When reprimanding subordinates, Richard A. Grasso, the chairman of the New York Stock Exchange, has tried something a tad stronger than a stinging memo or a cutting e-mail, according to people familiar with the chairman of the New York Stock Exchange.
Grasso has dressed down staffers in front of colleagues, uttering sarcastic remarks that are let's say not pretty. The effect is generally stunning, the sources said.
Grasso uses sarcasm like a surgeon using a scalpel without anesthesia. "He's feared by the staff," said one source, who declined to be named.
"Dick is pretty vindictive if you cross him," added another source, who also requested anonymity.
Even so, a hard-nosed attitude may be what's needed to run an institution as large, influential and powerful and with its share of competitive and ego-driven personalities as the Big Board.
A hard-nosed attitude, to be sure, helped Grasso make it to the very top in a cut-throat business. "Dick Grasso is an unassuming-looking Italian without a college degree," said a market veteran and a personal Grasso admirer. "Yet he's also the first person in the history of the exchange to become chairman from the inside. So you've got to recognize that you're dealing with a person with some remarkable properties."
His was no silver-spoon childhood. Home was an apartment in a five-story walkup in a working-class section of Elmhurst, Queens. (Grasso sometimes begins speeches with a joke about the source of his family's wealth: "The oil, rubber and airline industries. My family ran an Exxon station near LaGuardia Airport.")
An early interest in stocks would eventually lead him into fancier neighborhoods. Learning the basics of investing from a pharmacist whom Grasso worked for part-time, he first took the plunge at age 13, plowing $1,000 he'd saved into shares of an airline company (which to this day he coyly refuses to identify).
The first step out of Elmhurst was a two-year stint in the U.S. Army in the mid-1960s, just as the Vietnam War was escalating. Then in April 1968, he took an entry-level job in the listings department at the NYSE.
He thought of it only as an interim gig until the job he was waiting for at a brokerage firm opened up. "I always actually wanted to trade," Grasso was quoted saying in a magazine interview last year.
But Grasso soon took to the exchange life. The most arcane details of the NYSE's operations fascinated him, and he soaked it up. He studied accounting part-time at Pace University in lower Manhattan while working at the Big Board. But he quit before graduating.
"He understood the workings of the exchange and its people," a veteran insider said. In addition to hands-on experience, Grasso had "a very firm grasp on the theory of the structure that the NYSE offers. He's no academic, but he could hold his own."
Undeniably, Grasso has great people skills. "His great asset is his ability to establish instant rapport with wide varieties of constituents," said Chris Keith, the former chief information officer at the Big Board, and now head of Global Trade, a financial software developer based in New York.
Five years after joining the exchange, Grasso was promoted to director of listings and marketing. From there his career moved inexorably upwards: to vice president of corporate services in 1977; to senior vice president of corporate services in 1981; to executive vice president of the marketing group in 1983; to executive vice president of the capital group in 1986; and finally to president and chief operating officer in 1988.
But it took more than a winning personality to move up the ladder. He was the consummate company man. According to one insider, Grasso was a master of "the artful resignation." He might let it out that he was going to accept a job offer from a specialist firm, but since the exchange didn't want to lose him, they'd promote him.
"Then two or three years later, he would do it again," the source said. "Every time he got another big appointment, it was like, Oh, he must have resigned again!'"
Since Grasso took over as chairman of the NYSE in June 1995, he's been at the top of his game with listings, trading volume and revenues soaring. Sure, a bull market has helped but so has Grasso's tendency to deal with every issue like Charles Barkley going after a rebound.
Probably the biggest battle he's facing now is beating a challenge from the Pacific Exchange (PCX) and Durango, Colo.-based OptiMark Technologies. If the PCX and OptiMark get what they want full access to the Intermarket Trading System (ITS) they could drain order flow away from the floor of the Big Board.
Order flow is a subject very close to Grasso's heart. High on his priority list back in June 1995 was the regaining of order flow in listed stocks that was being lost to the Cincinnati Stock Exchange (CSE), the PCX and the other regional stock exchanges.
In 1988, 86 percent of the transaction volume in listed stocks had been handled on the floor of the NYSE, a figure that dropped to 82 percent by 1992. Reversing the trend was tricky, because any change was going to make someone unhappy. The key was knowing how hard to push.
"The stock exchange is sort of like a labor union," Keith said. "You have to be able to deal with the rank and file and there are three ranks and files. There are the guys on the floor, the listed companies and the big firms. You have to keep the people on your team happy, and make them think you're their friend. Grasso does that manages those three interfaces better than anyone I've seen."
But Grasso wasn't afraid to play hardball. Some of Wall Street's biggest firms, like Goldman, Sachs & Co. and Morgan Stanley, were said to be reaping easy profits by diverting orders to the regionals. By flexing the NYSE's own rulemaking muscles as well as lobbying the Securities and Exchange Commission and jawboning people like Joseph Grano, president of New York-based PaineWebber and longtime friend of the NYSE chief Grasso managed to repatriate order flow for his specialists and floor traders without starting a civil war with the upstairs brokers.
The Big Board's share of trading volume in its stocks rose to 84 percent in 1997, thanks partly to the former Smith Barney's decision to close its desk on the CSE in 1996.
Then in April 1998, PaineWebber announced that it, too, was closing proprietary desks on several regional exchanges. Both firms steadfastly deny that pressure from the NYSE influenced their decisions. But to many market watchers, the entire process has been vintage Grasso.
Despite his growing visibility as the Big Board's bell-ringing cheerleader, Grasso still does his best work behind the scenes. Like the Wizard of Oz, he prefers to pull the levers that make things happen without letting the outside world see what he's doing or that he's even there.
Ironically, that may have contributed to the biggest setback in his career.
When John Phelan announced in 1990 that he would be stepping down as chairman of the NYSE, many insiders thought Grasso would take his place. Grasso had already been president for two years, he knew the exchange inside and out, and Phelan had been grooming him as his successor.
But the board of directors had other ideas.
"There seemed to be some reluctance in the beginning," recalled Paul Olsen, president of Olsen Securities, and a broker on the floor of the Big Board. "There was some difference of opinion, where someone wanted a nationally-known person."
That person turned out to be William Donaldson, co-founder of New York investment bank Donaldson, Lufkin & Jenrette, who would serve as chairman through May 1995. For once, Grasso's behind-the-scenes experience may have worked against him.
"Grasso was ready for prime time before he was actually drafted," said Steven Wunsch, president of the Arizona Stock Exchange, and a stock exchange history buff. "The assumption at the time Donaldson was chosen was that Grasso was too much of an insider, and he wouldn't be able to deal with the political and outside forces that the exchange has to deal with."
Donaldson was a much more traditional choice for chairman. He was well known. He mingled easily with power brokers and policy makers. He looked good on the cover of business magazines.
"The chairman of the NYSE was always an establishment kind of guy, someone who the issuers would feel was part of their group," Bernard L. Madoff, chairman of a New York-based third-market firm that bears his name, told another reporter recently. "Dick wasn't like that."
But Dick had always been a fighter, and he knew how to get up after a knockdown, shake it off, then make the other guy pay. Grasso was still president of the NYSE, and in public he remained diplomatic, a professional and a team player. His personal feelings can only be speculated upon, though few doubt that Grasso was incensed by the board's decision.
He also had no use for the new chairman. "Grasso wouldn't talk to Donaldson if he didn't have to," said an exchange insider who asked not to be named. There were also rumors that Grasso didn't mind upstaging his boss when the opportunity arose.
"For instance," the exchange insider said, "someone would ask a question at a board meeting to catch Donaldson flat-footed, something he couldn't answer. Then Grasso would come to the rescue."
Whether the rumors are true or not, they reflect the undisputed fact that Grasso has a combative nature, a razor-sharp mind and a long memory. And nowhere are those traits more clearly seen than in his never-ending battle for new listings.
The NYSE and Nasdaq both say foreign-company listings are the key to future success, and both have been campaigning far and wide to get them. But for Grasso, even the biggest trophies from overseas don't seem quite as sweet as the ones snatched from Nasdaq.
"It's not just competition," said one observer, about attitudes inside the NYSE toward Nasdaq. "It's hatred. Loathing."
One memory fueling that hostility dates back to 1992, the bicentennial of the NYSE's founding. It wasn't a great period for the NYSE losing marketshare and generally drifting under Donaldson. And it certainly wasn't for Grasso, Donaldson's restless number two.
Meanwhile, the upstart Nasdaq seemed to be having all the fun high-tech initial public offerings every week, money flowing in, volume going up, media attention, the works.
The bicentennial at least gave the NYSE something to celebrate and Nasdaq did its best to rain on the Big Board's parade, rolling out its slick advertising campaign with the famously in-your-face slogan, "The Stock Market for the Next Hundred Years."
That's the stuff of which vendettas are made and Grasso has the kind of memory where insults never die. So it should surprise no one that he trumpets every defection from Nasdaq with what might be called irrational exuberance.
"I have a deep desire to bring all the great technology companies that trade on Nasdaq here," Grasso said in an interview in the fall of 1995.
He set up an office in Menlo Park, Calif., from which to court Silicon Valley's hot properties. And Grasso has since gleefully welcomed a string of high-profile converts, including Bay Networks (whose biggest customer happens to be the NYSE), America Online, Iomega and Gateway 2000.
In the process, he's revealed a taste for showmanship that would make P.T. Barnum feel right at home.
Take the morning in May 1997 when Gateway began trading on the NYSE. Grasso savored his coup by welcoming the company mascot, Arianna a Holstein cow with the same black-and-white markings as Gateway's shipping cartons right there at the exchange. (Possibly, she had walked there from Nasdaq's headquarters in Washington.)
The hoopla isn't limited to technology companies. To hype Revlon's IPO in February 1996, Grasso toured the packed floor with supermodels Cindy Crawford and Claudia Schiffer, creating a brief but powerful distraction.
In October 1997, just before France Telecom's American Depository Receipts opened for trading, a line of whooping can-can dancers high-kicked their way past a phalanx of startled traders.
One day last February, the exchange building had a giant-red ribbon draped over it, and Grasso had people on the corner of Wall Street and Broad Street hand out announcement cards, pocket calendars and boxes of chocolates. It was all explained in the press-release headline: "American Greetings Wraps the NYSE as a Gift Celebration of Transfer From Nasdaq."
And this August, Grasso staged a $2 million beach party right outside the NYSE complete with a boardwalk on Broad Street, tons of real sand, play-it-yourself volleyball, and Kool and the Gang singing its disco hits from the 1970s. The celebration was for the Big Board's biggest new listing ever: German software giant SAP, with a market valuation of $70 billion. The connection to beach volleyball wasn't entirely clear to some members.
Some, in fact, are getting tired of the whole circus atmosphere.
"It's definitely wearing thin for the membership," one member said. "The mobs of people that come through the trading floor on the listings. They invite the whole company down. It's getting a little ridiculous."
Grasso was certainly having fun last December as he presided over a big bash celebrating the year's successes especially the newest defections from Nasdaq. The party included a film laced with glowing testimonials from corporate chiefs who described the NYSE's supposedly narrower spreads, its fine reputation, and all the other benefits that convinced them to make the leap from Nasdaq. (You could almost read Grasso's mind: "Stock market for the next hundred years, huh?")
And he continues to roll up the numbers. To date, some 200 companies have delisted from Nasdaq and begun to trade on the NYSE, along with about 50 from the American Stock Exchange.
Nevertheless, the Big Board has struck out so far with targets like Cisco Systems, Amgen and Dell Computer. Looming above them, of course, are the ultimate prizes, Nasdaq's twin towers Microsoft and Intel. Not since the Pinkertons rode off to chase Butch Cassidy and the Sundance Kid has anyone waged such a tireless crusade.
Grasso has lobbied them publicly and privately, year after year but his usual spiel about the NYSE's liquidity and prestige simply hasn't worked on two companies that have plenty of both.
Still, "never say never" is one of Grasso's favorite phrases. For years, Wall Street's ultimate status symbol has been a one-letter stock symbol on the Big Board. And Grasso has very publicly reserved the only two letters still available: "I" and "M" (for Nasdaq's Intel and Microsoft).
Dick Grasso may gloat over Nasdaq's woes, but he borrowed at least one page from their playbook when he powered the Big Board's new marketing and publicity campaigns. He saw what advertising had done for Nasdaq, and he knew that the Big Board's image complacent, arrogant, slow to change could use a serious makeover.
These days, his public-relations people are churning out press releases and arranging media events like a Hollywood movie studio. Grasso approved a $7 million advertising budget for 1996, and doubled it in 1997. His aim was to pitch the Big Board itself as a brand name, just like the blue-chip companies that list there.
"Every day we wage what we call a corn flakes war of brand preference' with Nasdaq," Grasso explained in an interview last year.
He also made real-time stock prices available to cable stations like CNBC and CNNfn, and encouraged broadcasters to use the NYSE as a sound stage. Now millions of viewers can watch the opening and closing bells every day, with numerous updates in between from floor reporters stationed in the midst of the roiling crowd.
All this breaking-news-style coverage may not have much effect on actual trading. But it does send out a dynamic image of the NYSE as the place to be the Big Show, the Vatican of Money. And that's the sort of intangible that makes it easier to persuade, say, Hasso Plattner to list SAP on the Big Board instead of that other market.
Grasso's embrace of the media might seem slightly ironic, in view of his reputation for secretiveness and for over controlling things.
"There's always been sort of a bunker mentality among NYSE executives," said one observer. "Outsiders are distrusted and the press is seen as the enemy."
Maybe that's why the Big Board's official biography of Grasso contains almost no personal information. Even his entry in "Who's Who" omits the most routine details when he was born, or whether he's married or has any children. Grasso evidently thinks "Who's Who" should be renamed "Who Wants to Know?"
In the close-knit world Grasso knows as an insider, however, it becomes hard to see things any other way. "He has a band of people to whom he is exceedingly loyal," said a person familiar with the matter. "But he demands exceeding loyalty in return. If you're on his team, he'll back you to the hilt but you don't do anything without his OK. And maybe that's necessary for something like the NYSE."
How will Grasso's loyalty to the floor traders and the specialist community affect his handling of the PCX and OptiMark challenge? Indeed, how will it affect all the other threats that loom every day?
At press time, the current standoff over the proposed PCX and OptiMark link to the ITS can't last much longer. The ITS is the backbone of the National Market System envisaged under the Securities Act Amendments of 1975. If the PCX and OptiMark have their way, some at the Big Board fear the lifeblood of the exchange could be drained. Simply put, institutional orders for listed business could bypass the Big Board.
The NYSE originally argued that the PCX and OptiMark plans violated core principles of the National Market System by attempting to use the ITS as an order-routing system to freely access the NYSE something the ITS operating plan did not allow.
But in July, the SEC, citing the value of competition, proposed amendments to the ITS operating plan that would allow the link to proceed on a preliminary basis. The Big Board has now called for a rule that would force OptiMark to look for a match on the PCX for 15 seconds before sending an order through the ITS.
"The only reason we can believe the NYSE wants to do that," an OptiMark spokesperson said, "is to turn it from an automated system into a manual system for a while."
The Big Board also wants a rule placing a five-percent cap on the amount of OptiMark's volume that can be executed via the ITS. For its part, the PCX thinks 20 percent would be fair.
Frustrated NYSE officials have asked the SEC to refrain from adopting any plan now, and instead to direct ITS participants to continue negotiating the terms of a linkage. They accuse the PCX and OptiMark of posturing, and dragging their feet on negotiations because the SEC seems ready to act on its own.
The stakes are enormous, and the threat isn't only from one direction. The National Association of Securities Dealers recently petitioned the SEC to give its members wider access to the ITS potentially widening the doorway for Nasdaq market makers that want to trade NYSE-listed stocks.
Since November 1997, it has been technically easier for Big Board-listed companies to delist to Nasdaq. And automated trading systems overseas are pushing floor-based exchanges into extinction.
Can Dick Grasso keep his exchange at the cutting edge? The NYSE is proposing to give institutions easier access to its electronic order book and to make it more transparent, and Grasso often mentions that the NYSE has spent more than $1 billion to upgrade its systems. But he also proclaims his commitment to the auction market.
"You never say never, but I've yet to see a technology replicate it," he has said of the Big Board's floor environment. "Our customers want a broker and not a mailbox."
Is Grasso in denial about electronic trading? It may not take long to find out.
"Grasso is a past master at running the exchange as it exists," Keith observed. "It's an open question whether he'll be a past master at changing and adapting. You have to be like a surfer ahead of the wave. And the question is, In the next two or three years, is the wave going to catch Grasso?'"
How he handles a surfboard is anyone's guess. How he handles problems may be more to the point and one market veteran offers a clue: "If you were going into an alley for a knife fight, you wouldn't want to go up against that guy."
