Big Board, Big Challenges

By Maria Bartiromo

John A. Thain, who took the New York Stock Exchange (NYX ) public earlier this year, is racing to keep the Big Board competitive. Partly because of restrictions imposed by the Sarbanes-Oxley Act, companies are choosing to list in London, Hong Kong, or elsewhere. That's why the NYSE's proposed $10.2 billion takeover of Euronext, which operates the Paris, Brussels, Amsterdam, and Lisbon bourses, is seen as crucial. Since I talked with Thain, the pressure has only grown more intense, especially with the proposed merger on Oct. 17 of the Chicago Mercantile Exchange (CME ) and the Chicago Board of Trade.

When do you expect to close the deal with Euronext?

First quarter of 2007.

Deutsche Börse says it has a better bid on the table. Why should shareholders choose the NYSE?

You have to analyze the nature of the bids. Our bid makes much more strategic sense for the long term.

What happens if the shareholders decide that Deutsche Börse is a better deal? What is your Plan B?

The shareholders will get to vote yes or no on the NYSE-Euronext deal, and I believe they will vote yes because it makes economic sense to do so. Remember when we were having the run-up to the NYSE-Arca deal, and there was a debate? [Archipelago is an electronic exchange for emerging companies bought by the NYSE in February.] In the end, 95% of the shareholders voted for it.

Once the deal is complete, where will much of the cost savings and layoffs come from--the U.S.? Europe has such strict labor laws.

The biggest single cost savings is on the technology side. Between us and Euronext, we spend $650 million on technology. We will save about $250 million of that. The cost savings will come from the technology side, not from headcount reduction.

Do you consider the Chicago Mercantile Exchange a competitor?

Not directly a competitor, because they are in a different mix of products. Over time, they will become more of a competitor. The futures business is a very good business. It has better margins than the cash business. Most of the CME's products are growing at rapid rates, and it's hard to compete with them because once you have an established futures product, it's very difficult to create new products that compete directly with them.

Why are an increasing number of global companies choosing international exchanges over U.S. exchanges?

The large global IPOs have not been coming to the U.S. It doesn't mean we are not getting international listings. In fact, we are. But it's the big IPOs that are avoiding the U.S.

How significant has SarbOx been in driving companies away from American stock exchanges?

It is one of the significant reasons, but not the only one.

Did Congress go too far?

It's not the law itself. The law was a good law, and it came at an important time and did improve the corporate governance structure. It's not even 404....[Section 404 requires companies to test controls assuring accuracy of publicly reported financial information.] It's the way 404 was implemented. Having good internal controls is important, but what needs to happen more of a risk-based approach, and the costs have to be balanced better against the benefits.

The market is hovering around record levels, but some are skeptical. How do you answer critics who say the little guy can't win?

If you look over any significant period of time, stocks have been a very good investment for individuals as well as institutions. The way ordinary people should invest is picking good companies with good products, buy [the stock], and put [it] away for a long period of time.

Maria Bartiromo is the anchor of CNBC's Closing Bell

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