A: [The impact] is going to be [felt] over a few years. In particular, we might see some delays in the implementation of both Reg NMS and the Hybrid. These are very complex pieces [of changes to the markets] and lots of different technologies are going to have to change. While it is certainly possible to get the changes completed in time, the question is, How fast do people want to push it?

I don't think we will see the full extent of the hybrid and Reg NMS in 2006, and even if we do, I'm not sure we will see a huge amount of order flow go away from the NYSE. It's possible, but if [the NYSE] gets the hybrid model right -- which I think they have a shot at doing -- we might not see any market share changes at all in 2006.

Q: Why wouldn't the NYSE get the hybrid model right?

A: It really hasn't been done before [on this scale]. ... If you look at what the NYSE is doing, they are taking a manual auction that works pretty well today and has a dominant market share. Now, they are injecting true auto-ex [auto execution] capability. ... About 14 percent of [the NYSE's] order flow today is auto-ex through the NYSE's product called Direct Plus, which started in just 2001. But now, [with the hybrid model,] you are talking about giving people unfettered access to auto-ex, which could mean that a significant portion of the orders -- much more than 14 percent -- will come down via ... auto-ex.

Q: At the end of this year, when we look back on 2006, what will we remember most?

A: Like parts of 2005, in 2006, market structure issues like Reg NMS and the Hybrid will be front and center, but we will actually see their implementation. ... As I mentioned, there will be implementation delays, and, also, we may see some unintended consequences. ...

[For example], we may see some further consolidation in the brokerage industry, especially with some of the smaller firms that are going to have greater compliance costs [associated with] dealing with all of the data that is produced [as stipulated by Reg NMS]. ... And a big unintended consequence that is under the radar at the moment is more discussion about best execution and what it means in a post-Reg NMS/Hybrid world. ... There may be some things that haven't even been thought through yet on a topic like best execution that may make 2006 pretty exciting.

Q: What are your top three priorities in 2006?

A: One is definitely getting more creative on the algorithmic [trading] side of things. ... We are going to be working with some third-party vendors and our own development work to come up with some more-creative [algorithmic] solutions. Related to that, another thing is transaction cost analysis [TCA]. ... There are some TCA vendors, but we haven't been entirely satisfied, so we are working on some of our own tools, particularly on the pre-trade side. ...

And the third thing is making our processing more seamless ... through a combination of integration projects, streamlining technologies and processing in general with clients. If you look at the role of processing, especially as clients do more of their own trading, ... distinguishing yourself on your execution now is actually more difficult than it used to be.

Podcast: To hear this interview in its entirety, go to: www.wallstreetandtech.com/podcast
Joe Gawronski, Rosenblatt Securities

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