As it turns out, the American Stock Exchange still exists and it's being acquired for $260 million in stock by NYSE Euronext.

The deal had been rumored forever. One person very familiar with the American Stock Exchange told DealBreaker: "Finally! This deal should have happened 15 years ago."

After the jump, read the full press release.

It looks like it's Merrill Lynch that is nabbing New York Stock Exchange chief executive John Thain.

The New York Post has just reported that Merrill is expected to announce that it has hired Thain to replace ousted CEO Stan O'Neal sometime this afternoon. Zach Kouwe, whose reporting has scooped the world on this story, attributes it to "people familiar with the matter."

An NYSE board meeting is scheduled for 2 p.m. today and an announcement could come after the market closes, sources said. The move is a huge coup for Merrill and board member Alberto Cribiore, who has led the search for a new CEO after O'Neal resigned on Oct. 30.

Kouwe also reports that Citi wanted Thain but he chose the smaller, more narrowly focussed Merrill instead. The Post describes this as a "snub" for Citi. NYSE Chief Operating Officer Duncan Niederauer is expected to land the top job at the exchange.

Citi Snub: Thain Going To Merrill [New York Post]

Update 12:32: The Wall Street Journal files its report also: "John Thain, CEO of NYSE Euronext, has agreed to take the top post at brokerage house Merrill Lynch & Co., according to a person familiar with the matter."

Update 12:39: Congratulations and thanks to all our readers who voted in this morning's reader poll, which correctly called that John Thain would leave the NYSE for Merrill. We're constantly gratified by the amazing accuracy of our polls, which have predicted everything from the level of Fed rate cuts to this news. We like to think we have the best informed, most intelligent readers but it's nice to see you guys prove it over and over again.

Update 12:50: So what happened to Blackrock chief Larry Fink, the man many thought would eventually be Stan O'Neal replacement? Did he turn the job down? Was the board's enthusiasm for him exaggerated? Some fear of subprime contagion? Loyalty to Blackrock?

Update 1:06: CNBC's Charlie Gasparino says that Fink was offered the job, but he spooked the Merrill board by demanding a full-accounting of Merrill's subprime exposure. This led the board to go in another direction, perhaps out of fear that Fink might turn down the job if the subprime exposure was too bad.

Update 2:01: The Journal confirms that the stock exchange will name
Duncan Niederaueras its new CEO.

Let's assume for a moment that the rumors (and CNBC's Bob Pisani) are right and the board of the New York Stock Exchange is holding an unscheduled meeting right now. Views about what is happening are divided, so we figured we'd go to the experts: our readers. What do you think is going on at the NYSE board meeting today?

Rumors are rampant that the New York Stock Exchange will begin an unscheduled board meeting in about ten minutes. The eleven o'clock meeting is widely believed to have been called so that NYSE chief executive John Thain can announce he is leaving the exchange.

CNBC has reported that speculation on the floor of the exchange has Thain leaving to go to either Merrill Lynch or Citigroup, both of which recently ousted their chief executives. Our sources are leaning heavily toward Merrill. And over at the Financial Times, they are just now reporting that Thain isn't even a contender for the top spot at Citi.

There's also a minority view that the board is meeting to discuss a new acquisition, perhaps of the NYMEX.

Thain absent from Citi’s shortlist [Financial Times]

The New York Stock Exchange has released it’s calendar for 2008 and 2009. Get excited because in 2008 there will be two extra trading days! It’s a leap year, giving us an extra day in February. And there is one less holiday on the schedule—this year we honored the death of Gerald “stagflation” Ford by refusing to work. Unless a former president dies this year, we should have one more day of trading.

Leap years tend to outperform other years, with particularly strong Augusts. Of course, leap years are also presidential election years, which may have more to do with market performance than that extra day in February.

Click chart for larger version.

NYSE Euronext Holidays & Hours [NYSE]

This was very clearly one of the most surreal moments of BX: The Opening. Amidst the crowd of traders, there appeared a man with a shock of white hair in a double breasted gray suit. And that man happened to be Tom Wolfe.

After the jump, cast your vote for what Wolfe was doing at the Blackstone opening.

There may be some tension in the NYSE Euronext cafeteria. Financial Times reports that Jean-François Théodore, the French John Thain (he's like JT but wears a red smoking jacket and says 'ménage à trois' instead of 'threesome'), i.e. chief executive of the Eurnoext, was paid less than a fifth of what Thain earned last year.

While Thain enjoyed a nice $9.36 million (€6.9m) paycheck, Théodore was awarded a measly €1.33m ($1.81m): barely enough to buy barely enough to buy a nice pair of frogs' legs. Lest you chalk this up to an example of Americans working harder and taking less vacations (and paying for their health care) than Europeans, and being rewarded accordingly, note this: the Euronext was more profitable than the NYSE last year, with net profits of $504m versus a paltry $205m.

There's a chance that Théodore will have an additional €200,000 thrown his way, following the Euronext’s shareholder meeting next week, if the board recommends that shareholders reward him for his “vital contribution” to the merger but at this point, we'd advise Theo (can we call him Théo?) not to accept anything less than $9.36 million (€6.9m). €200,000 is just insulting.

Théodore earns fraction of Thain at NYSE [FT via DealBook]

Why can’t we get a straight answer on this? Last week we reported that a source familiar with the market regulation work at the Securities and Exchange Commission had told DealBreaker that the New York Stock Exchange is still not in compliance with government regulations meant secure the best price available for stock traders. The NYSE had said that it would not meet a deadline for compliance in March but little has been reported or disclosed since. Neither the NYSE nor the SEC will comment on the record or off the record about the matter.

It’s this kind of thing that makes us turn on the little red alert lights here at DealBreaker. If the NYSE is fully compliant wouldn’t it be eager to get that news out to reporters making inquiries? The refusal to comment seems to speak volumes here, and those volumes seem to be titled We’re Still Not Complying.

Four days after our original story ran and still nothing from the regulators or the exchange, despite repeated requests for information. We know that other business journalists are looking into this now so it’s only a matter of time before this story spreads.

Earlier: NYSE: Still Not Complying With Reg NMS? [DealBreaker.com]

The New York Stock Exchange is still not in compliance with government regulations meant secure the best price available for stock traders, a source familiar with the SEC’s regulatory work says. The National Market System regulation—known as “Reg NMS” to regulators and securities industry insiders—requires stock exchanges to provide smaller traders and individuals with access to the same price quotes offered to institutional traders, and to execute trades at the exchange where the best price is available. Compliance requires a heavy reliance on electronic trading.

Shortly after the stock markets plunged in late February, the NYSE requested a second extension of its NMS compliance deadline from the SEC. In January the deadline had been pushed back from February to March. The NYSE gave scant explanation for its failure to meet the March deadline, and the SEC denied the request for the extension.

The NYSE still is not meeting the Reg NMS requirements, the source says. Neither the NYSE nor the SEC could be reached for comment. Our source says the next step may be an SEC investigation or enforcement action against the NYSE.

Earlier: REG NMS: Time Is A Luxury The NYSE Does Not Have [DealBreaker]

The New York Stock Exchange is out of compliance with REG NMS, an SEC rule requiring that certain order get routed through various exchanges in order to bring customers the best price, according to CNBC's Charlie Gasparino. The NYSE had requested a delay on Friday, saying it could not meet today's deadline for compliance. Apparently the SEC rejected the request over the weekend.

Here's the Reuters story reporting the NYSE request for more time.

NYSE Group has requested the U.S. Securities and Exchange Commission grant it relief from securities regulations that would oblige the New York Stock Exchange to route orders to certain markets, according to a public filing.

Those markets include a stock exchange operated by the International Securities Exchange and alternative trading platforms regulated by the NASD, one of the securities industry's self regulatory organizations.

The NYSE, the largest U.S. stock exchange, and ISE, the largest U.S. electronic options exchange, both declined to comment.

The regulations, called Reg NMS, or Regulation National Market System, some of which come into effect on Monday, would require automated, or "fast," markets to route orders according to the best available price.

NYSE has requested the deadline be pushed back to April 5 from March 5 for its obligation to route orders as required by new regulations to the International Stock Exchange and NASD Alternative Display Facility participants, which include Direct Edge, LavaFlow, Inc., and Track Data Securities Corp., according to the NASD website.

NYSE had requested in January that a Feb. 5 deadline for the regulations be delayed until March.

NYSE requests SEC relief from upcoming regulations [Reuters]

Apparently no one at the SEC tipped off John Thain that they are looking into the alleged problems with the hybrid trading system.

John Thain, head of the New York Stock Exchange, told CNBC's Bob Pisani that there is no investigation by the Securities and Exchange Commission of trading problems at the the Big Board during Tuesday's market selloff.

The comment, which Pisani mentioned on air, appeared to contradict a Wall Street Journal report earlier Thursday that the SEC is looking into whether the NYSE's shift toward electronic trading affected its ability to handle a surge in trading volume.

Citing a person familiar with the matter, the paper said the regulators are concerned that capacity issues may have exacerbated the Big Board's woes this week.

We assume that what Thain means is that the SEC has not launched a formal "enforcement action" against the NYSE. But it stretches credibility to say that the SEC is not at least looking into the alleged problems with the hybrid system, especially since those problems have received so much media attention in the last couple of days.

And that should just about conclude our "All Thain, All The Time" coverage. No one should really have to read that much about John Thain this early in the day.

CNBC's Pisani: Thain Says No SEC Probe of NYSE Trading [CNBC.com]

Reading the remarks of John Thain is the new Kremlinology.

As we noted in our earlier item, Thain defended the hybrid system yesterday. But one thing we didn't get around to noticing until we re-watched the interview this morning is that hain defended not just the electronic aspects of the hybrid system but the human components as well.

"If anything I think that yesterday proved that we still need people here. And that's really what hybrid is all about. And people were able to deal with, and really to overcome, the technical problems at the close yesterday," Thain told CNBC.

Thain's defense of the human element on the trading floor got our attention because it came on the heels of the announcement that Goldman managing partner Duncan Niederauer, who reportedly strongly favors moving to a fully electronic trading system, had been tapped to become a high-ranking executive at the exchange. There had been speculation that Niederauer's arrival at the NYSE might presage a move to eliminate the specialists.

The hybrid system has been controversial, especially among specialists who trade on the floor of the New York Stock Exchange. Hybrid combines human traders with electronic trading and it's introduction has led to a reduction in the number of traders on the floors of the exchange. Some specialists view the hybrid system as a sort of Trojan Horse for the eventual move to totally a automated, electronic system that would eliminate the specialists all together.

Some have pinned the blame for Tuesdays problems squarely on the electronic components of hybrid and the reduction of traders on the floor of the exchange. Traders we spoke to Tuesday evening pointed to this problem. And this opinion isn't just confined to specialists (who obviously have an interest in blaming the electronic systems they fear may make them redundant). CNBC star reporter Charlie Gasparino also argued that the hybrid system was compromised by an inadequate number of specialists.

"One of the reasons why we had problems yesterday is because there aren't enough specialists inside the hybrid working to make markets," Gasparino said last night on CNBC's "On The Money" program. "Ninety-percent of the time the electronic markets can work fine. You need specialists when you have these huge order imbalances."

Late yesterday afternoon we reported on New York Stock Exchange chief executive John Thain's interview on CNBC explaining why traders had been told to keep their books open past 4 PM.

But there was more than just that to the Thain interview. The NYSE chief also came out swinging—or what passes for swinging for the mild-mannered executive—in defense of the exchange's hybrid trading system.

"There was no problem with hybrid at all," Thain said.

Thain pinned the blame on a system called Designated Order Turnaround, or Dot, an older system that predated the hybrid trading system. DOT electronically routes certain orders to the floor of exchange.

But not everyone was convinced by Thain's performance. Reuters quoted a Prudential analysts note as saying:

"Clearly there would appear to be implications for the hybrid system and questions of reliability," wrote Prudential Equity Group analyst Rob Rutschow in a note, adding that, although the exchange claimed hybrid was not the issue, "NYSE may suffer damage to its reputation."

CNBC reporter Charlie Gasparino described Thain's remarks as "a lot of spinning."

NYSE defends new system despite glitch

This infographic from the New York Stock Exchange is just about the clearest illustration of when the NYSE will put the breaks on a plummeting market. (Or a skyrocketing market, but that's unlikely to be an issue today.) The circuit breakers don't kick in until there is a 1,250 point drop in the Dow Jones Industrial Average. The "circuit breakers" halt trading for varying periods of time, depending on when the DJIA hits the trigger.

Interesting, a delay in the reporting of the DJIA, such as the one we saw Tuesday when the Glitch slowed down the computer systems calculating and reporting the market index, might affect whether circuit breakers are activated. A ten-percent decline will not trigger a halt to trading if it occurs after 2:30 PM, so a glitch which delayed the reporting until after that point might avoid the NYSE safeguards.

And, even as we're writing this CNBC is reporting that trading collars--which do not halt all trading but are meant to curb certain arbitrage and computer-driven trading--are already in, with the DJIA down nearly 100 points.

Federal authorities are looking into the Glitch, the Wall Street Journal's "Heard on the Street" column reported this morning. Or at least one of the glitches. It seems that lawmakers and investigators at the SEC are wondering whether the New York Stock Exchange's move to a hybrid system combining specialists on the trading floors with electronic trading may have contributed to Tuesday's market downturn.

The New York Stock Exchange's move into the electronic age happened almost overnight. Now the Securities and Exchange Commission is looking into whether it happened too fast and contributed to this week's trading troubles.

Over the past year or so, the Big Board has shifted much of its trading away from its floor and onto an electronic platform, a move that many investors have embraced because it promises faster execution times in a business where time is money. In November, the NYSE announced it would close one of its five trading rooms, citing the potential to cut costs and because electronic trading requires fewer floor traders.

The SEC is examining whether the NYSE's shrinking of the floor affected the NYSE's ability to handle a surge in trading volume such as occurred during Tuesday's market slide, according to a person familiar with the matter. The regulators are concerned that capacity issues may have exacerbated the Big Board's woes this week.

[Editor's Note: There's no graphic attached to this item because we couldn't find any pictures of electronic trading enthusiast Dunan Niederauer holding his head in is hands while being laughed at by men in funny jackets. And our graphics department doesn't like to use photoshop before noon.]

NYSE's Trading Overload Draws Attention of the SEC [$$] [Wall Street Journal]

Color us skeptical when it comes to all the blather blaming yesterday's sell-off on a computer glitch. Or glitches. Why? Because it seems the main thing that caused the computer glitch was so many sell-orders pushing through the system at once. If selling caused the glitch, how could the glitch cause the selling? Okay, maybe there's a sequential, feedback loop thing going on here but isn't it a little too soon to confidently point the finger at the robots?

The Wall Street Journal has some interesting reporting about what happened when the electronic trading systems broke down. Most the the tale, of course, comes from floor traders who, of course, mostly fear and loathe the robotic masters who are threatening their jobs. So you probably want to discount some of the "manual process which never breaks down" talk for self-interest from the people new NYSE executive Duncan Niederauer once reportedly referred to as "five guys named Vinny."

After the Dow problem was resolved, other woes bedeviled traders. About a half hour before the closing bell rang at 4 p.m. Eastern time, traders reported having problems sending electronic buy and sell orders to the NYSE, which recently began converting to a largely electronic system.

At one post on the floor, traders resorted to writing buy and sell orders on a dry-erase board. Most of the letters next to the stock symbols said "S," for "sell."

"Go manual if you can," said Art Cashin, a longtime floor broker for UBS, to traders at about 4 p.m. "Take paper if you have to."

Traders were still negotiating stock closing prices 10 minutes after the 4 p.m. close. "You're done, 50 grand at 74.20," Michael Rutigliano, a floor broker at the NYSE, yelled into his headset shortly after the markets were supposed to have been closed.

Mr. Rutigliano reflected the frustration floor traders are feeling these days, as their role becomes diminished by the electronic age. "We were able to revert to a manual process that never breaks down," he said.

Louis Pastina, an executive overseeing trading systems at the Big Board, said "a rush of orders" in the last hour of trading overwhelmed the exchange's computers, leading to delays and an unknown number of orders that were never completed. Some trades may have been done on alternative markets or in an after-hours crossing session the NYSE extended by a half hour to 5:30 p.m., he said. He added that floor traders were finishing trades manually until around 4:25 p.m., about 20 minutes later than usual.

A spokesman for the NYSE said the new hybrid trading system -- which matches most trades electronically but sends some to traders on the exchange floor -- worked fine, but that another system that feeds it couldn't handle the onslaught of orders.

Word hit last night that the New York Stock Exchange would as of right now be a wholly-owned subsidiary of Goldman Sachs and specialists would be scheduled for immediate extermination.

That, at least, was the reaction coming from a couple of specialists we spoke to today about the news that Goldman Sachs managing partner Duncan Niederauer had been named president and co-chief operating officer of the NYSE. He joins former Goldman president John Thain at the top of the exchange, and becomes Thain's most likely successor as chief executive of the exchange.

But what really had tongues wagging on the trading floors was Niederauer's enthusiasm for electronic trading, and possibly for eliminating floor specialists all together. Niederauer was the head of electronic trading at Goldman and was instrumental in arranging the NYSE merger with the electronic trading platform Archipelago, a move that many still see as the beginning of the end of the role of specialists on the trading floor. Prior to the merger, Niederauer sat on the board of directors of Archipelago.

As long as seven years ago, Niederauer was describing the situation of floor traders handling order flows as "an unsustainable model."

On CNBC this afternoon, Charlies Gasparino described Niederauer as "one of the biggest advocates in electronic trading." Gasparino also provided this bit of colorful background:

"This guy was advocating the replacement of the specialists with a computer because he basically thought specialists were inefficient and possible fraudulent. One time he said something along these lines to a high-ranking person at the New York Stock Exchange, "I don't want five guys named Vinnie executiving my trades."

This remark led then NYSE head Dick Grasso to treat Niederauer as an enemy of the stock exchange according to Gasparino, who described Grasso's reaction as pronouncing Niederauer dead. Well, as they say, it seems as if stories of Niederauer's death have been greatly exaggerated.

Gasparino also added that a move to completely electronic trading might not wait a few years from now when Niederauer might become the chief of the exchange.

"I think it's going to be a lot sooner," Gasparino said. "A lot of people on the floor are telling me it's a lot sooner than two years. It's possibly a year or a lot or even sooner than that."

Goldman Partner Joins Top Ranks At NYSE [Forbes.com]

Niederauer Is Clear Heir to NYSE's Thain [CNBC.com]

The controversial conviction of NYSE specialist David Finnerty was thrown out by a federal judge this morning. Finnerty was convicted back in October after a surprisingly brief jury deliberation that led some to wonder whether the verdict would stand up on appeal. Now we know it didn't.

U.S. District Judge Denny Chin in New York today set aside the jury's guilty verdict. Jurors in Manhattan federal court found that Finnerty, who worked at Fleet Specialist Inc., illegally inserted his firm as a middleman in trades that should have been made directly between two customers.

The ruling is the latest blow to prosecutors in what was the biggest crackdown on illegal trading at the Big Board. Of 15 specialists charged with fraud by the U.S. in April 2005, three, including Finnerty, were convicted at trial, and two pleaded guilty. Two other specialists were acquitted, and prosecutors dismissed charges against seven others. One remains a fugitive.

Chin said prosecutors failed to present enough evidence to show that investors were defrauded. "What did customers expect when presenting an order to specialists?'' Chin said in a 37-page ruling. "What did customers `trust' the specialists to do? None of these questions were answered by the evidence.''

So a few years ago, a Morgan Stanley trader placed a $10.5 billion order for shares to cover a short position. The problem is that he was only trying to buy $10.5 million of the stock. You can only imagine what this did to the markets. But, believe it or not, this kind of "rounding error" only costs you $300,000 if you are an investment bank.

Reuters explains how the mistake happened.

According to the NYSE's February report on disciplinary actions, a customer contacted Morgan Stanley on Sept. 1, 2004, to unwind part of a swap.

A Morgan Stanley affiliate was the counterparty to the swap, and had hedged its exposure by maintaining a short position in shares underlying the trade. As a portion of the swap was unwound, a Morgan Stanley trader tried to buy a basket of stocks to cover some of the firm's short position.

At about 9:32 a.m. ET that day, the trader entered an agency order on behalf of the firm to buy 100,000 units of the basket to cover a portion of the short position, the NYSE said.

But the system used to create the basket built in a multiplier of 1,000, so the trader erroneously created a basket with a value of $10.8 billion instead of $10.8 million.

A few of our usual questions: anyone know who this unnamed "trader" is? Where is he working these days? (Presumably not Morgan Stanley.)

NYSE fines Morgan Stanley for trade error that disrupted market [Reuters via CNNMoney.com]

The New York Magazine article on New York Stock Exchange CEO John Thain mostly concentrates its energy on the growth of hybrid trading the the expected extinction of specialists and floor traders. Yawn. But it does contain a few gems, including a lede that fantasizes a world in which all the poor and unstylish people have somehow been eliminated and a description of Thain's role (alleged role? supposed role? suspected role? widely rumored and almost certainly true role) in the ouster of Jon Corzine at Goldman Sachs.

Thain had been a Corzine protégé throughout much of his career. It was Corzine who’d overrode objections to make Thain CFO in 1994. And it was Corzine who’d landed Thain a spot in the firm’s leadership. “[Corzine] was one of his sponsors to move him up to the executive committee,” recalls Zuckerberg. The two men became close. Thain would accompany Corzine on ski trips to Colorado. He and his wife, Carmen, would periodically meet Corzine and his then-wife, Joanne, for dinner in Manhattan.

Then, just like that, the old rapport vanished. By mid-1998, Thain had taken to bad-mouthing his old mentor to colleagues. “His line was that Corzine wanted to go public to entrench himself,” recalls one. That fall, Thain, Thornton, and Paulson appeared to reach an understanding: Paulson would make the case against Corzine and the other two would support him for the CEO job. Soon Paulson was ranting about Corzine as though he’d been a lifelong enemy—and in ways that sounded remarkably similar to Thain’s complaints. Goldman’s 85 Broad Street headquarters had become the backdrop for a high-stakes game of Survivor.

The turning point came when Zuckerberg retired in late November 1998. This left Corzine in the minority on the executive committee, and somewhat inexplicably, he neglected to appoint a replacement. “I told Jon, ‘Put someone else on the executive committee immediately,’ ” says one former ally. “He said he could handle it. I said I didn’t think he was right.” After a few more weeks of squabbling, the troika of Thain, Thornton, and Paulson went to Corzine with a fait accompli: Paulson would replace him as CEO, and Thain and Thornton would become co-COOs. On January 11, 1999, Goldman partners received an e-mail from Paulson and Corzine: “Jon [Corzine] has decided to relinquish the CEO title, while continuing as a Senior Partner and co-Chairman of the firm,” it read. Corzine was reportedly so humiliated that during his final weeks at the firm, he would work from a limousine parked outside the Goldman offices rather than risk contact with the traitors inside.

The Brain in Thain [New York Magazine]

The New York Post reports on yesterday's NYSE trading floor brawl:

Veteran floor trader Bob Tomasulo, a 57-year-old grandfather, was assaulted and barraged with obscenities in front of stunned co-workers after kidding with Stephen Mara about the Giants' embarrassing 36-22 loss to the Philadelphia Eagles on Sunday, witnesses and Tomasulo told The Post.

"Mara started screaming, 'I'm gonna f- - -ing kill you! Don't f- - - around with my family! Don't insult my family!' " one broker said.

"Bob was like, 'Hey, what is your problem? It's just a game!' And Mara yells, 'No, it's not just a game, it's my f- - -ing family!' "

Fighting on the floor: it's not just for basketball players anymore.

Giants' Revenge on Brawl St [New York Post]

There's a kind of unreality to all this, since former NYSE boss Dick Grasso is appealing the ruling ordering him to pay back millions to the NYSE. But we cannot help but imagine that the lawyers from the attorney general's office were smiling as they told Grasso that he could take his sweet time selling everything he owns to pay the bill.

New York Attorney General Eliot Spitzer is willing to give Dick Grasso plenty of time to sell assets to come up with the cash to pay back the disputed multimillion-dollar paycheck that got him ousted from the helm of the New York Stock Exchange.

But Spitzer doesn't want to wait to firm up what the total payout will be, Avi Schick, a deputy for the attorney general, said at a hearing in state court in Manhattan yesterday.

Schick said he understands it may take a while for Grasso to sell assets, which include several homes and more than a dozen cars, to help round up the $112 million the attorney general tallied the former Big Board head must return to the exchange.

Not even sure if this counts as a slap on the wrist. It's more like a little kiss on the palm.

The New York Stock Exchange on Wednesday said it fined Morgan Stanley (MS.N: Quote, Profile, Research) $500,000 and censured the firm for failing to report short interest positions in hundreds of securities for as long as 20 years.

Morgan Stanley failed to report to the NYSE positions in preferred securities and affiliates' equity securities for an unknown but "significant" number of years, and other equity securities since 2004, the regulator said.

The firm also failed to report similar positions to the American Stock Exchange, and since 1986 failed to report some positions in equity securities to the NASD, the NYSE said.

In addition, Morgan Stanley failed to adequately supervise its process for reporting short positions, the NYSE said.

NYSE fines Morgan Stanley $500,000 [Reuters]

If you’ve read the transcripts or seen even a day of testimony of the government’s prosecution of an exchange floor trader, you know how complex these trials can be. Much of what goes on is an attempt to educate the jury about the habits and dialect of specialists, and some of it is so obscure that at least one judge announced that he had lost his way amidst the jargon.

So it was a bit surprising when the jury in the trial of Bank of America specialist Dave Finnerty came back with a verdict after just one day. Similar trials have seen juries spend days deliberating the charges. The guilty verdict in Finnerty’s trial came back so quickly that even the judge overseeing the case voiced concern.

Quick verdicts can cut both ways. They can mean that the defendant was really, really obviously guilty. Or they can mean the jury didn’t understand the charges or consider all the evidence. Now it’s up to an appeals court to decide which way this one went.

Trader Floored [New York Post]

Both Eliot Spitzer and Dick Grasso are saying they won’t settle the case after yesterdays summary judgment opinion came down from State Supreme Court judge Charles Ramos. Charlie Gasparino reported this morning on CNBC that he’d spoken with Grasso, who told him that this was looking like a heavyweight title fight—a champion will be declared. We prefer the Terrordome analogy: two men enter, one man leaves. Meanwhile, Jim Cramer told CNBC that Spitzer has also ruled out a settlement. This thing isn’t going away, and its only going to get messier from here. We can’t wait.

Eliot Spitzer won the first substantive round in the New York Attorney General’s lawsuit against former NYSE head Richard Grasso today. State Supreme Court Justice Charles Ramos ruled that Grasso must return part of $58 million in “deferred compensation” he received as part of his controversial $198 million compensation package from the then exchange.

Ramos also shot down Grasso’s claims for damages against the exchange and a defamation claim against the current NYSE chairman.

Of course, all of this is at the summary judgment stage, and open to appeal at some point. And you know Grasso’s not exactly opposed to appealing Ramos’ judgments. He’s already got three in front of the state appeals court.
(And, by the way, in New York the “State Supreme Court” is actually the lower court. It makes them lower court judges feel better if they get to call themselves Supreme.)

The opinion hasn't yet been published but we probably won't read it even when it is. Unless, you know, there are some juicy, mean or funny bits.

Grasso Must Return Part of $190 Million Pay Package, Judge Says [Bloomberg]

Credit Suisse is fielding nine less souls on the floor on the New York Stock Exchange, Bloomberg reports this morning. Seven staffers have been let go and two moved elsewhere within the bank as more trades are made electronically.

Of course, it’s not just Credit Suisse traders who are being made redundant by the recent push into electronic trading. They're just the ones talking to Bloomberg reporters. In the interest of getting a fuller picture of how electronic trading is changing the NYSE, we’d like to hear more about this. Who else has recently cut or is planning on cutting its staff on the floor of the Big Board? Send your thoughts to tips (at) dealbreaker (dot) com.

Credit Suisse Cuts NYSE Staff by Almost a Third, People Say [Bloomberg]

Just when he thought he was getting out, they pull him back in.

In this case, it's Hank Paulson who thought he was getting out--the outgoing head of Goldman Sachs is preparing to leave Wall Street for his new role as the next Treasury Secretary--and Richard Grasso, the former boss of the NYSE, who may pull him back in.

CNBC's Charles Gasparino is reporting that Grasso served Paulson with a subpoena. Or, more likely, lawyers who work for the one served a subpoena to lawyers who worked for the other.

New York Attorney General has launched a lawsuit against Grasso, claiming his pay package at the NYSE violated New York laws requiring that compensation at non-profits be reasonable. Spitzer wants Grasso to return $100 million of the $140 million he got in compensation while running the NYSE. At the time the NYSE was a non-profit organization.

Paulson sat on the board of the NYSE and is said to have led the push to force Grasso to resign amidst public scandal over the size of the pay package in 2003. Despite this, Paulson's testimony may help Grasso since Paulson has praised Grasso's work as an executive. (Alternatively, and we're just speculating here, Grasso may just want a chance to embarrass one of the people who forced him out of the NYSE.) Gasparino reports that Grasso's lawyers fear that once Paulson assumes his job at the Treasury he may attempt to claim an executive branch immunity and avoid being forced to testify.

Spitzer. Grasso. Paulson. It's 2003 all over again. But this time its personal.

Paulson Subpoena [SquawkBlog]

The (probably) impending merger of NYSE and Euronext has gotten a lot of adoring attention in the press, although the supposed benefits of the merger strike us as a bit mysterious. Mostly, it looks like a defensive move by the NYSE afraid of being eclipsed by a NASDAQ-London Stock Exchange combination.

Gary Weiss quotes disapprovingly from the New York Times editorial on the merger.

Most important to investors in the exchange companies themselves is the $375 million in potential savings that NYSE Group predicts for a combined entity.

If a combined company can pass the fruits of those savings on to the average investor — not to mention added ease in buying shares of foreign companies — we're all for it.

He then takes a look at exactly what the "average investor" can expect to see from the deal.

OK. If the company passes on the savings to the "average investor," who trades maybe three or four times a month, if he's very busy, that would mean savings of ..... goodness. My calculator can't quite count that low. He might be able to buy one more ham sandwich a week, maybe?

Mmmm. Ham.

Euronext as Euronothing [Garry Weiss]

Ken Langone, interviewed by CNBC's Charlie Gasperino, takes some nasty little swipes at Eliot Spitzer

Charlie Gasparino: Why do you think Eliot Spitzer charged you and not [Carl] McCall? McCall was head of the compensation committee at the time.

Ken Langone: Politics and headlines--in that order.

CG: Which was first?

KL: Well, Carl is a very prominent Democrat and Elliott is a prominent Democrat. and I think that had some play. But clearly the facts clearly indicate... I don't know why i'm in this... I've said that from day one. ...You need to know know that it enhances Mr. Spitzer's ability to get headlines and virtually everything else is what he's all about.

CG: Let me back up. He said you deceived the board on a portion of the pay package.

KL: He has no testimony to support that. We've gone to the judge and said, your honor, let him show us the evidence that he's got that I misled people. That hasn't happened. I want to say this loud and clear. I want Eliot Spitzer to come forward and tell me how much money that he's gotten has he given back to the little guy--the investors. That's what this is all about. Eliot Spitzer protected the integrity of the investor and little guy, that's one thing. Equally in this case, how much money, taxpayer--I'm a New York State taxpayer--how much money are you spending on this case?

Some children are little guys but not all little guys are children...Didn't we see that on the GMAT?

The NYSE is closing its dining club, citing rising costs, lower membership and, of course, 9-11. (When we hit the decade, we assume blaming 9-11 will seem sufficiently ridiculous that people will stop doing it. But we usually give people too much credit.) At any rate, the club was at its peak... guess when. Guess. Just guess:

The Luncheon Club hit its heyday in the early 1980s, when it served up to 500 meals a day, according to one report. The club occasionally served as a backdrop for inter-member skullduggery, with four separate NYSE disciplinary actions over the years arising from misuse of members club charge accounts.

We still think Dick Grasso reminds us of someone:

That aside, opportunities for gratuitous mockery may be delayed until February 2007 because Grasso has agreed to the NYSE's request that the trial date be pushed back from October, as their lead counsel is involved in another case and will not be available until then.

Grasso Trial Delayed Until 2007? [CNN/Money]

The more I see Dick Grasso's mug plastered on TV and in the papers, the more I think he reminds me of someone:

That said, the Post's John Crudele seems a little too enthusiastic in pushing for a criminal investigation of trading improprieties under Grasso's watch. Grasso pleaded the Fifth with regard to issues about his compensation, and Crudele is content to indict him with that, even though (A) a it's not an admission of guilt and (B) it was done in regard to an entirely different issue. As Gary Weiss points out, if trading improprieties are the issue, Grasso can stand in line behind a number of other Big Board execs.

But he certainly looks evil. Are you pondering what I'm pondering?