One on One with John Thain, CEO of NYSE Euronext
Friday, October 19, 2007
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SUZANNE PRATT: On black Monday 20 years ago, the New York Stock Exchange was not prepared to deal with a deluge of sell orders. How are things different today and how are the big board's reforms working? NIGHTLY BUSINESS REPORT anchor Susie Gharib sat down with John Thain, CEO of NYSE Euronext. She began by asking him, what could trigger a sell-off in the markets today similar to the crash of '87?
JOHN THAIN, CEO, NYSE EURONEXT: We do have some concerns today. We have $87 oil. We have a weak dollar. We have obvious problems in the housing sector in the U.S. So there are plenty of reasons to be concerned at the moment. But what actually triggers a sudden sell-off of the magnitude of '87 I think is very hard to predict or very hard to know. As a matter of fact, I think it's like many crises, if you actually could predict it and know it in advance, it probably wouldn't happen.
GHARIB: John, as you know, the prevailing view on Wall Street is that a big drop in the Dow, like what happened on Black Monday, won't be repeated. Do you think American investors feel immunized against a financial crash?
THAIN: Well, if they felt that way, I think they'd be mistaken. If you look over the course of hundreds of years of financial markets, there are frequent and recurring periods of over exuberance and then panics and rapid declines. And I don't think there's any reason to believe that we've been immunized from that going forward.
GHARIB: Considering that stock exchanges are much more global than they were 20 years ago, the New York Stock Exchange merged with Euronext for example, does that mean that if we had a crash here, that it would lead to a crash globally?
THAIN: The world's economy is much more linked together. The exchanges are much more linked together. And a dramatic fall in a market certainly here would be, would impact the markets away from here. You know, the world is still looking at the local growth and you know, I think the world economy is in a pretty good spot right now, but I don't think that a significant decline in the U.S. market would just stay in the U.S.
GHARIB: On Black Monday, most traders here at the NYSE couldn't keep up with all the orders that were flooding in. And I know technology has changed a lot of that, but how well equipped is the exchange in handling big surges of trading activity today?
THAIN: Yeah, I think that's a place where we've made very significant improvement. We've added a huge amount of capacity, even over the last year. Just to give you an idea of the difference, in '87, the capacity of the exchange to accept orders electronically was 95 messages a second. Today, our capacity is at 64,000 messages a second. Now, there is still a limit. We don't have infinite capacity. But when we saw the volatility in August, which was quite, quite significant compared to where the trading had been occurring, you know, we were quite, we were well able to handle that increase in (INAUDIBLE) traffic and increase in volume.
GHARIB: In the past 20 years the exchange has adopted a lot of safety measures like program trading curves and circuit breakers. To what extent do those measures prevent the markets today from a big spiral down?
THAIN: I think the ability to at least give pause to the market to allow investors to rethink, you know, what their trading strategy is, is probably a good thing. But if there's a fundamental reason why the market's going down, you know, it's going to keep going down.
GHARIB: As you remember on Black Monday, investors blamed computer program trading for driving the markets down and then recently this summer, a lot of people blamed quantitative computer-trading techniques for the stock market slump. So it seems that computers are still playing a big role in creating volatility. What do you think?
THAIN: Computer trading is a fact of life. It's not going to change. If anything, it's been growing. And I think that it is a legitimate concern to think will those computer-driven trading strategies cause greater volatility in a rapid decline? I think it's entirely reasonable to think they probably will.
GHARIB: Since 1987, given the incredible increases in technology and all the research devoted to stock analysis and just plain experience in dealing with market downturns and stock market cycles, do you think that investors are smarter and better prepared for market downturns than they were 20 years ago?
THAIN: Well, I think investors actually are well informed and they have access to information, but I don't think that that eliminates the cyclicality of the market and I don't think that that eliminates the possibility of a rapid decline.
GHARIB: John, thank you very much, appreciate your time.
THAIN: Thank you.
PRATT: For more perspective on Black Monday, you can watch our program from that night 20 years ago on our web site. You can find it at pbs.org.
