The job of running the New York Stock Exchange (NYSE) has at times been a virtual sinecure. At others, it has involved a desperate scramble to forestall disaster. With the NYSE facing technological obsolescence, several investigations and litigation on a grand scale, and with its reputation in shreds, there is little question about what kind of job it is at the moment. Undaunted, on January 15th John Thain will leave one of Manhattan’s smartest addresses, the unmarked headquarters of Goldman Sachs at 85 Broad Street, for the chief executive’s suite at the NYSE, a few hundred yards down the road.
Hiring Mr Thain, Goldman’s second most-important executive, is something of a coup. Few have a curriculum vitae as impressive as his. Although Mr Thain’s pay at the NYSE, $4m a year, will be no pittance, he earned twice as much at Goldman in 2002 and his current contract there could, in an excellent year, have bagged him $35m. By Wall Street’s standards, his move to the NYSE counts as philanthropy—the more so, because his new job looks like a managerial nightmare.
At Goldman, as at most companies, the people on top can exercise control in the usual ways: by hiring, firing, promoting and setting pay. At the NYSE, the chief executive controls only a small component of operations. The main business is in the hands of brokers, “specialist” firms (which execute trades) and listed companies. Some of these are not only served by the exchange but also compete with it. Richard Grasso, who resigned as chairman and chief executive in September, managed this unwieldy conglomeration by a number of means, including intimidation. Mr Thain will have less power. Under a new structure he will not have authority over regulation. In any case he will no doubt want to set a higher ethical standard.
His prospects would be grim were it not for the growing sense among the NYSE’s self-interested factions that they have a great incentive to ensure his success. Under John Reed, who took over temporarily as chief executive after Mr Grasso quit, a broad restructuring has been designed and accepted by the NYSE’s members and the Securities and Exchange Commission (SEC). In less pressing circumstances this might have taken years or even have been derailed. Efforts are under way to bring in a chairman and a head of regulation who will be more than figureheads. The top choice for chairman is said to be Sir Dennis Weatherstone, a Briton who headed J.P. Morgan when it was the world’s most esteemed bank. For regulation, it is Richard Ketchum, a respected former regulator who not long ago was hired by Citigroup to restore its frayed standing. As The Economist went to press, Mr Ketchum was thought likely to sign up.
The exchange faces an unpleasant few weeks. Soon it will release the details of a report prepared by a former prosecutor, Daniel Webb, showing how Mr Grasso walked all over a supine board packed with the great and good. He enriched himself, but in the process made a mockery of the NYSE’s reputation. The SEC is racing to complete its investigation into specialists, thus producing more critical headlines.
Yet all this may have more to say about the exchange’s past than about its future. The price of a trader’s seat on the exchange, though well below its peak, may have stabilised since Mr Grasso left (see chart). Shares in LaBranche, the only pure play on a specialist firm, have risen by almost half since early December. They spiked in the run-up to Mr Thain’s appointment. Even if this smells of insider trading, it also has a scent of optimism. Mr Thain has no illusions about the importance of restoring investors’ confidence and ensuring that the NYSE provides the most liquid and efficient market in the world. A decade ago, its ability to do this was unchallenged. Not now. Mr Thain is acutely aware of the competitive challenges. Goldman, among others, invested in systems designed to bypass the exchange. And the rival, electronic NASDAQ stock exchange is said to be planning to encourage NYSE-listed companies to be listed on NASDAQ too.
Even with the growth in alternative markets, however, the NYSE continues to handle the largest share of Goldman’s business. That, and his willingness to take the job, suggest Mr Thain must believe the exchange has a future. His new position will require a tenure of at least three years. If he is successful, whoever follows him will have much to thank him for.