there isn't, is there a discussion in pakistan in the intelligence community to improve the capability that analyst capabilities within? >> i think i did refer to this in my opening remarks. there's a strong perception not just in the isi but in pakistan in general. and the military in particular. ..neuronext is the

chairman. you're on live coverage here on c-span3. >> good afternoon. subcommittee will come to order. i want to welcome to today's hearing on competition and consolidation in financial markets the new york stock exchange-deutsche boerse merger. i would especially like to

welcome our witnesses and thank you for joining us today. and i'm joined today by my colleague from north carolina, melvin watt and i think we're expecting the ranking member of the full committee, mr. conyers of michigan. in mid-february, the new york stock exchange, euro next and the deutsche boerse announced a merger that would give deutsche boerse 60% owner of the company that would own the new york stock exchange. the big board of the new york stock exchange would merge under rt umbrella of a foreign company with understandable apprehension. with would this merger harm competition, and america's role in the international financial system. the nasdaq and intercontinental exchange announced a competing

offer on the morning of the hearing, we were not able to take testimony from the merging parties at that time. instead we proceeded with a panel of two distinguished experts in exchange markets. professor larry harris and professor mercer bored. today we continue and complete our hearing taking testimony from representatives of nyse and deutsche boerse. this hearing provides an opportunity for the merging companies to respond to the issues and concerns that have been raised in the public discussion of this merger, and in the subcommittee's previous hearing. as discussed at our previous meeting there are horizontal elements to this merger in the american and european markets. deutsche boerse is a sub sit area of the international securities exchange, the largest shareholder in the left edge. the merger would come bin dorj bores's share of this fourth largest exchange with the

largest securities exchange, the new york stock exchange. the committee must also ask whether it will threaten the robust competition in the securities and exchange market that has reduced trading costs over the past two decades. we must also consider the possibility that the combination of the two companies, american equity options company will give the new company market power over the traders or options clearing corporation. the merger will combine the third and fourth largest equity options ex changes in america with deutsche boerse's international securities exchange. this hearing will examine whether the combinations threaten competition among american securities and options exchanges. the merger will also combine the two largest derivatives

exchanges in europe, deutsche boerse's euronext and the new york stock exchange. this committee and the department of justice must take notice. and also consider the efficiencies that the merging parties hope to gain from this merger, and how those efficiencies may enable them to compete more effectively. finally, the hearing will consider how the merger might affect the worrisome trend away from american companies offering their shares for public trading on america's stock exchanges. in the 1990s the united states averaged 530 initial public offerings per year. it fell to 126 per year. this hearing will explore whether the merger of the largest stock exchange by trade volume into a european company will affect competition in a way that speeds or slows these

trends. the united states and new york city in particular has been at the center of international finance for over a century. how this merger affect america to compete successfully in global financial markets in the next century. the department of justice is currently reviewing this merger to address these very questions. the department should conduct a thorough review based on sound economic legal principles and intervene if it determines that the merger will substantially lessen competition. congress has an oversight responsibility to ensure that the department of justice conducts its merger reviews in a thorough, fair and reasonably prompt fashion. i look forward to today's hearing, which raises fascinating and important questions about the future of vibrant and competitive financial markets in america, and it's now my pleasure to yield to the ranking member of the subcommittee, the gentleman from north carolina, mr. watt. >> thank you, mr. chairman. mr. chairman, on the eve of the

first hearing in this proposed -- on this proposed merger, nasdaq and intercontinental exchange both publicly traded delaware corporations and announced a joint bid to acquire the new york stock exchange. because of that development, charlie goodlat appropriate ly provided the witnesses who testified at that hearing. the proposed nasdaq merger, they concluded because the new york stock exchange and nasdaq are the only competitors in several businesses that are essential to the success of our equity markets, and the only providers of certain stock option services, con summation of that proposed merger would have effectively this rated competition in those areas.

nasdaq and i.c.e. subsequently withdrew their bid. competition is a necessary and indispensable element of a vibrant and fair marketplace, one that fosters economic growth and protects consumers. but as i noted in our last hearing, i do not believe that we should put our fingers on the scales to tip the balance in favor of -- or against a proposed merger. the department of justice quickly and aggressively responded to the proposed nasdaq bid to ensure that no anti-competitive effects were visited upon our markets. by all accounts, the department of justice and the european authority stands ready to aggressively evaluate whether the proposed merger of the new york stock exchange and deutsche

boerse will create a monopoly in the derivatives market or result in any other antitrust violations. if so, i'm confident that the proposed merger will be stopped. i welcome the witnesses, and thank them for returning, and i yield back. >> i thank the gentleman. and the chair now is pleased to recognize the ranking member of the full judiciary committee, the gentleman from michigan, mr. conyers. >> thanks, chairman goodlat, and ranking member watt. i agree with everything that you've said. now, we have experienced this question of mergers that create

more difficulty than anything else. we've all heard of the too big to fail notion, and so we come here this afternoon to listen to the leaders of two huge businesses to have them explain to us why we don't have to worry about too big to fail , as big s they are, they get bigger by coming together maybe. financial giants that were too big to fail pushed our nation to the brink of an economic meltdown that we're still not out of. a recession that is still

ongoing, causing pain and suffering to millions of americans that didn't get a bailout, that didn't get t.a.r.p., that didn't receive a stimulus. and here's another problem. the united states supreme court has not been particularly helpful with their citizens united decision last year in which they've given corporations a blank check to use their money in any way they want, as much of it, and without even revealing who gave it and who got it. and i'm worried about that. you didn't cause that.

but, you know, you're going to be good citizens and go along with the federal courts. and i have no idea what you're going to do with the money, publicly or privately. as corporations in this country become larger and more consolidated and global, their influence is disproportionately large in the elections that are the base of an american democracy. now, over the last 15 years, 5,400 bank mergers occurred, including the mega mergers. that's where you come in.

where each buyer and seller had more than $10 billion in assets. because of these mergers, the percentage of banking assets and deposits held by the ten largest banks more than doubled, rising to 55% and 45% respectively. so we come together this afternoon to consider another merger. as mel watt observed, the obama administration opposed the new york stock exchange merger.

the assistant attorney general of antitrust in the department of justice, the proposed union as a potential monopoly that would lead to higher prices, inferior service and less innovation. the justice department found that the acquisition would have removed incentives for competitive pricing, high quality of service and innovation in the listings, trading and data services that these exchange operators provide to the investing public. i have hopes that the current administration will continue to review critically these mega

consolidations with the heightened scrutiny that they bring to this. may i have an additional minute, mr. chairman? >> without objection, i will recognize the gentleman for an additional minute. >> thank you. unfortunately, the proposal for the deutsche boerse to acquire new york stock exchange still stands, which is why we're here today. my concern about this merger is the immense market capitalization that would result, i don't see any benefit for consumers, maybe some of you can suggest some to me. and the stifling effect it could

have on innovation and transparency. a horizontal merger between new york stock exchange and the german company would obviously create the largest stock derivative exchange in the world. resulting market capitalization, resulting from this merger, would easily exceed $25 billion. given the significant changes in the market, from paper traded on the exchange floor, to an international electronic transactions, our analysis of this merger must consider the impact, the transfer of financial instruments, and the effect of such a transfer would have on our nation's economy.

since the chairman so giving me the evil eye, i -- >> a very patient eye. >> it is my choice to submit the rest of my statement. thank you. >> the chair appreciates that. without objection, all other opening statements will be made a part of the record. and we'll now turn to our witnesses. and before i introduce our witnesses, as is the custom of this committee, i'd like to ask them to stand and be sworn. do you and each of you swear that the testimony you're about to give is the truth, the whole truth, and nothing but the truth so help you god? thank you. and please be seated. our first witness is larry liebowitz, chief operating officer of nyse euronext, the parent company of the new york stock exchange. mr. liebowitz has been with nyse for four years, in various roles.

and before joining the nyse, he held executive positions at ubs and schwab. he has served on many committees, as well. our second witness testifying on behalf of deutsche boerse group is gary katz, president and chief executive officer of the new york stock exchange, an american equity options exchange owned by deutsche boerse. mr. katz is also a member of eurex. his positions at the international securities and exchange and direct edge make mr. katz the executive most intimately familiar with deutsche boerse's current american operations. each witness has written statements, which will be entered into the record in their entirety. and i ask that each witness summarize his or her testimony

in five minutes to help you stay within that time limit there is a timing light on your table. when it switches to yellow you will have one minute to complete your testimony. when it turns red, it signals that your time is up. and we'll start with mr. liebowitz. welcome. >> good afternoon, chairman. members of the subcommittee. on behalf of our company and shareholders i would like to thank you for giving me the opportunity to testify today. for 219 years we've been one of the world's premier companies for trade, commerce and free markets. we're committed to maintaining the iconic stature and that's why i'm here today to talk about the future of our business. we at nyse appreciate the subcommittee's interest in our proposed merger with deutsche boerse. we're grateful for a chance to talk to you about it today and answer any questions you have. one we believe is critically important. we know what the new york stock exchange means to all of us as

americans. for more than two centuries businesses have come to us to expand their businesses, create jobs and invest in new ideas. it's also a place where americans can invest in great american companies and retirements grow. the facade of the new york stock exchange is one of the most recognized emblems of american capitalism. but reality the nyse today is not the nyse of the nostalgic yesteryear. in 2006 we were primarily focused on trading large u.s. cap stocks. in a short five years, it expanded in size, scope and geography. we faced significant increasing competition brought on by regulation changes in europe and the u.s. we've met these challenges through innovating, diversifying and globalizing, because otherwise we would have been doomed to be a charming but

irrelevant acronym. we operate 13 venus in 6 countries derived, 49% of our revenues throughout the united states, and are a significant provider of sophisticated technology for clients. our proposed merger is a reflection of how we must adapt and change to remain a fierce competitor that services their clients. in the u.s. alone, there are currently 13 stock exchanges in over 30-so-called dark pools. the u.s. competitive landscape is equally complex. with nine options venues vying for business. trading fees for both equities and options have fallen substantially over the last ten years while trading volumes have grown. our merger will not affect this competitive dynamic in any way. companies listing op the new york stock exchange represent $14.4 trillion in market capitalization.

despite its historical position in the listings market, nyse itself has a market cap tamization of only $9 billion. prior to the merger announcement ranked sixth behind hong kong stock exchange and cne group. also behind others such as brazil and the intercontinental exchanges. this reflects faster growing markets and exchanges protected by regulation are higher margin businesses but also means that the larger players are in a better position for future consolidation as markets develop further in other regions. with this merger we'll become a leader in the world de require tiff market which is important now as regulators around the world seek transparency and risk management. and a more consolidated infrastructure will make it easier for participants to trade across the markets, provide capital efficiencies for clients. this transaction will enhance

the ability of our global listings venue. last year nyse ranked third in public offering proceeds. the other three of the top four exchanges were chinese. this will bolster our ability to compete in other international markets. this will also allow us to continue our leadership in advocating for governance standards. we believe it will be a catalyst for innovation, combining index and technology businesses, clients will be able to connect to more markets globally in a more cost-efficient way. i want to spend one moment to talk about what will remain the same. we will continue to have one of our two headquarters in new york, we will continue in the ceo of the company based in new york. the management team will be evenly split between the two firms. we will continue to be a global company with a majority of the shareholder base in the united states. furthermore, the new york stock exchange trading floor, the physical building and the name on the facade will not change.

finally, the combined company's u.s. markets will be continue to subject to full u.s. regulatory supervision as they are today. this transaction represents the future of ex changes because as i've described this is an intensely competitive business and the markets will globalize with or without us. some of the regulatory obligations and transparencies will continue to grow in strength and influence as the world becomes ever more connected and interindependent. i'm happy to answer any questions you may have. >> thank you, mr. liebowitz. mr. katz, welcome. >> thank you, chairman goodlat, ranking member watt and members of the subcommittee. thank you for the opportunity to testify before you today on behalf of deutsche boerse group regarding the proposed merger when nyse euro next and deutsche boerse. i'd like to provide you first with some background about ise and how i came to represent

deutsche boerse here today. i co-founded ise in 1997 along with ray terrell and two traders. we wanted to introduce competition to the u.s. options industry. in founding ise, we embrace change and look to deliver a new model for options trading that would vastly alter the competitive landscape. following our launch, ise grew rapidly, in 2007 ise was acquired by eurex, the derivative deutsche boerse. as president and ceo of ise, i hold positions within the deutsche boerse governance structure as a member of the executive boards of eurex and urex clearing. my co-founder is a member of the supervisory board of deutsche boerse group.

as an entrepreneur, there is always trepidation in giving up ownership of a business you have built from scratch. of course, i had those feelings when deutsche boerse acquired ise. however, i can assure you that ise's experience as part of deutsche boerse group has been overwhelmingly positive. of importance to this subcommittee, ise continues to be a u.s. registered securities and exchange regulated by the securities commission just as we have been since our region legislation -- registration 11 years ago. the membership requirements of our exchange remain the same, only u.s. registered broker dealers are permitted to be ise members. implementing a strategy that allows your business to grow and improve its competitive position is the best job security any management team can provide their employees.

that belief was proven true with ise, and this merger provides the same opportunity for the respective employee teams. the synergies that ise realized from our partnership with deutsche boerse only made us stronger. for example, ise and deutsche boerse developed a new trading technology for ise's options exchange. it will position us better for the ever-more competitive u.s. options industry. given the broader focus, and diversity of nyse euro next, the benefits of the proposed combination are on a much larger scale. this merger will create an exchange group with a large domestic and international footprint, and will imle meant a strategy to allow our business to thrive. this will strengthen the competitive position of both new york and frankfurt as financial centers, to the benefit of the

u.s., european and global capital markets. the scale and scope of the combination of deutsche boerse and nyse euronext will enable each individual exchange to draw upon the resources of the parent company. to deliver a more competitive offering to its customers. for example, we expect to maintain three u.s. options exchanges within the new group structure, providing a targeted value proposition to all of our clients. in the options industry, this intense competitive dynamic has resulted in the highest level of customer service, the greatest transparency, and the lowest commissions in its history. this proposed combination creates a platform for continued growth, creates the world's premier global exchange group, and an iconic venue for capital raising and for the trading of equities and derivatives. most importantly, our customers

will benefit from the global scale, product innovation, operational and capital efficiencies that our combination will deliver. simply put, the combination of deutsche boerse and nyse euronext offers a unique short and long-term set of benefits for all of our constituencies, shareholders, employees, regulators, and most importantly, our customers, both the retail and institutional investors. thank you for the opportunity to testify before you today, and i'm happy to take your questions. >> thank you, mr. katz. and i'll begin the questions. first one directed to you, mr. liebowitz. the expert testimony at the previous hearing suggested that derivatives are a more profitable line much business for exchanges than securities, because derivative changes are less competitive. specifically, the firm that clears the derivatives also provides the exchange venue for

trading those derivatives. do you agree that this so-called vertical silo model is the main reason the derivative exchanges make higher profits than securities, and if so, do derivative exchanges need to be made more competitive? >> i think it's a really good question. i think this's really two reasons derivatives are more profitable. there are significant deficiencies in lower clearing costs from the vertical model. that drives better efficiency and profitability. second of all, i think that the derivatives -- the popularity of derivatives has grown far more than equities. it leads to more profits. i think that tend is due to continue for the foreseeable future. between those two factors, i think that's why it's more profitable. >> the number of u.s. stock listings has decreased by 40% since 1997. about 3,700 fewer companies

trading on u.s. exchanges than at the late '90 peaks. ipos are down 70%, one in ten american companies that goes public now does so on a foreign exchange. last year alone, ten american companies went public abroad compared with only two american companies that went public abroad in the entire decade of the 1990s. how will merging the new york stock exchange into a european entity affect these worrisome trends? >> sure. it's a great question. i think it concerns all of us as americans, as it should. first, i think to the d listings. i think many companies have d listed over the last ten years when you combine the international bubble and financial crisis. that led to a lot of companies that had either come out too soon when they weren't really viable companies, or companies that went through the crisis and couldn't weather it being d listed. new listings, american listings going abroad, i think there's one main driver there. they can't meet the listing

standards in the united states. either they don't want to comply with the government standards we have or other aspects to come with listing on the new york stock exchange in the united states and opting for more lax standards in other places. that's something we obviously have to look at, the regulators need to look at if we want to hold ourselves out to the highest standard. some companies don't want to follow that. we have to decide at some point what's the right balance. in addition, there have been some challenges in the united states over the last ten years it's been difficult for small companies going public. they've faced challenges getting ak stoes capital, faced challenges with other exchanges. the u.s. research settlement reached with the s.e.c. has made it hard for them to get analysts to cover stocks, if they're in the small and mid-cap stock range. that's problematic for those companies. they face a lot of challenges from beginning to going public, whereas some of those challenges

aren't quite as hard as they get into foreign markets. the last reason is one we're just going to have to face. prada is thrown up as a big example of this. and understanding they're not a u.s. company. asia is having a huge surge in consumer demand. a lot of their demand is in ash a, want to list in an asian exchange. and that's all part of us competing on a world stage where other places are starting to gain prominence that they didn't have in the past. our response to that just has to be to compete harder. >> mr. katz, in your testimony, you say that there was very little competition among the four floor-based equity options exchanges before you founded ise in 1997. you credited the ise launch with bringing competition to the u.s. options industry. should we be concerned that by merging ise into the same corporate family with nyses, arca and amex exchanges, ise

will cease to operate has a maverick competitor? >> i don't think this subcommittee should be concerned about a lack of competition in the options industry. since ise's launch becoming the fifth options exchange, an additional four exchanges started trading options. and there's even another one announced to begin trading in the first quarter of 2012. many option exchanges joined under one corporate umbrella. there are a number of examples of that today. and it has not diminished the amount of competition in our industry. it has not diminished the product innovation in our industry. and i don't believe that this merger will affect the level of competition, both in the u.s. and globally. >> the chicago board of options exchange, the new york stock exchange and nasdaq all currently operate multiple

options platforms, as you note. in your experience, do these equity options exchanges that are controlled by the same parent vigorously compete with their corporate siblings, or is competition primarily among unrelated firms? getting back to my first question, if we combined some of the relationships, if you will, is the competition going to be diminished and less innovative? >> i think we would actually lose something if we combined these exchanges that are under one corporate umbrella into one marketplace. the reason that there are so many in existence -- >> no one's advocating that. what we want to know is whether we're better off being separate competitors or competitors under the same umbrella? >> they actually compete with themselves. the reason they're doing that is because each one has a different market model. the way the s.e.c. approves exchanges today, they are allowed to use one market model, one set of fees per exchange. and as a result, an exchange can

actually compete with itself and compete vigorously to try to attract different segments of the marketplace to do business on their exchange. so i don't believe that they are just working in a complementary manner, they're actually competing to try to attract as many different clients to their business as possible. >> thank you. my time's expired. i now recognize the gentleman from north carolina, mr. watt. >> mr. chairman, i think i'm going to wait and go last. >> then we'll turn to the ranking member in the full committee, mr. conyers. >> thank you. thank you for your testimony, gentlemen. would you agree to a follow-up inquiry that we may have, that the committee maybe have with the department of justice about this proposed merger?

>> certainly we're already actively discussing this with the department of justice. and are open to further conversation. >> okay. thank you. now, what about you, mr. katz? >> we are in active dialogue with the department of justice, and they are reviewing all of the material that we have presented to them, and we would be pleased to have a follow-up review with this committee, if that becomes necessary. >> well, it will become necessary, because we don't know what you're in deep discussion about. i mean, they don't come back and tell us what they're talking to you about. the only way we can find out is to get a report from them when they're finished, and then to talk with you about it after it. how do you feel about the

securities and exchange coming before this committee to give us their impressions of what the effects of such a merger might be on the markets in the united states and in the world? >> we would be very comfortable -- >> you're okay with it? >> yes. with having the s.e.c. come before this committee. >> you're okay with it, mr. liebowitz? >> with all due respect, i don't think you need my permission to call the s.e.c. in. you need to talk to as many people as you need to to feel comfortable with this. >> i'm trying to be polite today and on my best manners. this is a pretty serious inquiry. what about the united states treasury? i ought to ask you about whether we need to talk with them or not. >> sure. i think we're going to set a record for the number of regulatory agencies that we need to talk to as part of this merger. i've heard it's 47.

so each of them is going to have, including the fed, the fdc -- >> well, would you give me the list of the 44 that i haven't found out about yet? >> yes. many of them are european. >> well, they're important, too, aren't they? i notice d a number of things about your testimonies outside of your closing sentence, mr. katz. you've told me a lot about your company, and about the circumstances that the market works in. i'm intrigued at your response to the ranking subcommittee chairman, the ranking member, that you can compete better

intei internally than externally. >> congressman, i don't think i ever used the word "better." but i do believe that the -- >> well, i'll use the word "better." i think you can compete better if you're separated than if you're together. >> the amount of competition that has taken place in the options industry, in various different ways, whether by exchanges that are independent, by exchanges that are public, or private, or under one corporate umbrella, has created one of the most competitive industries in the united states. and it has resulted in a growth of volume. it has resulted in a better opportunity for the customers that are using our product.

and that competition continues to grow unabated as a result of the mergers -- >> well, that's a view -- you're entitled to that view. i don't think bigger is always better, though. a and -- would you think with me about this consideration? if you were to merge, what would happen to all the others in the business? wouldn't there be a requirement that there would -- wouldn't somebody else have to merge as well, because you'd be so much larger than anybody else in this country? and i was impressed and sympathetic to your explanation, mr. liebowitz, of the relative smallness of your organization on a global scale. >> so i think the challenge, and it seems counterintuitive, that

you can't be right in the middle. you either have to be among the biggest or you have to be among the smallest. the smallest are efficient because they're typically late entrants into the market. they don't have all of the regular assy or huge regulatory history. a perfect example is the baath exchange which filed to go public recently. they have less than 200 employees in the whole company. they compete very effectively against both of our organizations in u.s. options and u.s. stocks. and then at the top end, you have the companies that have merged to achieve scale, and also to provide a breadth of platform. they're not just focusing on one or two businesses. the tough spot is to be in the middle. because that means you are neither one. >> well, you're in a tough place, really. i can almost sympathize for you. what do you think all the small people are going to do? you don't anticipate that there

will be other mergers as a result of yours, if you were fortunate enough to gain a merger? >> well, i can't speculate on what our competition would do. i think everyone -- >> well, sure you do. you do that every day. >> i think everyone in our space is constantly looking at the landscape, and trying to decide what their vision for their company is. and what the best combinations, or whether standing alone is the best for them. and pursuing that path. there are some people that may look at this and say, gee, we should look for a partner. there are some people who say, we don't agree with that strategy. nasdaq's response, their attempt to take us over was saying, we don't agree with the broad platform. where you have to do derivatives and technologies and equities. completely different philosophy to the business. and it allows each of us to determine what we think our vision is, and what our platform should be, and we act accordingly.

>> i thank the gentleman. the chair recognizes the chairwoman from florida, ms. adams. >> thank you, mr. chairman. mr. liebowitz, why is it that nyse euronext, which is the world's largest exchange, by trading volume and market capitalization of listed companies, has a fairly small market capitalization? and why does the hong kong exchange, which is smaller than nyse, have a market capitalization that is more than two and a half times nyse? >> sure. it has to do with such things as being in areas that are growing much faster. because the economy is growing faster, the markets are growing faster. being in instruments that are a lot more volume is taking place, such as derivatives. in the case of hong kong being in a regime where the regulations protect them. if you remember, the u.s. regulatory structure allows relatively open competition with low barriers to entry.

that means that intense competition drives prices down and drives our market cap down as well. so hong kong is in the best of all worlds. they're in a highly protected regime. they have a very rapidly growing product in a very rapidly growing region. and they have some products that are protected in a vertical silo. so you add all those together and that's why. >> nyse has insisted that this deal is a merger of equals rather than a german company acquiring an american company. but deutsche boerse will own 60% of the shares. doesn't this mean that deutsche boerse shareholders will essentially control the nyse after the deal closes? >> sure. that's a really good question. this one has gotten a lot of press. it's important to note that deutsche boerse itself is 35% u.s. owned. and only 18% german owned. and so when you put the combined entities together, actually the combined company is 55% to 60% u.s. owned by the common shareholders. the distinction of merger

vehicles is really a technical legal distinction and has to do with the fact the way the companies are being brought together with a balance management team, relatively balanced equity base. >> mr. katz, while there will still be an equity exchange operation in operating in the u.s. after the merger, they're controlled by four company parents. does it move from five to four operating companies and if so, what will the competitive -- what will be the competitive effect? >> congresswoman, one of the beauties of the u.s. options industry is that you can create an exchange and take your exchange to the s.e.c. for approval and then become a member of the options clearing corporation, so that your trades can be cleared. already today, there is an announced tenth exchange, the miami international stock exchange, that is scheduled to launch in the first quarter of

2012. this industry has been growing at double-digit rates for the last 15 years. and as a result, it's bringing in new competitors, and new companies that want to provide a value-added service in the options industry. so i've never thought of this industry getting smaller. it continues to get larger. it gets larger as a result of the number of exchange. it's also getting larger because the number of retail and institutional investors that are embracing this product, the options product, has continued to grow. and it's a result of the education, it's a result of the product development and the innovation at all of these exchange and that's something that i expect to continue. >> so the decrease over the past 15 years in the number of u.s. poips and the number of companies listed on the exchange has coincided with an increase

in exchange. to what extent are the two phenomena related? >> i didn't understand your question. >> the decrease in the past 15 years in the number of u.s. ipos has coincided with an increase in exchange competition. to what extent are the two phenomena related. >> i don't believe that there is any relationship between those two. earlier larry testified as to the cyclical and economic issues that are affecting the number of listings in the u.s. versus international listings and i agree with that testimony. the number of exchange in fact has created a larger opportunity for companies to trade in the u.s. and to trade at some of the lowest levels of costs that they've ever had as an opportunity. so i don't see a relationship

between the two and i don't think that this merger will have any impact on the number of companies listing. but in fact, quite the opposite. it will be a strong attractor to a company that wants to list with a global exchange and potentially have dual listings in new york and frankfurt, and more and london and paris. and there is an opportunity on a global basis to create a level of competition that does not exist today. >> well, "the wall street journal" has reported that alleviate antitrust concerns, deutsche boerse may opt to dilute its share by bringing in new bank investors. is deutsche botheerse still considering this strategy? >> ise owns 31.5% of direct edge. when you translate that based on their market share of how much equity volume they trade, that's

a little less than 3% of the average daily volume in the equities market. we have shared this information with the department of justice and they're reviewing all of the material that we've provided. it would be too soon to theorize as to what their potential response would be. and what they would ask deutsche boerse to do with direct edge going forward. >> i thank the gentleman. the gentleman from florida, mr. deutsche, who i guess will disavow any affilation with deutsche boerse is now recognized. >> thank you, mr. chairman. i was just thrilled to see that this hearing is about anything having to do with deutsche. mr. lebowitz, if i may, if you could walk through, please, just some of the, if you could address some of the questions

that stem from your earlier comments. you acknowledge that the new york stock exchange has always stood as a global symbol for trade and commerce. i'd like to explore that a little bit, particularly how the new york stock exchange might be, how that view of the new york stock exchange may or may not be altered after a merger like this. first of all, if you could just walk through. i know you said there would be a building. where will all the headquarters be? >> the headquarters will be as it is now at 11 wall street as well as frankfurt. we're currently duly headquartered in frankfurt and paris and we will instead of headquartered in frankfurt and new york. >> could you flesh that out, how those dual headquarters will function? >> the ceo of our current company is duncan neederhaur, he's going to be the ceo of the successor company and he will still be based in new york. i am the chief operating officer

and my main responsibility for all of our equities markets around the world, nyse, paris, brussels, lisbon. i will continue to have those responsibilities, plus the frankfurt stock exchange and i will also be based in new york. the head of the global derivatives business, is also the head of urex, andreas price. >> and when you add a second headquarters, what impact will that have on american jobs, if any? >> we're actually moving the headquarters from paris to frankfurt so that has no, no net effect on the u.s. >> so the merger should have no net effect on jobs in the united states? >> well not in that, no. >> in some other way? >> well, we're obviously looking at how to combine companies. jobs is not, this is not a deal about cutting jobs. it's about creating value. and we think in the long run this is going to be good for america and american jobs. >> in the short run, in order to

create that value, will there be jobs cut? >> there will be some of both. if you look at what happened in the urex merger, we were cutting jobs and investing in businesses, we kraelted nyse life. which is an exchange. we bought the american stock exchange and increased the number of people who were doing amex options and so on. and we'll be continuing to make investments in our technology business. remember there's not a lot of overlap in the businesses between u.s. businesses and between deutsche boerse and nyse urex. so i wouldn't expect many job losses. >> so in the new company, which shareholders -- how will voting control work? >> sure. this is really, this is a public company and this is common stock. so the combined company should have 55 to 60% u.s. shareholders. and we expect to have a large

u.s. shareholder base. because it's an important company for u.s. institutions. >> i'm sorry. if you could walk through that again. you said you expect 55% to 60%. u.s. shareholders. and then you went on to explain that you would expect there would be a strong u.s. ownership. >> i think it will continue that way, because the exchange space and in particular, our stock has been highly followed by u.s. mutual funds, value stocks. and so i think that that will continue. that's the base that's going to continue to hold the stock in the future. we're currently 85% u.s.-held. deutsche boerse is only 18% german-held. it's 35% u.s.-held. even that one is more u.s.-held than any other shareholders. and the combined stock will start at 55-60. chances are it will probably grow from there. >> and is, is a part of, of this merger, this proposed merger transaction, retaining the name

of the new york stock exchange in new york? >> sure. the nyse company will be a company, it will be incorporated in delaware, just as it is today. it will have a supervisory board in the united states. and it will be under s.e.c. regulation, just as it is today. >> right. will the name of, will the name of the entity be the new york stock exchange? >> the name of the holding company will not be the new york stock exchange. >> well i'm sorry -- >> to be honest with you, we don't know what the name is. we haven't made that determination. it's not like we've made it in secret. we honestly haven't spent our attention on it. >> you can't confirm now that after this mercker, the new york stock exchange will continue to operate as the new york stock exchange? >> no, i said the new york stock exchange will operate as the new york stock exchange. >> that is a condition of the merger that you're agreeing to, that it will forever continue to operate as the new york stock exchange? >> absolutely. the new york stock exchange will stay the new york stock exchange. just like the frankfurt stock exchange will stay the frankfurt stock exchange. >> thank you, appreciate it. thank you, mr. chairman.

>> i thank the gentleman, the gentleman from pennsylvania, mr. marino is recognized for five minutes. >> thank you, sir, i apologize for being late. i just came from another committee meeting. >> we're pleased to have you. >> gentlemen, thank you for being here. mr. lebowitz, i was not quite clear on your question by my colleague on the other side concerning jobs that may be lost in the united states. do we have any indication on how many jobs may be lost in the united states? and how many jobs may be gained outside of the united states? can you give me a number, please? >> so i would expect, i would expect that there will be more jobs lost outside the united states in the short run. there will be few jobs lost inside the united states and then there will be growth of jobs in the united states. and abroad as well. >> okay, could you just go into a little bit more detail on the growth for jobs in the united states? and what you think of, what period? >> yeah. we are growing our technologies business. we had set $1 billion revenue

target a couple of years ago. we're about half of that now. that's a business we're investing in intensively. a lot of those jobs are in the united states. we're building a futures business in the united states. it is the main competitor to the cme. it's a very business right now. we have high hopes for it. so those are two of our biggest growth businesses are in the united states. and we're going to continue to hire in those areas. >> and mr. katz, do you have any comment concerning the lack of or growth of jobs? >> well i agree with mr. lebowitz, that the, the prospects for growth as a result of this company are stronger and have a higher probability than the prospects of a loss of jobs. there are great opportunities to build businesses and innovate. and as we have an opportunity to join with nyse urex, that will even further come to light and develop as we begin do make investments into those new

businesses. so i believe that over time, we will continue to grow the number of employees. and in the u.s., and that will be positive for the u.s. it will be specifically positive for new york, where these businesses will be based. >> and mr. katz, and then please mr. lebowitz, if you would follow up. do you see any negative impact in the united states on other industry, on other areas of job creation? do you see a negative impact where this would create a loss of jobs in the united states? outside your predicted growth? >> we have spent a great deal of time analyzing the combination of these two companies. and we believe that it's a win-win for a number of different constituencies. we believe that shareholders of this business will benefit from a stronger company. we believe that the investors,

both retail and institutional, that trade stocks and derivatives on these platforms will benefit from the synergies. it will lower their costs of trading. it will lower the costs for broker/dealers to trade. and as a result, they will be able to invest their profits into growing the business. and we believe this will be a benefit for the regulator, that oversees all of these different exchange. and we can work together with them to help grow this business. and work together with the global regulators, to harmonize some of the policies and rules and processes. and it will help the regulators grow. so we don't see the negative. we're very excited about the opportunity to move forward. and put these two businesses together. we think that it's going to be extremely positive both for the u.s. and for europe. >> mr. lebowitz, do you concur?

>> yeah, i think that was very well put. i think the added, this is largely impacting europe is that we think putting these derivative exchange together will help free up capital that's badly need by banks because of margin requirements. but in general, this should lower costs for our customers. and that should get passed on to investors. >> i'm going to ask you what an old mentor of mine did when i was in industry. when i went to him, with a great idea. at least what i thought was a great idea. i was able to sit down and state out the logically, the way you are very adequately doing here. but let's play devil's advocate for a moment. what is, if there is any, down side to this? >> honestly, i have a hard time finding a down side, sir. i'm not sure where i'd find it. i think it's very exciting opportunity. >> mr. katz?

i'm going to take a stab at this. you agree? >> well i agree, i would say that the down side is not allowing this to move forward. and that will weaken the u.s. it will weaken the financial centers in new york and in frankfurt. and that will affect the employees, that will affect shareholders. and that will the investors in the u.s. market far greater than anything else. >> thank you very much, gentlemen, i yield back. >> i thank the gentleman, the gentleman from new york, mr. radler is recognized for five minutes. >> i appreciate you holding a second hearing and the witnesses coming back today and sharing their views. now this topic we're discussing today, the role of the new york stock exchange plays in the national global economy is the merger with the european exchange means for these economies is of particular significance for my district as many of you know i represent the

financial center of our country, which resides in lower manhattan. and long-term stability and ability for growth of these institutions is important for all of us. but particularly for my district. mr. lebowitz, in your testimony you said that the new york stock exchange is continually had to meet challenges presented by other mergers. in the creation of new exchange through diversifying and globalizing, because otherwise, the nyse would have been as you say, doomed to become a charming but irrelevant anachronism. >> and you say that the merger with deutsche boerse is meeting challenges for diversifying globalizing. what does the future of the new york stock exchange look like without the merger with db? >> well i think that the business that the new york stock exchange is in, is the most competitive aspect of the securities exchange businesses. and it is more and more challenged. and i think to fortify it and gain more scale and more efficiency and help innovation, this merger is a strong

fortifier. without that, we just face more competition and it's harder and harder to maintain the floor and do the things that we do, that keep our brand strong. >> you say it would be harder to maintain the floor. can you guarantee the trading floor will remain open? >> the trading floor is remaining open. >> how long can you keep that guarantee for? >> well i'm in charge of it. so i am guaranteeing it. >> let me ask you the following. a merger of this magnitude has ripple effects for the various players along the chains. what do you think this merger means for companies small and large, looking for exchange in which to take their businesses public? what does it mean for investors? >> sure. >> they have fewer options? more options? >> no, i think the same number of options will be a stronger platform. we are an advocate. a lot of people think of us as the large-cap stock exchange. the reality is we have an awful lot of companies that are below $1 billion and below $500

million and even smaller. and we've been an advocate for small and mid-sized companies, because we think they are the engines of job growth. and it's very important that we maintain a strong presence in washington on their behalf. and i think that's going to continue in the future. >> a strong presence in washington? what do you mean by that? >> in washington, in terms of advocating on behalf of policies that help small businesses. whether it's with regulators, such as the s.e.c., whether it's with congress in terms of other, other laws. making it clear that the voice of small businesses gets heard. >> so you regard one of your roles as a lobbyist for small businesses? >> not a lobbyist. i think we're an honest broker. meaning we're not paid by anyone to do that. we are an advocate in certain aspects. because i think when companies go public, they create more jobs than during any other point in their life cycle. and if what we're trying to do is create jobs, we need companies to get to the point of being healthy enough to go public.

that doesn't mean companies should go public before they're ready and if they're just based on an idea, not a real business. but it means we need to find ways to get companies public that are deserving to be public. because that's how they get the currency, to hire more people, to grow, to innovate and to continue to develop. >> five years ago, the company owned by the united arab emirates attempted to purchase the port operations at the port of new york and new jersey. at that time, a lot of elected officials, myself included, raised national security concerns about selling a critical port to a foreign entity. i understand, the circumstances surrounding the proposed sale of nyse to db or the merger, are different, but the sentiment remains. what are the consequences of selling a critical player in our national economy it a foreign country? how does this benefit us or potentially hurt us? >> sure. sure. first i want to, it's a good opportunity to make the

difference between this and the dubai port situation. first, the germans aren't buying anything. the german government. they're not involved. this is not a government situation. this is one public company to another. common shareholders, as we said, there are more u.s. shareholders of deutsche boerse than any other nationality. so first, there's no foreign government involvement. second, it's not a physical security point issue like a port. third, this still falls under the same u.s. regulators, as it did before. whether it's tax law, whether it's security law. whether it's cybersecurity, all of those things are all governed by u.s. law. and so that this does not fall into the same domain. >> you think that -- this would result in more trades being carried out in new york, rather in the united states and otherwise, a as opposed to migrating to europe? >> i think it will make us stronger and allow us to retain more companies. >> thank you. my last question is a very simple question, a verron yant

of a questivariant of a questio was asked before. who could this committee invite to give us a contrary view? in other words, we have two witnesses, both of them are saying this is a wonderful thing. if we wanted to hear the other side, assuming there is another side, who could we invite who is responsible to give us the case against this. you said there's nobody really. but -- >> i'm sure our competitors aren't thrilled. >> and that's the only suggestion you would have, are the competitors? >> i think all businesses have competitors. >> if the gentleman will yield, one of their competitors was offered an opportunity to testify and declined. >> if i could continue, the comments that have been made by the competitors and the largest ones that we deal with to date. have all indicated that this will not change how they compete with us. they will compete vigorously

with this combined entity. and so, while given an opportunity to be invited before this subcommittee to take a pot shot, i can imagine that they would. but they have publicly been on record, saying that this will not change how they come in every day and try to compete to provide the best possible services to their customers to compete with the deutsche boerse group and nyse separately or together. >> but your competitors aside, there's no group, consumer group, public interest group that you know of that thinks that might give us a contrary view? that's a high testimony. thank you. >> i thank the gentleman. the gentleman from north carolina, the ranking member, is recognized. >> thank you, mr. chairman. and i thank the witnesses and probably everybody else, sense that my perspective on this may be a little bit different in the

sense that -- am i buzzing? i am buzzing. in sense that i'm not sure exactly what the role of our judiciary committee -- >> it's a conspiracy. >> it's a conspiracy. maybe i should, maybe i should get rid of all my electronic devices. are you y'all buzzing me back there? what am i doing wrong? you don't know. okay. [ laughter ] >> woooo.

>> okay, well i'll just, i'll be haunted for the rest of the day. anyway, it never has been quite clear to me what the role of this committee, judiciary or subcommittee should be in a merger of this kind. but i want to leave anybody with the impression that i think this merger shouldn't be thoroughly scrutinized. i just think that we passed a law, we know what the antitrust laws are. we know what the consumer protection laws are. and if, and we've given that responsibility to somebody else. and so i'm actually more concerned about the ability of the relevant regulators or justice department or whoever is going to scrutinize this, their ability to scrutinize it from the perspective that we want it scrutinized from.

so let me ask a couple of questions along those lines. we always concerned about whether the department of justice, which is a legal entity, has the expertise to really understand the competition aspects of various businesses. what role does the securities and exchange commission play with the department of justice, in this evaluation? mr. lebowitz, or whichever one of you feels like you're best equipped to answer that. >> sure. i'll start and then mr. katz can chime in here. in this case, the s.e.c. provides a consultative and advisory role. answering questions as to how the industry functions and what the s.e.c.'s role is in regulating the industry. and how they, that would affect the resulting competition. so the doj leads the

investigation, asks a lot of questions, gathers information. >> and they're the ones that actually make the final decision about whether this is anti-competitive, antitrust implications. but they get input from the securities and exchange commission. and you said that you were submitting a bunch of paperwork and answering a bunch of questions from various agencies. 30, 40 you said. in response to mr. conyers question. do any of those agencies do -- what are you submitting to them and under what authority are they asking you for information? >> sure. each of our regulators wants to make sure particularly when there's cross-border or cross-country aspects going on, that the proper regulation is

maintained. so for example, there's the anti-competition authority in europe. there's each of the country regulators for each of our exchange in europe. we have a paris exchange, brussels, amsterdam, et cetera. >> i want to focus on the u.s. entities, the regulators within the united states. you mentioned cftc, the s.e.c., you mentioned the fed. is the ftc involved? >> not to my knowledge, the ftc. >> what other agencies -- >> the sythes committee. we're voluntarily filing. >> anybody else that you can identify that you're submitting information to? >> i just didn't hear you say justice department. >> well we said doj at the outset. they're the big, big enchilada here, they make the final decision. what i'm not clear on is what these other agencies, what their

role is. what is, let's just go one by one. s.e.c., obviously provides expertise to the department of justice. but do they have another role with reference specifically to the new york stock exchange? are you submitting information to them and are they reviewing it? and for what purposes are they reviewing it? >> yeah. they work with the foreign regulators in europe to make sure that the division of labor and there's an m.o.u. between. for example, s.e.c. and the college of regulators, even for existing exchange. it has to do with rules for exchanging information when there are investigations. that are cross-border because we have different exchange and different companies listing in each place and cross-listing for example. we have companies that are listed in both places and so on. so it has to do with exchange of

information and the way the rules are promulgated between the territories. >> okay. and if they found for some reason that this merger violated those exchange, what would be their recourse? >> it's not -- >> or made it more difficult to for them to, to police what they are involved in, what would be their recourse? >> it's my understanding that they can compel us to enter into get, enter into agreements to allow the right kinds of information-sharing and regulatory oversight. >> okay. what about the cftc? what -- you mentioned them specifically. what, what would they be looking at? what would you submit to them to evaluate? >> i think all they really want to do is make sure that this merger does not impact nyse life u.s. which is our futures exchange in

the united states. and that there's no ill effects or of this in terms of the regulatory oversight. >> and if they found that it did, what would be their recourse? >> they would, they would compel us to take the actions required that would give them satisfaction. >> such as? >> either information barriers or oversight boards or procedures that would make them feel that their interests were protected. >> okay. you mentioned the fed. the federal reserve. what, what would you be submitting to the federal reserve? and for what purpose? >> so they have, they have oversight, partial oversight over the clearing house, nypc, a joint venture between us and dtc and they would make sure there's nothing about this merger that would cause a problem for nypc. in the case of cftc and the fed, there's no reason to believe that there should be an impact, given that these are businesses that we're operating ourselves

as they are i think they'll probably just validate that there's no change for them. >> and would the department of justice have access to all of the information from the cftc, the -- you've already established the consulting with the s.e.c. what about fed and sytheus? >> not familiar with how those information barriers work. hang on. >> sorry -- >> we voluntarily provide that information to all of you. >> get us that information so we understand exactly how, what kind review this gets. because in the final analysis, i mean we can, we can educate ourselves about it. but, the primary role, i think we have is if we, if there are, if there are gaps in the review and the regulatory framework, for evaluating a merger of this kind, we need to know that.

so we can close those gaps. and maybe we can't close them for this particular transaction. but we need to know it, you know, i agree with mr. conyers, there will be people behind you probably the reason they don't want to testify is they want to merge next. they don't want to say this is terrible thing for you to be merging because they don't want you to say it's a terrible thing for them to be mernl ingmernlin. >> it needs to be reviewed from a number of different perspectives and we need confidence that the perspectives from which it is getting reviewed. are thorough. and comprehensive. and we don't, we can't exercise that kind of control over the

european regulators. i mean you can lock up 80% of the derivatives market over there. and if they said it was okay, i mean nothing we could do to the european regulators. but we could do something and a lot of this stuff is off the anti- the potential anti-competitive part of what is being reviewed. as i understand it. is offshore, isn't that right? >> that's correct. >> yeah. because it's in -- the derivatives market, and whatever that other thing i mentioned in my opening statement. i got it somewhere. i should know better than to try to talk about this without thinking through it more.

but what about sytheus? what are you giving to them and for what purpose? and under what circumstances would they have the authority to say this is a terrible thing? >> sure. well first, we voluntarily filed with sytheus. it's not clear whether we would have been compelled to. we felt that in this case, given the high profile of our merger and some of the emotions it's raised up, that we should go through that process, we met with the committee, we've answered their concerns and submitted significant amount of information. i think the focus is obviously on physical security. on regulatory, just to make sure that it's all covered. and also on cyberand othkricybe of national security. >> thank you. >> i think this line of inquiry has been very interesting. it prompts me to wonder whether after this is completed or some other merger acquisition that's already taken place, whether we

might find it helpful to call in the various regulatory agencies and question them about what they have already done, as opposed to what is going on. where they don't testify. because they're in the middle of doing it. so i thank the gentleman. i thank our witnesses for their very helpful testimony today. and without objection, all members will have five legislative days to submit to the chair additional questions to the witnesses which we will forward and ask the witnesses respond as promptly as they can. so that their answers will be made part of the record. without objection, all members will have five legislative days to submit additional materials for inclusion in the record and this hearing of the subcommittee is adjourned.