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The New York Stock Exchange: Part of a Global Conglomerate and a Stock to Watch

If we were to ask the average investor this question: What does the ticker NYX stand for? The most likely answer would be: The New York Stock Exchange. We would respond: Good answer, but you only get partial credit! The reason for this is that in this global economy businesses must offer multiple product and service lines. In order to flourish, the New York Stock Exchange can no longer stand alone.

Let me give you an analogy. When I purchased my first home and I needed a new faucet for my sink, I would drive a few miles north to the local plumbing supply store. When I needed a new ceiling fixture for my bedroom, I would travel a few miles south to the local lighting supply shop. Winter is upon us and I needed a snowblower, so I commuted a few miles west to the garden supply store. When I got ambitious and decided to build a shed in my backyard, I drove a few miles east to the lumber yard. Today when I need a faucet, lighting fixture, snowblower, and lumber I go to Home Depot around the corner. Mom and Pop businesses are a thing of the past and one stop shopping is the name of the game.

So what is the correct answer to the question? What does NYX stand for? The answer is: NYSE Euronext, Inc. This entity brings together major marketplaces across Europe and the United States whose histories stretch back more than four centuries. It is by far the largest combination of its kind and the first to create a truly global marketplace group. NYSE Euronext is headquartered in New York City with European operations run out of Paris.

Let’s break down the components of NYX:

1- The New York Stock Exchange (NYSE)- the premier lisiting venue for the world’s leading large- and medium- sized companies. They meet and adhere to the overall highest listing standards. It is the largest and most liquid equities exchange in the world.

2- NYSE Arca– a fully electronic exchange for growth-oriented enterprises. Listed companies can grow on NYSE Arca and transfer easily to the NYSE once they meet the rigid requirements. This all-electronic entity is also a leading listing and trading platform for exchange-traded funds (ETFs like the Qs), offering the largest public ETF liquidity pool in the U.S.

3– NYSE Euronext– the primary market in the Eurozone for large- and medium-sized companies. It is the first integrated cross-border exchange, combining in a single market the stock exchanges of Portugal, the Netherlands, France, and Belgium.

4- NYSE Alternext- is a pan-European market designed specifically for emerging companies. Listed companies benefit from more flexible access requirements and innovative operating rules while insuring market transparency. On October 1, 2008, NYSE Euronext completed acquisition of the American Stock Exchange. It was integrated with Alternext European small cap exchange and renamed NYSE Alternext U.S. This allowed NYSE Euronext to become the third -largest U.S. equity options marketplace. It also advanced their leadership in ETFs, cash equities, closed-end funds and structured products.

In this new frontier wherein the global components are playing larger and larger roles, entities such as the New York Stock Exchange are looking towards mergers and acquisitions to keep pace. Those that don’t will end up like the mom and pop businesses of yesteryear. Despite these apparently wise business maneuvers, NYX has not been treated well by the investment community. Now it’s true that all financial related equities have been hammered but it seems to me that this equity has been hit harder than average. If you view the charts below, you will see a steeper and higher percentage decline in the share price of NYX than the investment/broker industry in general:

NYX: 12-5-08

NYX: 12-5-08

Investment Services-Brokers 12-5-08

Investment Services-Brokers 12-5-08

Now, as a Blue Collar Investor, we would NOT be owning this equity because it does not meet our system criteria. Those who buy and hold would be seeking out the Kleenex to control the unrelenting stream of tears cascading down their faces. Could this, however, represent a potential opportunity for us? I think so. Certainly worthy of following this equity at least over the short run. Here we have a company that is keeping up with the changing times, has had a series a positive earnings reports, and to a great extent has been a victim of its environment. Is it conceivable that when the economic turmoil subsides and the financial community begins to strengthen, that this stock will catch up and surpass the others? Let’s watch this one together.

Market Tone:There is some reason for optimism as the short term (10-d) Volatility Index has improved from 77 to 60:

VIX 10-day 12-6-08

VIX 10-day 12-6-08

The longer term VIX (3-month) still shows an uptrend but a flattening moving average perhaps reflecting a calming trend in the markets.

VIX- 3-month 12-6-08

VIX- 3-month 12-6-08

Much too early to celebrate but I’m glad to see some positive signs. The markets are still incredibly news driven as psychology is playing a much greater role than it usually does.

Baseball Analogy:

When a baseball player gets hot, the fans think he is the second coming of Babe Ruth. When that same player strikes out 4 times in one game they want to run him out of towm. The point is that he is never as good as he appears when he is at his best; nor as bad as he presents when at his worst. He is somewhere in between. The same holds true of our stock market (real estate too). I hear investors exclaiming: “I’ll never put another penny in the market”. These are many of the same people who put every dime they had into the equity market back in the days of the dot-com explosion. I understand that many of your 401k’s have become 201k’s but we ultimately must have faith in our country and its economy. Let’s not put that ballplayer on a pedastal he doesn’t deserve. But let’s not throw him off the team either!

Last week’s Economic News:

The economy lost more than a half-a-million jobs in November causing the unemployment rate to rise to its highest level in 15 years. This confirms the announcement that a committee of economists made that our econmomy has been in a recession since December of 2007. This means that the economic decline had already lasted longer than the average recession. For the week, the S&P 500 fell 2.2% to 876 for a year-to-date return of -39.1%.

My best to all,

Alan

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About Alan Ellman

Alan Ellman loves options trading so much he has written four top selling books on the topic of selling covered calls, one about put-selling and a sixth book about long-term investing. Alan is a national speaker for The Money Show, The Stock Traders Expo and the American Association of Individual Investors. He also writes financial columns for both US and International publications along with his own award-winning blog.. He is a retired dentist, a personal fitness trainer, successful real estate investor, but he is known mostly for his practical and successful stock option strategies.

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5 Responses to “The New York Stock Exchange: Part of a Global Conglomerate and a Stock to Watch”

  1. admin December 9, 2008 1:47 pm #

    Here are some recent accolades I recently read about Duncan Niederauer, the President and COO of NYX:

    1- A no-nonsense manager who rolls up his sleeves and gets things done…Yael Bizouati, Financial News.

    2- He’s the right guy at the right moment at the right place, Thomas Caldwell, Chairman of Caldwell Asset Management.

    3- Niederauer and his team has done an admirable job ensuring the efficiency of the world’s largest equity market, Tim Mahoney, chief executive of US Dark Pool Bids Trading.

    4- A straightshooter who has done exceptionally well…., Richard Repetto, principal at Sandler O’Neill.

    Duncan Niederauer certainly has the respect of his peers, another reason to keep an eye on NYX.

  2. admin December 11, 2008 5:38 pm #

    During today’s “Mad Money” TV Program, Jim Cramer called NYX a “buy, buy, buy”. Think he read my article?

    Alan

    ps: he also stole a little of my thunder for my next article, a very important subject I’ll publish over the weekend.

  3. Aimee December 12, 2008 2:10 am #

    Alan,

    What are “dark pool bids” you mentioned in your first comment?

    THanks for your help.

    Aimee

  4. admin December 12, 2008 2:26 am #

    Aimee,

    Thought average investors like ourselves are playing on a level playing field? Well, get this one: This is a slang term (as in murky, dirty water) referencing an “upstairs market” (unavailable to you and me), wherein institutional investors can execute huge block trades without associating their names or volume amount to the public. These trades occur away from the central exchanges, almost like a “good-ol-boys club”. Since trading volume and activity on the part of these institutional investors is important to us, this is information we would like to have but can’t get. Hopefully, the SEC will step in to create the transparency we deserve.

    Alan

  5. Karl June 14, 2009 7:16 am #

    What do you think about doing deep in the money, high volatility stocks as a variant to your strategy while seeking similar or higher % returns?

    I have done this with Key bank , Etrade and Wells Fargo.

    I bought Key at 6 bucks, wrote May 6 for 30 cents with about 2 days left which did not get exercise. Then wrote 5 dollar calls for June on Key at $1.10 and though it was a bit nerve wracking my basis in the stock was 4.45 which was 35 cents below the 52 week low so I felt pretty confident. It recently went to 6 bucks a share although it did go down to around 4.70 at one point.

    On etrade I wrote 1 dollar calls for July when the stock was around 1.50, lowering my basis to 88 cents which looks really safe now.

    I particularly like doing this after the stock has dropped some on bad news. Looking on the internet, I saw that someone else had this same idea.

    Thanks,

    Karl

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