof of an efficient, liquid market disciplined by competition. In addition to narrow spreads and deep liquidity, the NYSE offers lower volatility.
When 48 companies switched listings from Nasdaq to the NYSE over the past two years, their intraday volatility was cut in half. That leads to a lower cost of capital for those companies, and improves their ability to raise funds for expansion and growth.
That is an important advantage.
I hope the picture is emerging here that shows competition is working. With specialists and floor-brokers competing to add value, and to give investors the best possible executions, not just day-by-day, but minute-by-minute, and trade- by-trade.
Yet another gauge of competition is how well exchanges compete for market share and new business---for example new listings, domestic and foreign, as well as transfers, and IPOs. We've had over 40 new listings so far this year. IPOs are up strongly, reflecting the rising economy. We expect over 50 IPOs this year vs. 24 in 2003.
The NYSE has gained a 98% market share for qualified IPO proceeds so far this year. These numbers do not include a much anticipated IPO currently in the news. We've had 130 companies transfer to the NYSE during the past 4 years; from other markets. So we are competing hard, competing fairly and competing well. But the ultimate measure of competition is the best price the third core principle I listed at the outset.
Every investor's order, no matter in what market it is entered, must have the right to compete with every other order and receive the best price period. I believe that best price is the foundation of a fair and honest market. At the NYSE we offer the best price 93 % of the time.
Best price is the auction model in action.
It is the one model that combines the benefits of technology, liquidity, tight spreads, low volatility, and, where necessary, specialists and floor brokers competing to add value, to provide the best possible price for every investor.
Now, some of our constituents have told us that they can better serve their investors by taking a price immediately available over a price they receive on the floor of the exchange which may take up to 15 seconds. Frankly, I believe investor's want the best price, but I am sympathetic to the argument that prices can change over the course of 15 seconds.
So we will give investors a choice: electronic execution available immediately, or the floor auction, with the possibility of price improvement that often takes place on the floor. We are committed to becoming a fast market, but keeping the best aspects of the floor.
Once speed is no longer a factor, there is simply no justification for giving any investor anything but the best price. It should simply be let the best price win. Unfortunately, others, apparently, disagree. They are asking the SEC to put their marketplace ahead of market principles.
Unable to compete on best price, they've asked the SEC for permission to opt out of the long-standing rule guaranteeing every existing order the best price. They want to create an exception to the rule.
And who will be hurt? The beauty of our present system is that individual investors can compete for the best price with institutions, minnows swim in the same sea as sharks. Throw away today's safeguards, and tomorrows' individual investors would be defenseless, easy prey.
Investors will be hurt. And, so, too, will our markets.
A fair, honest and competitive market that protects best prices encourages a continuance of ample liquidity, narrow spreads, and low costs and volatility a win-win for investors as well as for markets. But policy decisions that favor the few over the many will tend toward less liquidity, wider spreads, greater volatility and higher costs---definitely a lose-lose for investors and U.S. markets.
In addition, if the best price rule is not maintained, the temptation will rise to engage in practices like internalizing order flow, buying and selling against one's own inventory, which will harm everyone in the market.
The SEC has set May 23 as the deadline for public comment on these pending market structure issues. Investors have three weeks to communicate their views on the best price rule, and the attempts by some to opt out.
I urge all investors to make your views known. Our principles of fair, honest and competitive markets have protected investors. They have enabled our markets to grow to unprecedented size and to become models for the world.
What's more, these principles are timeless.
They were right yesterday.
They are right today.
They will be right tomorrow.
Thank you.
