To watch the Financial Times' interview with Duncan Niederauer, CEO of NYSE/Euronext copy and paste this link:
www.ft.com/cms/8a38c684-2a26-11dc-9208-000b5df10621.html
TRANSCRIPT OF THE INTERVIEWFinancial Times: Thank you for joining us, Mr Niederauer.
Duncan Niederauer: My pleasure, Chrystia.
FT: Why do you think investors pushed your share price down today?
DN: I think it was a good lesson for me because we had a good quarter. We’ve gotten off to a great start in ’08. I think we gave more transparency than we’ve ever given on the expense side of the ledger in terms of the tech savings we promised from the merger, but I think people focused on the quarter-to-quarter expense changes, which I thought were fairly muted relative to other exchanges. But I think people want to make sure we’ve got all of our expenses under control; not just the tech expenses.
FT: Do you think people are worried about whether all of the consolidation savings with Euronext you’re actually going to make? Is that the primary concern?
DN: That seemed to be the case. That would have been my best guess, but the feedback I got talking to a lot of people today was that we heard you on the tech saves, thank you for the transparency, which they’ve been asking for for a while that we finally gave them. But then it seemed to be more focused on the rest of the expense basis. Are you going to deliver? Are you going to manage the costs overall? Are you going to get the expenses down, because the belief is when you’re in the exchange business, costs should be fairly fixed, volume is obviously variable and if volume’s been doing as well as it has for the last couple of quarters, people want to see the margin expansion. So I think that’s our big challenge for ’08 and I think that’s fairly easy to deliver.
FT: And what can you do to convince them?
DN: Well, I think it’s going to have to be the talk is cheap category. By the time I get to the next earnings delivery, which will probably be – let’s see, late April, early May for the first quarter, I think we’re going to have to show evidence that quarter on quarter expenses have gone down, aside from the tech savings that we’ve already promised and will be held accountable for. Now we’re going to have to show that we’re delivering on the promise of managing the rest of the expenses.
FT: Have you personally had to mount a European charm offensive? Introduce yourself to all those guys?
DN: I wouldn’t call it a charm offensive. I was known to everybody already ‘cause I’ve been here since April. But what I have been trying to do is two or three things ‘cause I think focusing on the culture is very, very important. I’ve been to Paris two or three times in my short tenure as CEO. I’ve been to Amsterdam. I’ve been to San Francisco. I’ve been to China. I’ve been to London. I haven’t been to all the offices and there’s more I’ve got to do, but I’m trying to get in front of as many people as quickly as I can. I’m trying to do it in town hall settings, group settings, etc. so that people can ask me anything they want. They can listen to my responses. They can feel like they get to know me a little bit more. Separately we’re trying to do seemingly trivial things, but giving everyone the same e-mail domain, giving everyone the same ID card regardless of what office you’re in. The whole company hears from me on a monthly basis at least; a letter that I write myself that is just a one-pager where I talk about what we’ve accomplished the last month, what’s ahead of us the next month and then usually a personal anecdote or two.
FT: What kind of anecdotes do you tell?
DN: It might be a funny story, like, for example, in late December at the Christmas party here I finally announced business casual for everybody who did not work on the executive floor. I said use your judgment, but if you’re working in technology, development or other areas of the firm, feel free to leave the suit home if it makes you more comfortable. Don’t be casual about your attitude, but business casual’s fine. So when I walked in the office on January 2nd, my office was decorated with 50 or 60 neckties with a note that said, “We don’t need these anymore. We thought you could use them.” I thought it was great
FT: Did you feel you needed to make an acquisition – I have in mind Amex – early in your tenure to show that expansion was still the order of the day?
DN: I don’t think so ‘cause I’ve said pretty loudly we’re going to be more focused on integration and running the business than doing more acquisitions. At the same time, in an industry that’s consolidating like ours is, I’m not going to shy away from doing it either. I didn’t feel that I needed to prove myself to anybody in the first four to six weeks. The timing on Ames was coincidental. It’s something we’d been working on for a while. You could say the same thing about Amex and Wombat. Those were not deals we started working on after I became CEO. Those were all things in process that I was involved with, that John had been involved with and it was just a matter of carrying them to the finish line.
FT: As that deal moves to completion, will the Amex management stay in place?
DN: I think that’s all to be determined
FT: Are you worried about the fact that the CME seems to be emerging as the driving force for consolidation in the derivatives area?
DN: Yeah; I think we all know that that’s going to be the case so I’m not surprised. I’m not terribly worried about it. They have a different business model than we do. They don’t seem to want to diversity into equities and options. Maybe that’s with good reason. The competitive landscape in futures is quite different. The vertically integrated model –
FT: Isn’t that the better business?
DN: Yeah; I think the vertically integrated model is hard to quarrel with, right. And if they’re able to continue to assemble assets that have that model and are in a derivative space, I think they’re a strong competitor. They’ve got a good business model and if the regulatory authorities are okay with it, I guess it’s up to them to extend their model. But they’re clearly the consolidator in the derivative space. There’s no doubt about that.
FT: And how can you compete against that?
DN: Well, it’s an interesting question because we might like to. We certainly think it’s strategic, but because of the points I just alluded to, we’ve got a mixture of assets that we think our product base is more diversified. We think we’re a lot more global. At the same time, the competitive nature of being in the equities exchange business or in the options exchange business is quite different. So it’s harder for us to make the numbers to work if we wanted to buy a future exchange than it would be for CME. We’re cognizant of that. I’m not going to tell you I have any magic bullets on that, but I think there’s ways to be in that business other than just acquiring an asset outright, too.
FT: Apart from acquisitions, what are the other ways to be competitive in that area?
DN: Well, I think we’re all waiting and wondering is the futures market going to end up evolving the way the equities and options markets have. Is clearing ever going to be fundable. No equity or options markets are really truly vertically integrated. There might be a few in the world, but not many. The regulatory landscape would suggest that they’re very comfortable with that. In futures the regulatory landscape implies just the opposite. I think what we’re all waiting to see is is there going to be a change to that model. So that’s one way in.
FT: Were you interested in Nymex before they entered into exclusive talks with the CME?
DN: I guess the NYSE previously had been rumored to be involved with Nymex. As we said earlier, that’s one of the two properties that was available in the derivative space for outright acquisition. I think we would always look at any in a consolidating industry, you look at any and all targets. So that’s somewhat of a historical perspective that I imagine was true. I have not spent much time on it, no.
FT: So if those talks were to break down, would you step in?
DN: Inappropriate for me to answer, Chrystia.
FT: If that deal does happen, do you have to start getting interested in ice?
DN: I think again, there’s only a few properties available. What you try to figure out is, is it financially achievable. Is it strategically sensible and then what are your other alternatives on the landscape. Remember the big wild card in this, as I alluded to a minute ago, is what are the regulators going to do.
FT: Do you think the regulators are sufficiently concerned about the vertical model?
DN: I don’t know. That’s what everyone’s trying to figure out. Certainly if you were reading the tea leaves in Europe, the expectations seem to be that they were going to try to break up the vertical models a little bit. At a minimum, encourage more transparency. Now they seem to have gone in the other direction and say, you know, I think the vertical models are okay. Certainly here, there’s been, the regulators when given and the folks in Washington when given the opportunity to opine on mergers in the derivative space seem to have given it the green light. So, it’s hard to imagine, but as someone whose watched the markets for a long time, it’s equally hard for me to imagine that it won’t be thought of in the future when people think equities and options markets have worked out pretty well, lots of competition, certainly no natural monopolies created. Most people seem to think that’s a reasonably good outcome in the United States. It is an interesting contrast to see that the futures markets are the quintessential opposite. So it remains to be seen how that plays out I guess.
