Easy Does It, Mr. Niederauer

Thain's replacement at the NYSE may need to work on his diplomatic skills

To put it bluntly, Duncan L. Niederauer's biggest challenge in taking over the New York Stock Exchange (NYX ) may be his lack of finesse in a job where that quality is badly needed.

Niederauer, 48, ascends to CEO of the world's most important stock exchange when most of the heavy lifting has been done. Over the past four years, John A. Thain, now departing for a rescue mission at Merrill Lynch (MER ), overhauled a struggling NYSE's governance, faced up to the rocketing growth of electronic trading, and took the exchange global by merging with the Paris-based Euronext. The resulting NYSE Euronext (NYX ) dominates international equities trading, has a strong position in fast-growing derivatives, and is expanding into exploding Asian markets.

But that doesn't mean Niederauer, who like Thain hails from Goldman Sachs Group (GS ), will enjoy an easy ride. He'll need to continue to work out kinks in the merger and make it simpler to trade on all of NYSE Euronext's markets. He'll have to balance the inevitable growth of electronic trading against the attachment of some vocal NYSE veterans to its vaunted floor on Wall Street. And he'll have no choice about contending with a newly invigorated competitor in Nasdaq and nascent Middle Eastern bourses making inroads in Europe. NYSE officials said they couldn't make him available for an interview.

For Niederauer, who joined NYSE Euronext just last April as president, aspects of the job requiring personal diplomacy could prove to be his toughest test. Thain, an affable Midwesterner with a Massachusetts Institute of Technology engineering education, brought an understated touch that he had polished while helping run Goldman. Niederauer has distinguished himself as a behind-the-scenes whiz in complicated technical areas such as the execution of trading.

The Colgate University economics graduate, who has an MBA from Emory University, oversaw Goldman's switch to electronic trading and co-led the vital logistical operation within the firm's equities division. But while Thain comfortably roamed foreign capitals, hobnobbing with business leaders and politicians, Niederauer "would need to grow into that," says Richard H. Repetto, a securities analyst at Sandler O'Neill & Partners.


Niederauer's strong identification with the push into electronic trading has made him a villain in the eyes of some NYSE floor brokers. A number of these traditionalists objected to his appointment as president last spring and during that controversy pointed to a remark he reportedly had made several years earlier. Extolling electronic trading over the human variety, he supposedly spoke derisively about the need for individuals to handle stock transactions. Brokers say Niederauer has since sought to reassure brokers and "specialists," traders who act as intermediaries on the floor. The mood at the exchange has improved.

"He's brutally honest," says one brokerage executive. "Will Duncan's bluntness and directness and openness and honesty fit with [being] a modern CEO? We'll see."

Niederauer has made it clear he supports a continuing role for live participants exercising judgment on the exchange floor, but the momentum is all going the other way. Specialists and floor brokers will continue to lose ground as computerized trading surges. Niederauer must accelerate electronic systems to stanch the loss of market share to Nasdaq and smaller, more nimble markets in the U.S. and Europe.

NYSE-watchers, who had expected Thain to step down now that he has put his stamp on the institution, don't anticipate that the new chief will depart significantly from his predecessor's plans. "The vision has been set," says analyst Repetto. "The strategy is in place."

By Joseph Weber

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