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The Brain in Thain

The man who’s revolutionizing the New York Stock Exchange is a shrewd, calculating technocrat who turned its iconic trading floor into a machine—but he’s also the affable mensch who is managing to persuade the traders to go along with their own extinction.

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In the Azekka Room at Le Parker Meridien in October, the elegant face of global capitalism was on display—svelte women who speak flawless but foreign-sounding English, men in tailored suits and plastic-framed glasses with fashionably disheveled hair. They were here to take the measure of John Thain, CEO of the New York Stock Exchange, and Jean-François Theodore, head of Euronext, an agglomeration of European exchanges with which Thain was hoping to merge the NYSE. The event evoked a kind of raceless, classless, genderless Utopia, like Star Trek, but with accents. It was, perhaps, a glimpse at the global future into which Thain is leading his exchange.

Then, after the panel, the past, hefty and bald, stood up. “I have a question for Mr. Thain,” said a man named Stephen Sax. “I represent many brokers on the floor of the New York Stock Exchange,” Sax continued, before launching into a passionate monologue about how the proposed merger, along with Thain’s efforts to automate trading, could put him and his colleagues out of work. This, he said, would be a loss not just to the brokers but to all of international finance.

About 90 seconds in, the moderator interrupted to ask if there was a question embedded in his comments. The room full of bankers began to titter.

“The question is,” Sax said over the din, “with the costs going up on the floor of the exchange for the floor brokers, and a number of people being laid off on the floor, the question is, will that, you know, be a concern maybe that can be addressed?”

This was capitalist comedy; the crowd was now in full-throated guffaws. This guy who looked like he stepped right out of a David Mamet play wants to know if John Thain will save his job. And he’s not the least bit embarrassed about it!

Thain’s earnest reply silenced the laughter. “Well, first of all, I believe the answer is absolutely yes. Because I also believe there is value to the floor, to the auction process … ”

Thain was polite, amiable, and validating, but there was not a person in the room who didn’t think Sax and his brethren would eventually lose their jobs. It was entirely in keeping with Thain’s modus operandi, which has always been to give the coming technocracy a human face. During his tenure at Goldman Sachs, where he rose to the company’s second-ranking position, colleagues took to calling him “Thain the Humane.”

Since taking over for his scandal-racked predecessor, Dick Grasso, in 2003, Thain has transformed what was once an insular, semi-private club into a modern, public corporation. He’s introduced technology that allows investors to trade stocks with zero human intervention, dropping the average execution time from about fifteen seconds to as little as 300 milliseconds. And thanks to a recent vote of confidence from the shareholders of Euronext, he’s on his way to taking the operation abroad.

Wall Street had come to regard Grasso as a fast-talking Luddite who was rapidly turning the NYSE into a 46,000-square-foot museum, but his successor has reversed course. Thain has introduced more major changes in his three years as CEO than the Big Board underwent during its previous 211 years combined.

It is difficult to overstate the sense of crisis that prevailed at 11 Wall Street when Thain came aboard in 2004. Most obvious was the scandal surrounding Grasso’s outsize pay package, but the problem was bigger than that. Investors had begun to see the exchange as a black box into which various middlemen stepped to line their pockets. Grasso, who had a reserve of credibility, having worked his way up from clerk to CEO over a period of 35 years, had never been able to bring himself to confront the floor traders in the interest of modernization. It didn’t help that in the midst of this the Securities and Exchange Commission had announced it was investigating seven of the NYSE’s specialist firms. Specialists are the floor traders whose job it is to ensure that stocks trade smoothly, which means they buy when no one else is buying and sell when no one else is selling. The SEC suspected the specialists of trading on privileged information at the expense of less-connected investors.

This was bad news not just for the exchange but for the city itself. The exchange is still the largest, most-liquid stock market in the world, which confers enormous advantages on the local economy. Many of the city’s roughly 200,000 securities-industry jobs wouldn’t exist but for the prominence of the local stock market. Neither, in turn, would hundreds of thousands of other jobs: A 2005 report by the state comptroller’s office found that each new Wall Street hire creates three additional jobs in the New York metro area.


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