Grasso holds court on NYSE deal, trading, politics

By Jack Reerink and Jonathan Spicer

NEW YORK (Reuters) - Would Dick Grasso have sold the New York Stock Exchange to the Germans?

Grasso, who all but disappeared from public view after a long-running spat over his outsized pay, was ready on Tuesday to talk about everything, from exchange takeovers and trading to a potential run for New York mayor.

Grasso, 64, actually likes the NYSE deal with Germany's Deutsche Boerse: It brings in the profitable business of clearing trades and sets up the combined entity for global trading -- if it adds Tokyo or Hong Kong later.

Plus, it's not a real takeover in Grasso's eyes. While shareholders of the German bourse would own a majority, Big Board CEO Duncan Niederauer would be chief.

"It's not hard to figure out where the strategy is going to come from," a relaxed, sun-tanned Grasso says, adding the new entity should keep the NYSE brand name.

There's been a takeover craze in the world of exchanges this year, with bourses trying to break up agreed marriages by rivals in search of economies of scale.

The biggest and boldest is Deutsche CEO Reto Francioni's plan to buy Grasso's former empire, now called NYSE Euronext, for $10 billion to create the world's largest exchange.

Nasdaq OMX CEO Robert Greifeld tried to spoil the party but had to back down after U.S. antitrust regulators told him it was a nonstarter.

Don't worry about competition issues in the Deutsche deal, not even in Europe, Grasso says.

"The European regulators are smart enough to recognize that this is a real opportunity for Europe to get in a true global position." Grasso says. "They might put some requirements on the two markets in terms of what they'll do, but I think they will and they absolutely should approve this deal."

Up north in Canada, London Stock Exchange Group CEO Xavier Rolet is trying to seal a $3.5 billion takeover of TMX Group Inc but faces a counterbid from a group of Canadian banks led by ex-Montreal Exchange chief Luc Bertrand.

Grasso's prediction: Toronto will tie the knot with Nasdaq, either with or without the LSE. He gestures over his shoulder across Times Square to the Nasdaq's gigantic electronic screens, flashing an American flag cuff link.

Betting whether these deals go through is part business, part politics. Singapore Exchange Ltd's deal to buy the Australia bourse ASX was crushed by politicians.

"Any one of those governments can rear back up and say: 'Not in our best interests,'" Grasso says. "And they don't really have to give you an answer: It's kind of like a New York City cooperative apartment."


That was a decade ago, when the exchange traded more than 80 percent of NYSE-listed shares.

Flash forward to April 1 this year when the shares of the NYSE jumped on record volume of 38.5 million shares on news of Nasdaq-led takeover bid. Just 11 percent of its own shares traded on the exchange itself.

An April Fool's joke? No, it's the tale of the NYSE's gradual loss of market share to other trading venues.

New trading venues like BATS and Chi-X have eaten deep into the market shares of traditional exchanges, forcing them to diversify and cut costs through tie-ups. And these upstarts are really easy to set up, he tells three Reuters reporters.

"Let's face it -- the four of us can stack a rack of computers and declare ourselves a platform any time we want," says Grasso, who grew up in Queens, a working-class borough of New York, and joined the exchange in 1968 as a clerk making $80 a week.

Grasso, who was the exchange's longest-serving chairman, from 1995 to 2003, has few kind words for so-called "dark pools," trading venues that anonymously match big orders outside of regular exchanges. They fragment the market place and are bad for small investors in his view.

"Getting a price quickly is no substitute in my mind for getting a fair price," Grasso says. "There's a difference between a free market and a free-for-all market."


Equipped with high heels and fake breasts, Grasso once did a skit for Wall Street insiders at an annual bash at the St. Regis hotel, singing "I'm dreaming of a new Wall Street with short Italians everywhere" to the tune of "White Christmas."

Is Wall Street still fun with new rules and players?

"It's different," Grasso says. "If you look at the tragedy of 9/11 and how that whole community came together... that was a culture of camaraderie that just doesn't exist anymore."

Grasso's finest moment came after the September 11 attacks when his hands-on leadership got the exchange back in business after a telecommunications outage shuttered it for a week.

Two years later, Grasso resigned after furor over a $140 million pay package awarded to him by a toothless board. Grasso, who consistently refers to his resignation as "the time they shot me," now is eyeing a bigger price: New York mayor.

"You can look at me and say: 'You're crazy, Dick. You had all this controversy with Spitzer,'" Grasso says, adding he'll "repossess" the downtown apartment from his children to claim New York city residency in case he runs.

"But I talk to people in the boroughs, I am from the streets, I wasn't Wall Street royalty," he says.

Even without the race, Grasso keeps busy. He's involved in two private equity firms run by friends Joe Grano, a former UBS chairman, and Home Depot co-founder Ken Langone, as well as in a high-frequency trading firm co-founded by another friend, former NYMEX Chairman Vinnie Viola. And he consults.

"Never for a fee, so that no one can ever claim they overpaid for moronic advice," he says.

(Editing by Steve Orlofsky)