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NYSE President Lynn Martin On Market Volatility

By Jacob Wolinsky. Originally published at ValueWalk.

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Following is the unofficial transcript of a CNBC interview with New York Stock Exchange Group President Lynn Martin which aired during CNBC’s “Financial Advisor Summit: Navigating Uncertainty” event today, Wednesday, June 15.

Interview With NYSE President Lynn Martin 

Sara Eisen: Good morning, everyone. Thanks for being here and to you, Lynn, for hosting us as always at the New York Stock Exchange. You know, Tyler was just running through a little bit of your background. You were named President of the New York Stock Exchange December ‘21. Started the job January 2022. It’s basically been a one way ticket lower for the market and a very turbulent period. What have the past few months been like and is it operating normally, given all the volatility?


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Lynn Martin: That is a great question. Thanks for having me on today. So it has been an interesting time to take this seat. What you’ve seen over the last five and a half months is a lot of uncertainty, and a lot of uncertainty manifesting itself in volatility, in the markets. You know, buyers and sellers find each other but fluctuations throughout the course of the day that are more extreme than we’ve seen in quite some time. What we’re seeing at the Exchange is a record amount of incoming order messages. So we’re processing about half a trillion buys, sells, trades across our platform throughout the day. In fact, all of our top 10 messaging days from an incoming order perspective have occurred this year, which is really interesting when you look at the volatility we saw back during the pandemic. The messaging traffic that we’re seeing is up 20, 30% over those pandemic levels.

Eisen: What does that mean?

Martin: It means that our systems are performing –

Eisen: As they should.

Martin: Fantastically. As they should. We’re seeing response times of 30 microseconds on average. What we’re seeing is buyers meeting seller, sellers meeting buyers in the most efficient mechanism possible.

Eisen: Because we always worry in turbulent times and crisis-like periods during the markets about liquidity gaps.

Martin: 100%.

Eisen: You’re not seeing any big problems?

Martin: We’re not seeing that. We’re seeing a lot of volatility in the markets. We’re not seeing volatility that’s unprecedented. We’ve seen much more extreme bouts of volatility. We’ve seen much more extreme moves in the market overall from an end-of-day perspective as well as an intraday perspective. But what we’re seeing is the system operating very efficiently as uncertainty manifests itself through our markets.

Eisen: One thing we’re not seeing is IPOs. I can’t remember the last time we had a big IPO here on the floor. Is that dead for the rest of the year?

Martin: I don’t know that it is dead for the rest of the year. Obviously companies are being much more thoughtful about when they come to market. We have seen some smaller IPOs come out this year, particularly in the energy sector as there is still an emphasis on the move to clean energy, but they’re smaller. Much smaller. So what you’re seeing is companies continue to have conversations with us. The public market currency has never been stronger in that companies do want to go public but they’re trying to be thoughtful about when they actually come to market. So for the time being, now’s not the right time for companies to come to market in both, particularly in the numbers that we saw in 2021. You got to keep in mind though 2021 was probably –

Eisen: Huge.

Martin: It was huge, but it was a record. It was something that we had never seen before. It was unprecedented. So I think that conditioned us to a little bit of a different normal back then. So the market taking a pause now is not that different from what we’ve seen in other periods of recent history.

Eisen: But one thing that may be a turnoff to companies going public is a lot of these companies that went public last year they have underperformed, even the market, which has been already a big downer. So why did IPOs fare so much worse during the sell off?

Martin: I think what you saw were companies trying to come out to take advantage of the valuations that were in the market last year. It was a bit of a virtuous cycle where they saw their peer group coming out maybe earlier than they normally would have. So they wanted to make sure they were able to capitalize on that.

Eisen: What does the pipeline look like when things do open up?

Martin: Yeah, I mean, the pipeline strong. We’ve been working with a lot of companies that had made decisions the end of last year, earlier this year that are ready to go. They’re just waiting to see volatility abate. I mean, the VIX being above 30 is never a good sign from an IPO perspective. You really want to see the volatility index, the VIX be more around the 20s for a sustained period of time and you just haven’t seen that condition. That said you know, some companies if they do need to raise capital they are going to come to market and some sectors will probably be, you know, more welcomed.

Eisen: Like what? Like energy?

Martin: Like energy. I think energy is having a pretty year.

Eisen: It is the only thing working this year.

Martin: Yeah, anything energy is having a really good year. Like I said, we have seen some companies focused on clean energy, either come to market through SPAC business combinations or traditional IPO routes this year.

Eisen: You mentioned SPACs. That’s another thing that was really hot last year, but not so much anymore. What becomes of SPACs?

Martin: I think they continue to be a very viable form of a company coming to market. So you think about the way a company can go public – it can be traditional IPO, it could be a direct listing, which is something that we pioneered, it could be a SPAC business combination. There could be a variety of ways and we’re very supportive of the choices that an innovation like a direct listing, but also you know, the popularity of SPACs brought about. But I think there’s going to be fewer SPACs. So particularly given the proposed rulemaking around SPAC governance and SPAC transparency, you’ll probably see less SPACs coming to market but there’ll be better governed and have more transparency around them.

Eisen: I was just going to say is that really a good thing for retail investors? SPACs got a bad rap about not doing their full due diligence before going public, short of taking a shortcut to go public and having a lot of low quality acquisition targets. I mean, most of them have not done well. Right?

Martin: There have been some they’ve done well, some, a lot of them have not done well. You’re absolutely right. But I think having additional transparency and additional rules around SPACs is a good thing. Typically when there’s additional regulation, additional guardrails put on something it’s to the investors benefit – the retail, institutional, whatever the case may be. So the proposed rulemaking around SPACs, you know, just puts those additional guardrails. It just means you’ll see fewer of them come to market, but they will still come to market.

Eisen: Another thing that sort of changed and are absent lately are Chinese IPOs. And I’m curious what you think is the future of Chinese companies even going public here at the New York Stock Exchange after the Didi debacle?

Martin: We continue to remain optimistic given all of the noises that we’re hearing around our regulator, the SEC, and the Chinese regulator finding a cooperation, finding a path forward. The one thing that we can’t take for granted in the U.S. is that we are the home of global capital markets. We give access in a way that no other set of capital markets does in this world. And as a result, I think it’s important to not lose sight of that. Hopeful that the holding foreign companies accountable act and the timeframes proposed in that actually do pave the way, they pave a roadmap for how we get the additional disclosures that are required for those companies to the public markets. So I remain optimistic that there’ll be a path forward found.

Eisen: So you think the Chinese government is going to let companies, big companies like Didi, which raised $4.4 billion in an IPO last year, go public here?

Martin: I think provided that the ruleset is codified, the rules of the road – because right now, I think there’s uncertainty around what they would be subject to and how they would be subject to that. So I believe that if they do find a path forward around – and that’s why I think the holding foreign companies accountable act is a great framework, because it does provide a framework in terms of how companies can report their financials, whatever the case may be, to get the U.S. investors comfortable –

Eisen: So there is hope? There is hope there.

Martin: I am hopeful.

Eisen: You mentioned two areas that you’re watching as far as regulation. There’s another one which everybody’s watching, and that is the payment for order flow, which we’re starting to learn more about. I don’t know, are we? SEC Chair Gary Gensler certainly has this in his sights. Explain what’s going to happen here. If you know.

Martin: Well, I don’t have a crystal ball, and I wouldn’t want to speak for Chair Gansler. But you know, last week he proposed a set of ideas to the market. And I think if you take two steps back, our markets have operated tremendously well through heightened periods of volatility in the last five and a half months, through various financial crises. They’ve been honed over 230 years. But I think what people forget is that markets are living and breathing things. And ecosystems change and as a result, there are always benefits you can – tweaks you can make to those ecosystem, to the markets to add transparency to increase efficiency. And I think Chair Gensler’s proposed principles that he articulated last week, go towards improving transparency, improving efficiency of our markets as the ecosystem evolves, as the face of the trader continues to evolve –

Eisen: So he’s on the right path? As far as you know.

Martin: All working together. But you know, I think we’re going to watch it. We are watching it with interest and through the SEC’s proposed rulemaking process, we’ll get a lot more details around what the principles really look like from an implementation standpoint.

Eisen: If they do change the whole payment for order flow – if they ban it, which that’s on the table, right? Or some sort of auction process they could do, how would it affect the markets? How would it affect the New York Stock Exchange?

Martin: I can’t really comment without seeing what the rulemaking is because the rulemaking could take a lot of different forms and I wouldn’t want to speak for Chair Gensler. The one area that I do want to mention though, that he has been given a little bit more details about is tick size harmonization because that is one area that there’s been a little more specificity put out as to what that looks like. And that means the tick size on a lit market and the tick size on the dark pools would be harmonized to provide a consistent rule set across trading venues and I think that in and of itself is a very important evolution.

Eisen: So part of this is in response to what we saw with the GameStop saga, right, and this rush of retail trading activity during the pandemic. Was that good or bad for the markets ultimately?

Martin: I think in general, having more people being able to express a view in markets tends to be good. And having the new class of retail investor that has emerged through the pandemic and has stayed with the markets is good because people are, you know, able to diversify their portfolio, take advantage of different asset classes in their portfolio, particularly in equities, which is where you saw stuff. So I think, overall, the continued evolution of the equity market ecosystem is a good thing.

Eisen: But having stocks like a GameStop just gets so detached from fundamentals and now we’re starting to see the pain as that unwinds.

Martin: Well that’s where I always caution people. You have to number one have a very diversified portfolio. You have to be in it for the long term. If you want to ensure that you achieve the returns that historically have been achieved once you stay in a market for an extended period of time, you got to stay in the market. And that means you got to look at the basic fundamentals of companies, you got to be educated about what you’re investing in.

Eisen: What about Bitcoin and NFTs, which we know –

Martin: Another hot topic.

Eisen: Another hot topic and also another complete change in the markets in your tenure. We knew that the New York Stock Exchange was looking into the business of blockchain. There have been some trademarks filed. Can you just bring us up to speed on where you are as we watch to see whether there’s really a convergence between stocks and cryptos?

Martin: Yeah, so I think on the crypto side, the thing that’s most important there is that the rules of the road have to be articulated. You don’t really have the institutional participants in that asset class, because they don’t know if it’s a currency, a commodity, a security. They’re not quite sure how to treat it from a regulatory perspective, from a tax perspective, whatever the case may be. So until rules are codified, I think you’re going to continue to see thin markets and you’re not going to see the institutional participation in those markets. You know, it’s an area though that we’ve been watching at the NYSE with interest for a long time. We were actually very early investor in Coinbase, which we invested in in 2015. And we exited that position –

Eisen: I was going to say. So you made money but a lot of people have not on that stock this year.

Martin: Well, we exited the position last year, actually. But you know, we got into that business. We made that investment because we wanted to get smarter about the technology.

Eisen: Why did you get out?

Martin: Because we had done a variety of startup type investments on our side, particularly a company called Backed, which we had looked at really institutionalizing the crypto market. And until there was regulation, it just wasn’t the right time for us to be in that market. So it was the right time for us to get out because we just didn’t see the market moving forward until there was a regulatory framework put around it.

Eisen: Do you think that this price – the fact that Bitcoin was $67,000 last November and is now below 25,000, does that hurt your efforts? Does that make it less appealing?

Martin: I don’t know that it hurts our efforts. I don’t know that it really changes our opinion.

Eisen: It doesn’t.

Martin: We come back to looking for regulatory clarity. You know, at ICE, our parent company, we’ve continued to watch regulatory trends. It’s why we got into the CDS clearing business so many years ago. So as new regulatory frameworks emerge, we will obviously look and see what the opportunities are.

Eisen: Would you tell financial advisors to diversify their clients in cryptos? Or are we too early?

Martin: I would tell financial advisors to give clients proper guardrails and articulate what the risks are of any market, not just crypto. Be it a less liquid security, be it some of the risks in the fixed income markets, be it some of the risks in crypto. I think disclosure particularly when you’re talking about retail is probably the most important area. It’s an area that I focused on when I was more on the fixed income side of the business and working with the SEC on their FIMSAC committee with the financial advisors around disclosures in the muni markets, for example. So I think every asset class comes with its own set of disclosures and education. But for a customer, really a retail trader in particular, really gets involved and puts that in their portfolio.

Eisen: So we started with your tenure being off to a bumpy start, at least from the markets perspective. What is going to be your biggest challenge for the second half of the year?

Martin: You know, I think we’re going to continue to see volatility in markets. I’m obviously watching the way our markets operate very closely. Continuing to look at technology, and how we can make technology improvements. We are in the process of rolling out additional technology enhancements throughout the summer, particularly with our options platforms. So looking forward to that and continuing to talk to the early stage companies that are thinking about going public when the market is ready for them.

Eisen: Telling them what?

Martin: When the markets ready for them –

Eisen: Stay on ice.

Martin: You know, not telling them to stay on ice. There’s a lot of things a private company can do to become public company ready around ESG disclosures, around financial disclosures, around preparing their staff for what does it look like not just on IPO day? What does it look like on the second day? What does it look like two months later? What does it look like for your first earnings call? Those types of things.

Eisen: Lynn Martin, thank you so much for taking the time and kicking off our event today again. Appreciate it.

Martin: Thank you.

Eisen: President of the New York Stock Exchange. Tyler, I’ll send it back to you.

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