2003 annual book

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Annual Report 2003 New York Stock Exchange

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Page 1: 2003 Annual book

A n n u a l R e p o r t 2 0 0 3 N e w Y o r k S t o c k E x c h a n g e

Page 2: 2003 Annual book

0

1,500

900

1,200

600

300

NYSE Average Daily Reported Share Volume (millions)

88 93 98 03

NYSE Non-U.S. Average Daily Volume (millions)

0

150

90

120

60

30

88 93 98 03

Global Market Capitalization ($ in trillions)

0

20

15

10

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Page 3: 2003 Annual book

1

Add value to the capital-raising and asset-management

process by providing the highest-quality and most cost-effective

self-regulated marketplace for the trading of financial

instruments, promote confidence in and understanding of that

process, and serve as a forum for discussion of relevant

national and international policy issues.

M I S S I O N S T A T E M E N T

Page 4: 2003 Annual book

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was asked to serve as your interim chairman and CEO following our

governance problems and the departure of Richard Grasso. My task was to

understand what had happened and institute reforms that would allow us to

regain our reputation and to move forward. This job is essentially done, so I am

taking this space to report to you.

As I came to understand it, our problems stemmed from

• a lack of transparency

• a Board that was too large

• a failure of leadership

• too frequent turnover in committees and in the Board itself

• Board member conflicts.

The McCall-Panetta Board Committee on Corporate Governance had

recommended that we embrace a policy of full disclosure. We have.

In other areas, I felt that we had to go beyond their recommendations. We

• dramatically reduced the size of the Board to between six and twelve members,

in addition to the Chairman and the CEO

• embraced, at least for now, separating the functions of Chairman of the

Board and the CEO, with the Chairman explicitly held responsible for Board

performance and with an annual process requiring an agreement on Board

responsibilities and duties and a self-appraisal of Board effectiveness, all to be

reported publicly

• tried to insure some stability by moving the nominating function into the

Board itself, while providing for annual election by the members but without

term limits

• eliminated conflicts by requiring that the Board be composed entirely of outside,

independent directors, other than the CEO.

At the same time, we maintained the engagement of financial and corporate

leaders, which had been an important component of the old structure, through

the Board of Executives. This, as had been recommended by the McCall-Panetta

committee, was expanded to include additional public and private buy-side

representatives, as well as lessor members.

The objective, of course, was to correct those features that had contributed

to our old problems. More importantly, we tried to create a governance structure

and to “people it” for a clear understanding of the problems we still face: the need

to regain our reputation and the need to actively address the changing and dis-

parate needs of our customers.

Throughout the process, we have tried to be conservative, doing only what

was necessary and sufficient to get the job done and to leave anything beyond that

to the new structure and management.

IR E P O R T T O T H E

M E M B E R S B Y

T H E C H A I R M A N

Page 5: 2003 Annual book

As you know, the first governance proposals were made to you on

November 4. You voted your approval on November 18. The Securities &

Exchange Commission gave its approval on December 17. We elected our new

Board, which I believe is already deeply and constructively engaged with both the

Board of Executives and with the core issues we face. We appointed John A. Thain

to be our Chief Executive Officer and Richard G. Ketchum to be our Chief

Regulatory Officer on January 8, 2004. I will stay on as Chairman for a while, if

only to assure continuity in our efforts. What is most important is that with the

new architecture, the new Board of Directors, the new Board of Executives

and especially with John Thain, who has been on the job since January 15, and

Rick Ketchum, who has been aboard since March 8, we are as well led as any

institution could hope to be.

My first decision had been to ask Dan Webb, a former U.S. Attorney, of

Chicago-based Winston & Strawn, to help us understand what had happened. I

considered this a key step in regaining our reputation and moving beyond the

past questions about compensation by addressing them fully. As it turns out, the

report to the Board required that we seek redress. The Board met three times to

review the findings and their implications, and we brought in additional legal

help to assist us in deciding how best to proceed. The decision to refer the matter

to the Attorney General of the State of New York and the SEC reflected our deter-

mination that not only was this best for the NYSE and the most responsible way

to meet our obligations as directors, but also to put the matter behind us and be

sure the public’s interest was served.

The rest is up to us. We are in a new era of accountability and it is up to the

Exchange to seize this opportunity to solidify its position as the premier market-

place for investors and listed companies.

John S. ReedChairman

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W E A R E I N A N E W E R A O F A C C O U N TA B I L I T Y

A N D I T I S U P T O T H E E X C H A N G E T O S E I Z E

T H I S O P P O R T U N I T Y T O S O L I D I F Y I T S

P O S I T I O N A S T H E P R E M I E R M A R K E T P L A C E

F O R I N V E S T O R S A N D L I S T E D C O M PA N I E S .

The NYSE Board of Directors appointed John S. ReedChairman and Chief Executive Officer on September 21, 2003.

Page 6: 2003 Annual book

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s I assume my position as Chief Executive Officer of the New York

Stock Exchange, my overriding objective is to restore investor confidence

and public trust in the Exchange and U.S. financial markets. The reputation

of the NYSE must rest securely on a foundation of integrity and excellence. The

Exchange must maintain its position as the most liquid, lowest cost and most

investor-friendly market in the world.

I am committed to working with the members, employees and clients

of the Exchange as we confront the dramatic economic, regulatory, and

technological changes that are shaping our market environment. Our success

will be built upon our partnership with listed companies and investors,

large and small, and with the Securities and Exchange Commission and

the U.S. Congress.

Our immediate task

is to address the needs and

interests of our customers.

Many of our clients are

calling for speedier access

to our market. We are

responding by bringing

leading-edge technology to

the floor of the Exchange

and striving for even higher

levels of productivity and

innovation.

We are also deter-

mined to provide the

broadest choice of order-execution services, ranging from auction-based to

fully automated electronic access. Many of our listed companies want more

accurate measures of specialist performance. All of our constituents seek more

complete and timely information about the full range of our activities.

Outreach will be key and perhaps my most important task as CEO will

be to listen — constantly, carefully and with an open mind — to the needs and

concerns of all our constituents.

A

W E A R E A L S O D E T E R M I N E D T O

P R O V I D E T H E B R O A D E S T C H O I C E

O F O R D E R - E X E C U T I O N

S E R V I C E S , R A N G I N G F R O M

A U C T I O N - B A S E D T O F U L L Y

A U T O M A T E D E L E C T R O N I C A C C E S S .

L E T T E R F R O M

T H E C H I E FE X E C U T I V E O F F I C E R

Page 7: 2003 Annual book

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Looking to the future, the Exchange must remain true to the principles

that have made us the largest and most successful equities market in the world.

We will provide customers with the best possible services available. We will

continue to compete with other markets for the trading of NYSE-listed

shares, ensuring the narrowest spreads, superior liquidity and depth,

and the best price for investors. Our listing standards will remain stringent.

Specialists and floor brokers will continue to play their essential roles in bring-

ing together buyers and sellers, ensuring liquidity, offering the opportunity

for price improvement, and dampening volatility. Most importantly, we will

not sacrifice our commitment to the small investor in the marketplace. Our

task is to serve and protect the interests of all investors, whatever their size or

sophistication. Guiding every decision and action will be the highest ethical

and professional standards. As the acknowledged leader of global equity

markets, this is our solemn obligation.

I am deeply honored to have been chosen to lead an institution

that serves such a vital public purpose. The NYSE is a key part of America’s

and the world’s financial system. Investors and issuers in the United States

and across the globe rely on the NYSE for the capital critical to fuel

economic growth, foster personal opportunity and the creation of wealth.

The NYSE will meet its broader responsibility as a leader of global financial

markets and a powerful agent for positive change. As CEO, I will do

my utmost to ensure that the NYSE remains the largest and most efficient

securities market in the world.

Sincerely,

O U R T A S K I S T O S E R V E A N D

P R O T E C T T H E I N T E R E S T S O F A L L

I N V E S T O R S , W H A T E V E R T H E I R

S I Z E O R S O P H I S T I C A T I O N .

John A. ThainChief Executive Officer

The NYSE Board of Directors appointed John A. ThainChief Executive Officer, effective January 15, 2004.

Page 8: 2003 Annual book

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his was a challenging as well as normal year for regulation. In the normal

sense, the NYSE dealt with a wide array of regulatory issues. Significant activities

included:

• The NYSE Division of Enforcement’s prosecution of 231 cases in 2003. Actions

against individuals numbered 172, and 59 actions against member firms

exceeded the record of 35 actions in 2002. The NYSE collected a record $12.6

million in disciplinary fines.

• Referrals by the NYSE Market Surveillance Division that resulted in six enforce-

ment actions by the SEC for insider trading against nine individuals and firms,

resulting in asset freezes, fines and penalties totaling $5 million.

• NYSE Regulation’s key role in the global settlement among regulators and 10 of

the nation’s top investment firms involving research analysts’ conflict of interest.

• The Exchange and the SEC reaching a settlement of enforcement actions with

SG Cowen and Lehman Brothers for supervisory failures in the Frank

Gruttadauria case.

• The NYSE disciplining Citigroup Global Markets for supervisory violations

in its role as primary service provider for the employee stock option plans of

WorldCom, Inc.

The greater challenges of the year stemmed from the specialist investigation,

which NYSE regulation initiated last year, and which was joined by the SEC.

This raised important issues for us because it involved the trading floor, the

integrity of which is central to our mission. A settlement was reached in March

2004. The SEC also notified the NYSE that it was investigating why the NYSE did

not detect the activity sooner.

The evident scope of the violative activity raised questions about the

independence and effectiveness of self regulation. These questions, together with

concerns about the Exchange’s governance arising from the compensation con-

troversy, prompted dramatic reform of our governance and regulation. Under the

new structure, Regulation is headed by Chief Regulatory Officer Richard G.

Ketchum, who reports to the Regulatory Oversight & Regulatory Budget

Committee. The committee, which I chair, includes Shirley A. Jackson and Dennis

Weatherstone. Each of us is a member of the Board of Directors, independent

from NYSE management, members and listed companies. This model creates a

regulatory apparatus that is functionally separate from the market, yet has an

immediacy to the marketplace necessary for effective regulation.

Sincerely,

Marshall N. Carter

Chairman, NYSE Regulatory Oversight & Regulatory Budget Committee

TN Y S ER E G U L A T I O NR E P O R T

Page 9: 2003 Annual book

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On March 8, 2004, Richard G. Ketchum assumed the role of Chief Regulatory Officer(CRO), reporting to the Regulatory Oversight & Regulatory Budget Committee.

What are your thoughts on the CRO role? NYSE Regulation is populated by

dedicated professionals. The CRO role is unique in that it reports directly to the

Board of Directors and is independent from the business and marketing side of the

institution. That helps to ensure that the regulatory function fulfills its public

purpose and remains free of conflict while exercising its duties and responsibilities.

Believing passionately in self-regulation and market integrity, I look forward to

contributing to the Exchange’s role in serving investors.

What is your view of the role of the NYSE as a self-regulator? Self-

regulation is at the core of our nation’s securities laws and infrastructure. The

close proximity of a self-regulatory body to those it regulates, coupled with

institutional knowledge and experience, makes self-regulation — if applied

and executed properly — the best mechanism to oversee a market. I’ve seen it

and seen it work well.

Your career as a regulator spans three decades. What are your objectives

for NYSE Regulation? We have ambitious goals. My aspiration is for NYSE

Regulation to be viewed as an extremely capable and effective organization. My

colleagues and I must abide by the highest standards of professionalism and

ethics and ensure a sound and collaborative working relationship with the SEC

and other self-regulatory bodies. It’s important that we do all we can to ensure

integrity and to protect the investing public.

V I E W S O F

R I C H A R D G . K E T C H U M , C H I E FR E G U L A T O R Y O F F I C E R

“In Rick Ketchum we have found an outstanding leader for the NYSE Regulation function. In addition to his integrity, intelligence and managerial experience, Rick has an unparalleled understanding of securities markets. We welcome his commitment to a regulatory environment that assures confidence in those markets by all participants,from individual investors to the regulated broker-dealers.”

Marshall N. Carter Chairman, NYSE Regulatory Oversight & Regulatory Budget Committee

Page 10: 2003 Annual book

MARKET ACTIVITY

• The NYSE’s global market capitalization increased from $13.4 trillion in 2002 to $17.3 trillion in 2003,including $5.8 trillion for non-U.S. companies.

• The NYSE continued to provide the most competitive quotes, creating the National Best Bid and Offer (NBBO) 93% of the time in listed stocks.

• Market share in listed stocks during NYSE trading hours was 81.5%, compared with 83.6% the previous year.Full-day market share (including hours when the NYSE is closed) declined to 79.3% from 82.1%.

• Average daily volume (ADV) stood at 1.4 billion shares valued at $38.5 billion.

■ ADV for non-U.S. NYSE-listed companies increased to 138 million shares, up from 134 million shares in 2002, and accounted for 10% of total NYSE volume.

• By year-end, 359.7 billion shares were available for trading.

• The NYSE Composite Index® (NYA), which was relaunched at the beginning of the year, increased 29%,outperforming the DJIA and the S&P 500. The NYA reached its high for the year on Dec. 31, closing at 6,440.30.

LISTINGS

• 107 new companies, including 90 domestic U.S. listings, of which 17 were Nasdaq transfers, joined the Exchange for a total of 2,750 listed companies.

■ The 16 non-U.S. additions bring the total number of non-U.S. companies to 467 from 50 countries.

• The 107 new listings represented a decline from 152 in 2002. Among other components, domestic Nasdaq transfersdeclined to 17 in 2003 from 35 in 2002; total IPOs decline to 65 from 76; and non-U.S. companies, to 16 from 33.

• The NYSE again garnered the dominant share of the IPO market, with 65 initial public offerings.

■ Every non-U.S. IPO eligible to list on the NYSE did so.

■ Domestic IPOs (including funds) raised $28.8 billion in proceeds.

• Two exchange-traded funds (ETFs) listed on the NYSE in 2003: the iShares Dow Jones Select Dividend Index FundSM (DVY), the only ETF investing solely in dividend-yielding investments; and the iShares Lehman TIPS Bond FundSM (TIP), designed to track the performance of the U.S. Treasury Inflation Notes Index.

• On Oct. 30, the SEC approved the NYSE’s proposal to eliminate NYSE rule 500, which regulated voluntary de-listings.

TECHNOLOGY, PRODUCTS & SERVICES

• System capacity expanded from 3,000 messages per second to 5,000 by year end (and in early 2004 expanded further to 6,000). This ensures reliable customer order throughput even during periods of peak demand.

• Delivery time for round-trip automatic executions on NYSE Direct+® was reduced to 1 second from 2.7 seconds, a 60% improvement in delivery speed.

• A new generation of NYSE e-Broker® handheld devices was introduced, adding several improvements, including enhanced execution reporting; handheld use tripled from year-end 2002.

• The introduction of “auto-quoting” for all NYSE-listed stocks resulted in even tighter spreads,more timely quotes, and the elimination of 10 million keystrokes per day.

• The NYSE introduced NYSE Broker VolumeWeb® and NYSE LiquidityQuote®.

• Customer use of Institutional XPress® and NYSE Direct+ increased sharply, while the updating cycle for NYSE OpenBook® was reduced 50% from every 10 seconds to every five seconds to enable customers to make better-informed trading decisions.

2003O P E R AT I N G R E P O RT

Catherine KinneyPresident and Co-COO

Robert Britz President and Co-COO

Page 11: 2003 Annual book

On November 18, NYSE members voted overwhelmingly in favor of

governance reforms proposed by interim Chairman and CEO John S. Reed.

Of the 1,136 proxies and ballots received, 1,112 — almost 98 percent — voted for

the proposal. On December 17, the Securities and Exchange Commission unan-

imously approved the new governance architecture. In summary, the structure:

1 Places responsibility for governance, compensation, internal controls and for

supervision of regulation in the hands of a Board of Directors that is

independent from NYSE management, members, member organizations and

listed companies.

2 Separately preserves the existing engagement of the broker-dealer community,

listed company community and public investors with the NYSE by creating

a Board of Executives that also includes executives of major public and

private buy-side entities as well as lessor members and representatives of

individual investors.

3 Makes transparent the NYSE’s governance process, its participants, their com-

pensation, and the Exchange’s charitable donations and political contributions.

This new architecture positions the NYSE at the forefront of corporate

governance. It meets and in certain ways exceeds the standards to which our

listed companies must adhere. And it addresses the special challenge of

serving both as a marketplace and the vehicle by which Exchange members

regulate themselves.

T H E N Y S E W I L L E X E R C I S E S T A N D A R D S O F I N D E P E N D E N C E ,

T R A N S P A R E N C Y A N D D I S C L O S U R E B A S E D O N T H E

S T R I N G E N T C R I T E R I A I T E X P E C T S O F L I S T E D C O M P A N I E S .

G O V E R N A N C E R E F O R M S I N C R E A S EI N D E P E N D E N C E , T R A N S P A R E N C YA N D A C C O U N T A B I L I T Y

The NYSE Board of Directors (BOD)

Independent Directors (except the CEO)

who meet as needed, but at least quarterly.

Responsibility:

• Accountable to member owners and the public

• The fiduciary

• Regulatory oversight

• Ultimate responsibility for NYSE

The NYSE Board of Executives (BOE)

Representative constituent body appointed by

the BOD, who meet at least 6 times annually.

Responsibility:• Engagement with BOD and management

• Advisory on NYSE operations

• Advisory on NYSE evolution within context of market structure and performance discussion

• Advisory on public spokesman role of the NYSE and its Chair and CEO

• Recommends the non-regulatory operatingbudget to the BOD

Page 12: 2003 Annual book

T H E M A R K E T

0

400

200

300

100

Total Share Volume (billions)

99 00 01 02 03

203.9

262.5

307.5

363.1 352.4

600

1500

1050

1275

825

Average Daily Share Volume (millions)

99 00 01 02 03

809.2

1041.6

1240.0

1441.01398.4

0

20

10

15

5

Global Market Capitalizationof Listed Companies ($ trillions)

99 00 01 02 03

16.8 17.116.0

13.4

17.3

The NYSE’s unique ability to blend small investor and

large institutional order flow creates superior liquidity

and the most effective price-discovery dynamic.

Page 13: 2003 Annual book

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F

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or decades, investors have confidently turned to the NYSE to buy and sell

stock in the world’s best companies at the best possible price. Over time, the

Exchange has delivered even lower transaction costs and more innovative ways

for investors to access the highest-quality order executions.

Even in the face of formidable competition, the NYSE remains the most

reliable and cost-effective equities market. The proof is in the numbers: on

average, the NYSE provides the best quoted prices for its listed stock 93 percent

of the time. Price improvement occurs on nearly one-third of all investor orders.

The NYSE’s fill rate is 81 percent, by far the highest degree of certainty in filling

investor orders of any U.S. market.

Independent researcher Elkins/McSherry reported that execution costs

were 27 percent lower on the NYSE than Nasdaq, and the Plexus Group found

the NYSE 24 percent lower than Nasdaq in institutional trading. A recent NYSE

study revealed that after transferring to the NYSE, 39 former Nasdaq-listed

companies experienced significantly lower trading costs and volatility when

their stock began trading on the Exchange.

Market Professionals Serving Market Participants The NYSE’s unique ability to blend small investor and large institutional

order flow creates superior liquidity and the most effective price-discovery

dynamic. Opening and closing prices on the Exchange are more accurate and

reliable, and more stable and better priced, than those of competing markets.

Specialists, who stand at the center of the auction market, work

to ensure a continuous and

orderly market for investors.

Approximately 90 percent

of price discovery consists

of customers meeting cus-

tomers, while specialists

commit capital and participate

approximately 10 percent of

the time. Specialists act as catalysts to bring buyers and sellers together and to

maximize public order interaction. They dampen volatility and furnish

liquidity, filling voids in the market in the absence of natural buyers and sellers.

In fact, more than 80 percent of specialist trades are against the trend — trades

that most other market participants choose not to make. In this way, special-

ists cushion price movements and stabilize the market. They also serve as a

source of accountability for investors and issuers as well as a valuable conduit

of information for listed companies.

A T T H E N Y S E ,B E S T P R I C E P R E V A I L S

O N A V E R A G E , T H E N Y S E P R O V I D E S

T H E B E S T Q U O T E D P R I C E S F O R I T S

L I S T E D S T O C K 9 3 % O F T H E T I M E .

Page 14: 2003 Annual book

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Floor brokers, too, are a single point of accountability and information for

large customers. They play a vital role in the price-discovery process and

apply their vast knowledge and judgment to the most complex and sophisti-

cated orders. Approximately one-third of volume, which comprises a sub-

stantial portion of large institutional orders that might impact the market, is

delivered directly to brokers on the floor. Like specialists, floor brokers employ

the most advanced trading and information technology to best serve their

customers, who benefit from the best of both worlds — the power of the most

advanced technology and the value of experienced human judgment.

Leveraging Technology Benefits All InvestorsEnabled by technology that accommodates virtually any investor order and

trading strategy, participants in the NYSE’s integrated auction market enjoy the

superior pricing, transparency, depth and liquidity that remain NYSE hallmarks.

Today, 99 percent of investor orders are delivered electronically to the

NYSE’s central point of sale. More than 6 percent of those orders gain an

automatic execution through NYSE Direct+, which has a 1 second average

turnaround speed for orders of 1,099 shares or less.

Expanding the NYSE Direct+ platform will broaden its electronic order-

routing and execution capabilities. This promises an even more diverse and

Daily National Best Bid and Offer Spread Between NYSE and Nasdaq

NYSE

Nasdaq

Trading Days Relative to the Switching Date

NBB

O S

prea

d ($

0.01

)

.04

.06

.08

.10

.12

-60 -51 -42 -33 -24 -15 -6 3 12 21 30 39 48 57

Intraday National Best Bid and Offer Quoted Spread

NYSE

Nasdaq

1 9 17 25 33 41 49 57 65 73

Intraday 5-Minute Interval

NBB

O S

prea

d ($

0.01

)

.05

.10

.15

.20

1 2 1. Daily NBBO Quoted Spread NBBO Quoted Spread represents market liquidity and trading cost. Compared to Nasdaq, NYSE market quality is superior.

2. Intraday NBBO Quoted Spread The lower spread on the NYSE is robust across the trading day. In particular,the NYSE has more liquidity during the opening and closing to support heavy trading.

Volatility and Spread Performance of 39 Companies that Moved to the NYSE from Nasdaq

Page 15: 2003 Annual book

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Daily 5-Minute Interval Price Range (High-Low)

NYSE = 4.0 c

Nasdaq = 8.3 c

2

4

6

8

10

12

-60 -51 -42 -33 -24 -15 -6 3 12 21 30 39 48 57

Trading Days Relative to the Switching Date

Pric

e Ra

nge

($0.

01)

Intraday 5-Minute Interval Price Range (High-Low)

NYSE

Nasdaq

1 9 17 25 33 41 49 57 65 73

Intraday 5-Minute Interval

Pric

e Ra

nge

($0.

01)

0

5

10

15

20

25

30

3 4 3. Daily 5-Minute Interval Price Range (High-Low) Short-term volatility, such as five-minute intervals, reveal more of the impact of market structure on price change. The NYSE’s auction mechanism and liquidity consolidationhelp to mitigate price fluctuation.

4. Intraday 5-Minute Interval Price Range(High-Low) The lower volatility on the NYSE is robust across the trading day.In particular, the NYSE’s auction market atopening brings market liquidity togetherand significantly reduces price fluctuation.

Data from the NYSE research paper Market Structure, Fragmentation and Market Quality: Evidence from Recent Listing Switches, which can be found at www.nyse.com/pdfs/marketqualitystudy03.pdf.The study was conducted on the stocks of 39 companies that voluntarily transferred from January 2002 to March 2003.

capable array of market access choices for investors, including institutional

investors who seek faster trade execution and greater certainty for large orders.

Effectively blending the best of the floor-based auction and automatic,

electronic execution speaks to the NYSE’s focus on customer satisfaction,

timely innovation and continuous market evolution.

As the market evolves, it becomes more competitive, as the developments

of 2003 clearly demonstrated. The NYSE’s full-day share of trading in its listed

stocks fell from 82.1 percent in January to 79.3 percent at year end, as other

markets honed their offerings.

In 2004, the competition for new listings—domestically and internationally—

and market share of trading will intensify. The SEC intends to propose a broad

set of market structure changes, including modifications to the trade-through

or “best-price” rule, which provides assurance that investors and their broker

representatives get the best price when buying and selling stock of NYSE-listed

companies. Moving forward, the Exchange’s focus will be on responding to cus-

tomers’ needs and interests and strengthening its competitive position, especially

with respect to its technology infrastructure and order-execution platform.

The Exchange is committed to positive change and growth in order to

remain the leader in this increasingly competitive environment. We are also deter-

mined to provide investors with the highest levels of market quality and the best

possible price when buying and selling stock in the world’s leading companies.

Page 16: 2003 Annual book

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Examining 39 recent transfers to the NYSE from Nasdaq,

price volatility was reduced by half, quotes narrowed

by more than a third, and execution costs were cut in half.

According to the NYSE research paper Market Structure, Fragmentation and Market Quality:

Evidence from Recent Listing Switches, which can be found at www.nyse.com/pdfs/marketqualitystudy03.pdf.

N E W L I S T I N G S

TEN MOST ACTIVE

STOCKS, 2003(round lots) (millions of shares)

NYSE Symbol Volume

Lucent Technologies Inc. (LU) 6,147.8

Nortel Networks (NT) 3,943.0

Pfizer Inc. (PFE) 3,816.8

General Electric (GE) 3,789.1

Time Warner (TWX) 3,537.9

EMC Corp. (EMC) 2,807.4

Citigroup (C) 2,742.5

Motorola Inc. (MOT) 2,607.1

Hewlett-Packard (HPQ) 2,471.8

Texas Instruments (TXN) 2,423.6

TEN MOST ACTIVE STOCKS BY

DOLLAR VOLUME, 2003(millions of dollars)

NYSE Symbol Volume

Pfizer Inc. (PFE) 121,742.4

International Business Machines (IBM) 118,537.3

Citigroup (C) 113,211.7

General Electric (GE) 105,729.4

Bank of America (BAC) 97,217.3

Wal-Mart Stores (WMT) 90,488.3

Exxon Mobil (XOM) 85,419.5

Johnson & Johnson (JNJ) 85,185.4

American International Group Inc. (AIG) 75,530.9

Merck & Co. (MRK) 74,763.8

Page 17: 2003 Annual book

Advent Claymore Convertible Securities and Income Fund AVK IPO

Alaris Medical Systems, Inc. AMI Amex

American Equity Investment Life Holding Company AEL IPO

American Financial Realty Trust AFR IPO

American Home Mortgage Investment Corp. AHH Nasdaq

AMERIGROUP Corporation AGP Nasdaq

Anworth Mortgage Asset Corporation ANH Amex

Ashford Hospitality Trust, Inc. AHT IPO

Aspen Insurance Holdings Limited AHL IPO/Bermuda

Axis Capital Holdings Limited AXS IPO/Bermuda

BHP Billiton plc BBL Other/United Kingdom

BlackRock Dividend Achievers Trust BDV IPO

BlackRock Florida Municipal 2020 Term Trust BFO IPO

BlackRock Limited Duration Income Trust BLW IPO

BlackRock Municipal 2020 Term Trust BKK IPO

BlackRock Preferred Opportunity Trust BPP IPO

Bradley Pharmaceuticals, Inc. BDY Nasdaq

Brookfield Homes Corporation BHS Spin-Off

Calamos Convertible and High Income Fund CHY IPO

Prior Market or Company Name Symbol Country of Origin

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Regis Corporation (RGS), the owner andoperator of hair products and retail salons worldwide, transferred from Nasdaq on March 27. To celebrate the NYSE listing, President and CEO Paul D. Finkelstein,center, is joined by his sons Mike, left, and Brad on the NYSE trading floor.

On July 2, the NYSE welcomed Axis Capital Holdings Limited (AXS) Chairman Michael Butt, left;President, CEO and Deputy ChairmanJohn R. Charman, center; and DirectorCharles A. Davis, right, to celebrate the company’s July 1 IPO.

Telkom SA Limited (TKG) launched its IPO on the NYSE on March 4. In honor of the occasion,Sizwe Nxasana, CEO of Telkom South Africa, and Jeff T. Radebe,Minister of Public Enterprises,ring The Opening BellSM on March 6.

E V E N T S O F 2 0 0 3

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CapitalSource Inc. CSE IPO

Capitol Bancorp Limited CBC Nasdaq

Carter’s Inc. CRI IPO

Cedar Shopping Centers, Inc. CDR Nasdaq

Centene Corporation CNC Nasdaq

China Life Insurance Company Limited LFC IPO/China

Chunghwa Telecom Co., Ltd CHT IPO/Taiwan

Citadel Broadcasting Corporation CDL IPO

Cohen & Steers REIT and Preferred Income Fund, Inc. RNP IPO

Compass Minerals International, Inc. CMP IPO

Conseco, Inc. CNO Other

Corporate High Yield Income Fund VI, Inc. HYT IPO

Doral Financial Corporation DRL Nasdaq/Puerto Rico

Drew Industries Incorporated DW Amex

Eaton Vance Senior Floating-Rate Trust EFR IPO

Eaton Vance Tax-Advantaged Dividend Income Fund EVT IPO

Endurance Specialty Holdings Ltd. ENH IPO/Bermuda

First National Bankshares of Florida, Inc. FLB Spin-Off

First Potomac Realty Trust FPO IPO

Flaherty & Crumrine/Claymore Preferred Securities Income Fund Incorporated FFC IPO

Flaherty & Crumrine/Claymore Total Return Fund Incorporated FLC IPO

Floating Rate Income Strategies Fund, Inc. FRA IPO

F.N.B. Corporation FNB Nasdaq

Friedman’s Inc. FRM Nasdaq

Graphic Packaging Corporation GPK Other

Highland Hospitality Corporation HIH IPO

Prior Market or Company Name Symbol Country of Origin

T H E N Y S E A D D E D 1 0 7 N E W L I S T E D C O M P A N I E S I N 2 0 0 3 ,

B R I N G I N G T H E T O T A L T O 2 , 7 5 0 C O M P A N I E S .

Page 19: 2003 Annual book

Hughes Electronics Corporation HS Spin-Off

Impac Mortgage Holdings, Inc. IMH Amex

International Steel Group Inc. ISG IPO

John Hancock Preferred Income Fund III HPS IPO

Journal Communications, Inc. JRN IPO

Kadant Inc. KAI Amex

Keane, Inc. KEA Amex

Kinross Gold Corporation KGC Amex/Canada

Kronos Worldwide, Inc. KRO Spin-Off

Lehman Brothers/First Trust Income Opportunity Fund LBC IPO

Levitt Corporation LEV Spin-Off

Luminent Mortgage Capital, Inc. LUM IPO

Maguire Properties, Inc. MPG IPO

MBIA Capital/Claymore Managed Duration Investment Grade Municipal Fund MZF IPO

Medco Health Solutions, Inc. MHS Spin-Off

Mentor Corporation MNT Nasdaq

MI Developments Inc. MIM Spin-Off/Canada

Mitchells & Butlers plc MLB Spin-Off/United Kingdom

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Prior Market or Company Name Symbol Country of Origin

Medco Health Solutions, Inc. (MHS)Chairman, President and CEO David Snow, joined by his wifeLynette, visits the trading floor onAug. 19, after ringing The OpeningBell. The company listed on Aug. 8.

President Vladimir Putin of Russia, center,stands at the bell podium with NYSE Presidents and Co-COOs Robert Britz andCatherine Kinney. The Russian leader participated in a roundtable discussion withchief executives at the NYSE on Sept. 26.

Carter’s Inc. (CRI) Chairman and CEO Fred Rowan, third from right,and other Carter’s officials applaud the first trade of the company’s Oct. 24 IPO.

E V E N T S O F 2 0 0 3

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Molina Healthcare, Inc. MOH IPO

Muni Intermediate Duration Fund, Inc. MUI IPO

Muni New York Intermediate Duration Fund, Inc. MNE IPO

Nam Tai Electronics, Inc. NTE Nasdaq/Hong Kong

National Financial Partners Corp. NFP IPO

NBTY, Inc. NTY Nasdaq

Nelnet, Inc. NNI IPO

Neuberger Berman Realty Income Fund, Inc. NRI IPO

Nicholas-Applegate Convertible and Income Fund NCV IPO

Nicholas-Applegate Convertible and Income Fund II NCZ IPO

Nuveen Diversified Dividend and Income Fund JDD IPO

Nuveen Preferred and Convertible Income Fund JPC IPO

Nuveen Preferred and Convertible Income Fund 2 JQC IPO

Offshore Logistics, Inc. OLG Nasdaq

PacifiCare Health Systems, Inc. PHS Nasdaq

PIMCO Floating Rate Income Fund PFL IPO

PIMCO High Income Fund PHK IPO

Pioneer Municipal High Income Advantage Trust MAV IPO

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Prior Market or Company Name Symbol Country of Origin

China’s Premier Wen Jiabao, center, visited theNYSE and rang The Opening Bell on Dec. 8 duringhis first official visit to the United States. Joininghim on the bell podium are Mr. Britz, second fromleft, Mrs. Kinney and NYSE Interim Chairman John S. Reed, third from right.

Mr. Reed congratulates ChinaLife Insurance CompanyLimited (LFC) Chairman andPresident Xianzhang Wang onthe company’s Dec. 17 IPO.

Keane, Inc. (KEA) President and CEO Brian Keane, left, is joined by John Leahy,Senior VP of Finance and CFO, center, andLarry Vale, VP of Investor Relations, right,on the NYSE trading floor to witness thecompany’s first executed trade on the Big Board. Keane Inc. transferred from theAmerican Stock Exchange on Oct. 30.

E V E N T S O F 2 0 0 3

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Pioneer Municipal High Income Trust MHI IPO

Piper Jaffray Companies PJC Spin-Off

Preferred and Corporate Income Strategics Fund, Inc. PSW IPO

Preferred Income Strategies Fund, Inc. PSY IPO

Provident Financial Services, Inc. PFS IPO

Regis Corporation RGS Nasdaq

Rinker Group Limited RIN Other/Australia

RMK High Income Fund, Inc. RMH IPO

Royce Micro-Cap Trust, Inc. RMT Nasdaq

Salomon Brothers Emerging Markets Debt Fund, Inc. ESD IPO

Salomon Brothers Global High Income Fund Inc. EHI IPO

Sasol Limited SSL Nasdaq/South Africa

Shinhan Financial Group Co., Ltd. SHG Other/Korea

SIRVA, Inc. SIR IPO

SpectraSite, Inc. SSI Nasdaq

SYNNEX Corporation SNX IPO

Telkom SA Limited TKG IPO/South Africa

Tempur-Pedic International, Inc. TPX IPO

The First Marblehead Corporation FMD IPO

The Gabelli Dividend & Income Trust GDV IPO

The Sports Authority, Inc. TSA Nasdaq

Universal Technical Institute, Inc. UTI IPO

Western Asset/Claymore U.S. Treasury Inflation Protected Securities Fund WIA IPO

W-H Energy Services, Inc. WHQ Nasdaq

Whiting Petroleum Corporation WLL IPO/Carveout

Woori Finance Holdings Co., Ltd. WF Other/Korea

Prior Market or Company Name Symbol Country of Origin

T H E N Y S E G A R N E R E D T H E D O M I N A N T S H A R E O F T H E I P O

M A R K E T , W I T H 6 5 I N I T I A L P U B L I C O F F E R I N G S I N 2 0 0 3 .

Page 22: 2003 Annual book

The New York Stock Exchange is the most active and visible symbol

of private enterprise in America. As the nation’s leading public

marketplace for corporate securities, the Exchange has an inviolable

responsibility to ensure that its activities are conducted in accordance

with the highest standards of business and personal integrity. All policies

and practices of the Exchange and all Exchange-related conduct

and activities of Exchange employees must be in absolute accord with

protecting and preserving the integrity of the Exchange.

S T A T E M E N T O N E T H I C S

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F I N A N C I A L A N D

S T A T I S T I C A L H I G H L I G H T S

Years ended December 31, 2003 2002

Revenues (millions) $ 1,074.1 $ 1,065.8

Expenses (millions) $ 986.9 $ 1,023.7

Income Before Taxes and Minority Interest (millions) $ 87.3 $ 42.1

Provision for Income Taxes (millions) $ 36.4 $ 11.7

Minority Interest (millions) $ 1.3 $ 2.3

Net Income (millions) $ 49.6 $ 28.1

Members’ Equity (millions) $ 951.7 $ 895.5

Reported Share Volume (billions) 352.4 363.1

Average Daily Share Volume (millions) 1,398.4 1,441.0

Reported Dollar Volume (trillions) $ 9.7 $ 10.3

Average Daily Dollar Volume (billions) $ 38.5 $ 40.9

NYSE Composite Index (year-end close)* 6,440.3 472.87

Member Organizations 330 337

Specialist Units 7 7

Individual Specialists 450 464

New Listed Companies 107 152

Total Listed Companies 2,750 2,783

Total Shares Listed (billions) 359.7 349.9

NYSE Global Market Capitalization (trillions) $ 16.8 $ 13.4

* The NYSE Composite Index was re-launched at the beginning of the year

using a revised methodology and a new base value of 5,000.

“As the world’s premier equities market, the Exchange requires the most

sophisticated and capable financial processes and systems. Our goal

is to ensure that, moving forward, finance serves as a strategic resource

to the NYSE and our constituents. We will do this by identifying

the growing and changing needs of our customers and providing the

resources required to ensure the NYSE’s competitive position in this

rapidly evolving marketplace.”

On February 19, 2004, Amy S. Buttejoined the NYSE as Executive VicePresident, Corporate Finance, reportingto NYSE CEO John A. Thain.

On April 12, 2004 she assumed the role of Chief Financial Officer.

Amy S. Butte Chief Financial Officer

Page 24: 2003 Annual book

F I N A N C I A L R E V I E W

Management Report on Financial Operations

The New York Stock Exchange (NYSE or Exchange) is the world’s

leading equities market. A broad spectrum of market participants,

including individual and institutional investors, listed companies,

and member firms create the NYSE agency auction market. The

NYSE creates an open and orderly market for buying and selling

equity securities.

Companies listed on the NYSE range from the largest, well-

known “blue-chips” to smaller mid-sized enterprises. The NYSE is

also a self-regulatory organization, with strict rules and codes of

conduct and responsibility for the oversight of members and mem-

ber organizations.

The Securities Industry Automation Corporation (SIAC) is a

two-thirds owned subsidiary. The remaining one-third is owned by

the American Stock Exchange LLC (AMEX).

SIAC is a central securities industry resource providing key sup-

port to the NYSE, the AMEX, the National Securities Clearing Cor-

poration and the securities industry nationwide. SIAC plans,

develops, implements and manages a variety of automated informa-

tion-handling and communications systems that support order pro-

cessing, trading, and market information reporting, as well as trade

comparison, clearance and settlement for a broad range of securities.

SIAC also provides systems support for essential regulatory and

administrative activities. In addition, SIAC provides telecommunica-

tion and managed services through its wholly owned subsidiary, Sec-

tor, Inc. (Sector), to subscribers primarily in the securities industry.

Set forth below is an analysis of the results of the NYSE’s oper-

ations for the year ended December 31, 2003.

Revenues

Revenues of the New York Stock Exchange, Inc. and subsidiary com-

panies (NYSE and subsidiaries) in 2003 were slightly higher than in

2002, totaling $1,074.1 million compared with $1,065.8 million.

Revenues from listing fees in 2003 of $294.6 million increased

$8.5 million or 3% over 2002. These fees are paid by companies when

they initially list on the NYSE and annually thereafter. In addition,

listed companies pay fees for corporate transactions involving the

issuance of additional shares, such as splits, rights or additional

public sales of securities, and mergers and acquisitions. In 2003 the

increase was primarily due to rate increases in annual equity listing

fees. This was offset by declines in original and other listing fees in

line with the general market environment for new listings.

Data processing fees of $224.8 million were relatively

unchanged from the prior year. These fees are charged by SIAC to its

customers other than the NYSE. Fees charged to the NYSE are elim-

inated in consolidation.

Market information fees of $172.4 million in 2003 increased 2%

from $168.8 million in 2002. These fees are driven by the number of

devices, trades and use of proprietary products by our customers.

The increase in usage of proprietary products drove the increase year

over year.

Trading fees increased 3% in 2003 to $157.2 million. Trading fees

are paid by NYSE members and member organizations based on

trades executed on the Exchange. The increase in trading fees is a

result of certain pricing actions taken at the beginning of 2003, par-

tially offset by a 3.9% decrease in average daily volume.

Regulatory fees declined $7.3 million or 6% to $113.5 million in

2003. Regulatory fees are assessed to NYSE members and member

organizations based on their gross revenues, number of branch

offices, number of registered personnel and related items. The change

was primarily due to a decrease in member firms’ gross revenue.

Facility and equipment fees increased $7.9 million, from $52.6

million to $60.5 million. Facility and equipment fees are paid to the

NYSE for services provided on the trading floor. New fees for broker

and specialist technology were introduced at the beginning of 2003

but were suspended after six months. These new fees were offset by

declines in a variety of miscellaneous facility fees.

Annual membership fees paid by NYSE members declined 14%

to $11.0 million in 2003. This decline is due to a decrease in electronic

access membership renewals during the year.

Investment and other income declined $7.1 million or 15% to

$40.2 million. The decline in investment income is primarily a result

of a decrease in the realized interest rate from 3.26% in 2002 to 1.95%

in 2003. Remaining changes included an increase in hearing panel

fines of $5.2 million offset by a $4.1 million decrease in insurance

recoveries relating to World Trade Center claims.

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Expenses

Total expenses for 2003 decreased to $986.8 million from $1,023.7

million in 2002, a decline of $36.8 million or 3.6%. The sustainabil-

ity of the decline in our expense base remains uncertain. Longer-

term changes in our expenses will be based on our level of rev-

enues, client needs, regulatory requirements, capital investments

and the general competitive landscape for people and market share.

Management intends to initiate a careful review of the current

expense structure and to actively manage the expenses and invest-

ments required to support the business of the NYSE.

Compensation expense of $522.5 million was relatively

unchanged from year to year exclusive of a required accrual for our

financial statements related to the former Chairman and CEO. A

significant decline in year-end incentive compensation and benefits

was offset slightly by increases in salaries and the use of temporary

staff, primarily for security.

Systems and related support costs of $146.0 million remained

relatively unchanged from year to year. These costs include develop-

ment, ongoing support and maintenance of various trading and reg-

ulatory systems and hardware.

Professional services in 2003 totaled $114.8 million, a decrease

of $21.5 million or 16% over 2002. The decline was a result of an

ongoing effort to reduce the use of external consultants, in some

cases replaced by permanent staff, and of the reduction of projects in

2003 and completion of projects from 2002. This was offset by an

increase in legal expenses during the year.

Depreciation and amortization increased to $67.6 million for

2003 from $61.9 million in 2002. The increase of $5.7 million or 9%

was due to the completion of various projects resulting in an increase

in the depreciable base of fixed assets in 2003.

Occupancy costs of $65.3 million in 2003 were relatively

unchanged year over year. Utilities and real estate taxes increased

slightly.

General and administrative expenses declined $13.2 million or

19% for 2003 to $56.2 million. A decrease in a majority of the other

general and administrative expenses was offset by increases in

annual insurance premiums.

Advertising costs for 2003 declined 47% to $14.6 million. The

decision to reduce spending reflected global events and the gover-

nance and compensation controversy at the NYSE during the second

half of the year.

Risk Factors

In order to ensure effectiveness, efficiency and investor confidence in

the Exchange, we identify and manage our key risks on a proactive

basis. The NYSE is exposed to a number of risks that can be broadly

categorized as market related, operational and regulatory related.

Each of these broad categories is discussed below.

Market Related Risks

The domestic and global economic environment influences the

Exchange’s business directly and indirectly. Directly, the economic

environment impacts the securities markets as a whole. Indirectly,

it affects the operations of the NYSE’s member firms, listed com-

panies and prospective new listing candidates. The NYSE’s financial

condition depends on the needs, activity levels and financial condi-

tion of these constituents. The health and structure of the securi-

ties industry and our constituents may affect our revenues from

regulatory, listings, market information and trading fees. In addi-

tion, industry conditions may dictate future needs for services and

related infrastructure to support those requirements.

The NYSE’s listing revenues depend on the ability of companies

to list and remain listed on the Exchange. Barriers to enter the pub-

lic capital markets, whether due to economic, regulatory or other

reasons, could affect companies’ desire and ability to list or remain

listed and as a result impact the Exchange’s revenue base.

The NYSE operates in a highly competitive marketplace. Our

competitors include both traditional and nontraditional execution

venues. We compete with other exchanges, electronic communica-

tion networks, market makers and other execution venues. The

NYSE competes based on best price, liquidity, cost, anonymity, speed

and certainty of execution. Failure to execute in an efficient and

cost-effective manner, to grow existing products, or to develop new

products and services that address customer demand and interests

may result in lower market share and revenues. The NYSE also com-

petes in the market information arena. A loss of NYSE market share

of trading would result in a reduced revenue allocation from the

inter-market data consortia and, potentially, negatively impact the

growth, importance and viability of various NYSE market informa-

tion products.

In the normal course of business the NYSE makes judgments

and assumptions as they relate to critical accounting policies and

estimates. These include, but are not limited to, employee pensions

and benefits, receivables, and income taxes. A change in market con-

ditions or other external factors could affect management’s estimates

and assumptions, as well as the financial condition and operations of

the NYSE.

Operational Risks

Our business is dependent on continuous access to and evolution of

our trading facilities and information resources. The NYSE’s opera-

tional infrastructure is designed to support optimal throughput and

reliability and to accommodate future growth. We have developed

business continuity plans to permit the NYSE to continue operations

in the event of significant damage to our primary trading facility.

New management is actively reviewing our back-up and recovery

plans and is committed to making the necessary capital investments

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to ensure the required continuity is available to our constituents. An

event that renders the Exchange’s primary trading facility inoperable

could have an impact on the level of trading activity directed to and

processed by the NYSE as well as on our reputation and the capital

markets overall.

The NYSE is highly dependent on our extensive trading systems

and the related infrastructure. We must provide and continue to

invest appropriately in systems for customer order execution and

have sufficient excess capacity to process peak volume and transac-

tion flow at any point in time. Updates to the various trading systems

are required from time to time to ensure we can address the demands

that are placed on the trading systems. Additionally, our ability to

manage the regulatory requirements placed on the NYSE to ensure a

fair market is dependent on technology. As a result, the focus on the

appropriate infrastructure and support systems is critical to ensure

our success in maintaining public trust. Failure to maintain the

appropriate systems and keep pace with systems needs, improve-

ments and capacity may result in a temporary inability to trade, reg-

ulate, and report as well as create a loss of confidence in the NYSE by

its customers, constituents and regulators.

Regulatory Related Risks

The NYSE, as a self-regulatory organization, is subject to extensive

regulation resulting in demands for the highest level of integrity and

trust from and for our constituents. Such regulation may affect our

ability to act quickly in light of changes in the competitive market-

place. The Securities and Exchange Commission (SEC) is responsi-

ble for reviewing, publishing for public comment and ultimately

approving any changes to the NYSE’s Constitution or rules. Regula-

tions applicable to the Exchange may have the effect of limiting activ-

ities, including activities that might be profitable, or causing us to

modify our business model in ways that may adversely affect our

revenues or cost structure.

In addition, the SEC regularly conducts oversight examinations

of the Exchange’s regulatory programs. In response to these oversight

examinations, the Exchange has recently increased its funding of

Regulatory staff and technology resources.

The SEC has recently identified several pressing issues regard-

ing equity market structure (including specific rule proposals revis-

ing the trade through rule and the formula for allocating market

information revenues among the exchanges and the NASD). Action

by the SEC on any or all of these market-structure issues could have

a significant impact on the NYSE’s revenues, business model and

competitive position.

The NYSE has actively managed the issues described above and others

by constantly monitoring constituent needs, and adopting policies

and procedures to identify, monitor and manage the related risks.

Responsibility for Financial Statements

NYSE management has prepared the accompanying consolidated

financial statements of the New York Stock Exchange, Inc. and its

subsidiaries for the years ended December 31, 2003 and 2002 in accor-

dance with accounting principles generally accepted in the United

States of America. Management is responsible for the fair presenta-

tion in these financial statements of the NYSE’s financial position,

results of operations and cash flows. The accounts of all majority-

owned subsidiary companies have been included in the NYSE’s

consolidated financial statements; The Special Trust Fund and The

Gratuity Fund are reported separately and are not included in such

consolidated financial statements. Financial controls over NYSE

operations include a system of internal controls designed to provide

assurance that the assets of the NYSE are safeguarded against loss

from unauthorized use or disposition and that the books and

records, from which the consolidated financial statements were pre-

pared, properly reflect the transactions of the NYSE and its sub-

sidiaries. Important elements of the internal control system include

budgets and financial plans which are subjected to continuous review

throughout the year, manuals on established policies and procedures,

an organizational structure providing division and delegation of

responsibilities, careful selection and training of qualified financial

personnel, an annual attestation by all employees of adherence to the

NYSE’s Statement of Business Conduct and Ethics, and a program of

ongoing internal audits. These internal audit programs are coordi-

nated with the NYSE’s independent accountants. Having the appro-

priate systems and people in our finance and other corporate

functions is critical to ensure we maintain a control structure to

manage the risks embedded in the NYSE. Management believes that

insufficient investments have been made historically in the financial

systems. Investments in these systems and processes are viewed as

critical to improving the control structure at the NYSE. Financial

controls and related support will continue to be reviewed to ensure

they are appropriate to meet the needs of the NYSE and the com-

mitments that have been made.

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F I V E - Y E A R F I N A N C I A L R E V I E W(Dollars in Millions)

For the year ended December 31, 2003 2002 2001 2000 1999

Revenues from:

Operations $1,050.6 $1,036.2 $1,054.4 $ 986.0 874.3

Investments 23.5 29.6 59.6 58.8 44.3

1,074.1 1,065.8 1,114.0 1,044.8 918.6

Expenses 986.8 1,023.7 1,061.2 912.6 782.9

Income before taxes and minority interest 87.3 42.1 52.8 132.2 135.7

Provision for income taxes 36.4 11.7 17.7 54.4 57.3

Minority interest 1.3 2.3 3.3 4.9 3.2

Net income $ 49.6 $ 28.1 $ 31.8 $ 72.9 $ 75.2

Current assets $1,223.3 $1,155.9 $1,168.3 $1,095.2 $959.9

Current liabilities 416.1 340.3 389.6 366.2 331.9

Working capital 807.2 815.6 778.7 729.0 628.0

Non-current assets and liabilities, net 144.5 79.9 102.9 120.8 148.9

Equity of members $ 951.7 $ 895.5 $ 881.6 $ 849.8 $776.9

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C O N S O L I D A T E D S T A T E M E N T S O F I N C O M E(Dollars in Thousands)

For the year ended December 31, 2003 2002

Revenues:

Listing fees $ 294,612 $ 286,071

Data processing fees 224,774 224,575

Market information fees 172,369 168,844

Trading fees 157,171 152,806

Regulatory fees 113,506 120,813

Facility and equipment fees 60,494 52,575

Membership fees 10,990 12,816

Investment and other income 40,224 47,359

1,074,140 1,065,859

Expenses:

Compensation 522,461 521,506

Systems and related support 146,019 143,573

Professional services 114,795 136,258

Depreciation and amortization 67,559 61,856

Occupancy 65,323 63,871

General, administrative and other 56,155 69,388

Advertising 14,568 27,293

986,880 1,023,745

Income before taxes and minority interest 87,260 42,114

Provision for income taxes 36,367 11,721

Minority interest in income of consolidated subsidiary 1,274 2,330

Net income $ 49,619 $ 28,063

The accompanying notes are an integral part of these consolidated financial statements.

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C O N S O L I D A T E D B A L A N C E S H E E T S(Dollars in Thousands)

December 31, 2003 2002

Assets:

Current assets:

Cash and cash equivalents $ 11,004 $ 12,539

Securities purchased under agreements to resell 121,920 298,121

Investment securities, at fair value 868,562 652,141

Accounts receivable, net 105,469 127,039

Taxes receivable 52,543 952

Deferred income taxes 43,763 51,548

Other assets 20,074 13,535

Total current assets 1,223,335 1,155,875

Property and equipment, at cost, less accumulated depreciation

and amortization 316,445 322,200

Investments in affiliates, at cost 2,584 2,355

Non-current deferred income taxes 122,362 180,826

Other non-current assets 112,395 95,474

Total assets $1,777,121 $1,756,730

Liabilities and equity of members:

Current liabilities:

Accounts payable $ 76,542 $ 87,839

Accrued expenses 209,651 172,552

SEC transaction fee 129,878 79,909

Total current liabilities 416,071 340,300

Liabilities due after one year:

Accrued employee benefits 338,525 452,636

Other long-term liabilities 39,363 42,654

Total liabilities 793,959 835,590

Minority interest 31,452 25,636

Commitments and contingencies

Members’ equity:

Equity of members 959,277 909,658

Accumulated other comprehensive loss (7,567) (14,154)

Total equity of 1,366 members* 951,710 895,504

Total liabilities and members’ equity $1,777,121 $1,756,730

Equity per member having distributive rights* $ 697 $ 656

*At December 31, 2003, the NYSE had 1,366 members with distributive rights in the NYSE’s net assets, and is unchanged from 2002.

A list of names of all current members is available in the Office of the Secretary of the NYSE.

The accompanying notes are an integral part of these consolidated financial statements.

Page 30: 2003 Annual book

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C O N S O L I D A T E D S T A T E M E N T S O F

C H A N G E S I N M E M B E R S ’ E Q U I T Y A N D

C O M P R E H E N S I V E I N C O M E(Dollars in Thousands)

AccumulatedOther Total Total

Equity of Comprehensive Members’ ComprehensiveMembers Income/(Loss) Equity Income

Balance as of January 1, 2002 $881,595 $ — $881,595 $ —

Net income 28,063 — 28,063 28,063

Unrealized loss on investment securities, net of tax — (5,928) (5,928) (5,928)

Change in minimum pension liability, net of tax — (8,226) (8,226) (8,226)

Balance as of December 31, 2002 909,658 (14,154) 895,504 $13,909

Net income 49,619 — 49,619 $49,619

Unrealized gain on investment securities, net of tax — 9,018 9,018 9,018

Change in minimum pension liability, net of tax — (2,431) (2,431) (2,431)

Balance as of December 31, 2003 $959,277 $ (7,567) $951,710 $56,206

The accompanying notes are an integral part of these consolidated financial statements.

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C O N S O L I D A T E D S T A T E M E N T S O F

C A S H F L O W S(Dollars in Thousands)

For the year ended December 31, 2003 2002

Cash flows from operating activities:

Net income $ 49,619 $ 28,063

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization 67,559 61,856

Loss on disposition of assets 6,615 25,264

Increase (decrease) in minority interest 5,816 (2,487)

Decrease (increase) in deferred income taxes 63,234 (22,300)

(Increase) decrease in taxes receivable (51,591) 190

Provision for losses on accounts receivable (776) (888)

(Decrease) increase in accrued employee benefits (114,111) 57,162

Change in operating assets and liabilities:

Decrease in accounts receivable, net 22,346 8,845

(Increase) decrease in other assets (24,429) 7,103

Decrease in accounts payable (10,065) (3,482)

Increase (decrease) in accrued expenses 37,099 (42,265)

Increase (decrease) in SEC transaction fee payable 49,969 (4,519)

(Decrease) increase in other long term liabilities (2,323) 6,719

Net cash provided by operating activities 98,962 119,261

Cash flows from investing activities:

Net (purchases) sales of investment securities (205,798) 63,715

Net sales (purchases) of securities purchased under agreements to resell 176,201 (93,386)

Purchases of property and equipment (68,471) (113,382)

Increase in investment in affiliates (229) (235)

Net cash used in investing activities (98,297) (143,288)

Cash flows from financing activities:

Net (payment) increase of capitalized lease obligations (2,200) 1,827

Cash and cash equivalents:

Net decrease for year (1,535) (22,200)

Beginning of year 12,539 34,739

End of year $ 11,004 $ 12,539

Supplemental disclosure:

Cash paid for income taxes $ 30,199 $ 33,633

The accompanying notes are an integral part of these consolidated financial statements.

Page 32: 2003 Annual book

N O T E S T O T H E C O N S O L I D A T E D

F I N A N C I A L S T A T E M E N T S

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The New York Stock Exchange (NYSE or Exchange) is the world’s

leading equities market. A broad spectrum of market participants,

including individual and institutional investors, listed companies,

and member firms create the NYSE agency auction market. The

NYSE creates an open and orderly market for buying and selling

equity securities.

Companies listed on the NYSE range from the largest, well-

known “blue-chips” to smaller mid-sized enterprises. The NYSE is

also a self-regulatory organization, with strict rules and codes of

conduct and responsibility for the oversight of members and mem-

ber organizations.

The Securities Industry Automation Corporation (SIAC) is a

two-thirds owned subsidiary and is fully consolidated into the

financial statements of the NYSE and subsidiaries. The remaining

one-third is owned by the American Stock Exchange LLC (AMEX).

SIAC is a central securities industry resource providing key sup-

port to the NYSE, the AMEX, the National Securities Clearing Cor-

poration and the securities industry nationwide. SIAC plans,

develops, implements and manages a variety of automated informa-

tion-handling and communications systems that support order pro-

cessing, trading, and market information reporting, as well as trade

comparison, clearance and settlement for a broad range of securities.

SIAC also provides systems support for essential regulatory and

administrative activities. In addition, SIAC provides telecommunica-

tion and managed services through its wholly owned subsidiary, Sec-

tor, Inc. (Sector), to subscribers primarily in the securities industry.

Note 1 Description of Business:

The preparation of these financial statements, in conformity with

accounting principles generally accepted in the United States of

America, requires management to make estimates and assumptions

that affect the reported amounts of assets and liabilities at the date

of the financial statements and the reported amounts of revenues

and expenses during the reported period. Actual results could differ

from these estimates. Certain prior year amounts have been

reclassified to conform with the current year’s presentation.

(a) Principles of Consolidation The consolidated financial state-

ments include the New York Stock Exchange, Inc. and all wholly

owned subsidiaries, and SIAC, which is two-thirds owned by the

NYSE.All intercompany transactions are eliminated in consolidation.

The NYSE’s investment in The Depository Trust & Clearing

Corporation (DTCC), which is operated by separate management

and has a separate board of directors, is carried at cost since the

NYSE has less than majority ownership and does not exercise

significant influence over the operating and financial policies of this

company, and the carrying balance is reflected in the Balance Sheet

in Investments in affiliates.

The financial results of The Special Trust Fund and The Gra-

tuity Fund, which are reported separately, are not included in the

consolidated financial statements.

(b) Cash and Cash Equivalents Cash and cash equivalents are

composed of cash and highly liquid investments with an original

maturity of three months or less.

(c) Securities Purchased Under Agreements to Resell The

NYSE invests funds in overnight reverse repurchase agreements,

which provide for the delivery of cash in exchange for securities hav-

ing a market value of approximately 102% of the amount of the

agreements. Independent custodians take possession of the securi-

ties. Overnight reverse repurchase agreements are recorded at trade

date at the contractual amount and totaled $121.9 million and $298.1

million at December 31, 2003 and 2002, respectively.

(d) Investment Securities The NYSE accounts for investment

securities in accordance with Statement of Financial Accounting

Standards (SFAS) No. 115, “Accounting for Certain Investments in

Debt and Equity Securities.” The NYSE has determined that its

investments should be classified as available-for-sale securities.

Available-for-sale securities are carried at fair value as of trade date

with the unrealized gains and losses, net of tax, reported as a com-

ponent of other comprehensive income. Interest income on invest-

ment securities, including amortization of premiums and accretion

of discounts, is accrued and recognized over the life of the invest-

ment. The specific identification method is used to determine real-

ized gains and losses on sales of investment securities, which are

reported in investment and other income.

(e) Accounts Receivable, Net The NYSE’s receivables are primar-

ily from members, member organizations, listed companies and

market information subscribers. The concentration of risk on

accounts receivable is mitigated by the large number of entities com-

prising the NYSE’s customer base. The NYSE records an allowance

for uncollectible accounts when it’s deemed probable and estimable

that a loss has been incurred in the portfolio. It is estimated based on

historical experience, the composition of outstanding balances and

other relevant information. The total allowance, netted against

receivables, was $15.0 million at December 31, 2003 and $15.7 million

at December 31, 2002. Provisions were $0.7 million and $3.6 million

for 2003 and 2002, respectively, while write-offs were $1.4 million and

$4.5 million, respectively.

Note 2 Summary of Significant Accounting Policies:

Page 33: 2003 Annual book

(f) Property and Equipment and Depreciation Property and

equipment is recorded at cost on the closing date while depreciation

of property and equipment, including assets categorized as capital-

ized leases, is provided over the estimated useful lives of the assets.

An accelerated method is used for furniture and fixtures. The

straight-line method is used for substantially all other assets. Lease-

hold improvements are depreciated over the shorter of either the

term of their respective leases or their estimated useful lives.

Expenses for maintenance, repairs and renewals are charged to

operations as incurred; betterments are capitalized and depreciated

over their useful lives. The cost and accumulated depreciation of

property and equipment retired or otherwise disposed of are

removed from the accounts upon disposal and any gain or loss is

reflected in operations.

(g) SEC Transaction Fee The NYSE collects this fee pursuant to

Section 31 of the Securities Exchange Act of 1934 as amended and

records amounts as received. These fees are designed to recover the

costs to the government of the supervision and regulation of securi-

ties markets and securities professionals. The NYSE collects these

fees from those member organizations clearing or settling trades on

the NYSE. As required by law, the amount collected is remitted to the

United States Treasury semiannually.

(h) Accrued Employee Benefits The NYSE and SIAC have sepa-

rate qualified defined benefit pension plans covering substantially all

employees meeting age and service requirements. Each also has a

Supplemental Executive Retirement Plan. All of these plans are

accounted for under SFAS No. 87 “Employers Accounting for Pen-

sions.” In addition, the NYSE and SIAC maintain defined benefit

plans to provide certain health care and life insurance benefits for

eligible retired employees. These plans are accounted for under SFAS

106 “Employers Accounting for Postretirement Benefits Other

than Pensions.”

(i) Revenue Recognition Listing fees include original fees, which

are paid whenever a company initially lists on the NYSE and when-

ever it effects a corporate transaction that results in the listing of

additional shares. Companies also pay annual fees to remain listed on

the NYSE. Original fees are recognized in the month that the trans-

action occurs; annual fees are recognized ratably over the course of

the related period.

Data processing fees represent revenue generated by SIAC, other

than from the NYSE. SIAC’s revenue from the NYSE is eliminated in

consolidation. It is SIAC’s policy to charge affiliates and other cus-

tomers, other than Sector’s customers, at approximate cost. Sector’s

customers are billed at competitive rates for the services provided.

Fees are accrued and recognized as earned.

Market information fees are paid by members, member organi-

zations, institutional investors and other subscribers to access last

sale and bid/ask information. The fees are primarily based upon the

number of interrogation devices receiving the market information.

Fees are accrued and recognized as earned.

Trading Fees are self-reported and paid monthly by member

firms and are calculated based upon trading activity brought to the

floor of the NYSE. Fees are recognized as paid.

Regulatory fees are paid by members and member organiza-

tions and are primarily based upon the revenues and other measures

of activity. They are recognized ratably over the period to which they

apply.

Facility and equipment fees are paid to the NYSE for services

provided on the trading floor. They are accrued and recognized when

services are rendered.

(j) Comprehensive Income SFAS No. 130, “Reporting Compre-

hensive Income,” establishes guidelines for reporting and display of

comprehensive income and its components in the financial state-

ments. Other comprehensive income includes unrealized gains and

losses on investment securities classified as available-for-sale and

minimum pension liabilities, net of tax. Accumulated other com-

prehensive loss is included as a component of Members’ Equity.

(k) Income Taxes The NYSE uses the asset and liability method to

account for income taxes, including recognition of deferred tax

assets for the anticipated future tax consequences attributable to

differences between financial statements amounts and their respec-

tive tax bases. The NYSE reviews its deferred tax assets for recovery.

A valuation allowance is established when the NYSE believes that

it is more likely than not that a portion of its deferred tax assets

will not be realized. Changes in the valuation allowances from

period to period are included in the NYSE’s tax provision for the

period of change.

The NYSE files a consolidated tax return with its subsidiaries

except SIAC, which is required to file its tax return on a stand-alone

basis. The amounts recorded for financial reporting purposes aggre-

gate the stand-alone provisions.

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Page 34: 2003 Annual book

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SIAC is a two-thirds owned subsidiary and is fully consolidated into

the financial statements of the NYSE and subsidiaries. The remain-

ing one-third is owned by the AMEX.

SIAC provides certain communications, clearing and data

processing operations and systems development functions to the

NYSE, the AMEX and others. In addition, SIAC provides telecom-

munication and outsourcing services through Sector, to subscribers

primarily in the securities industry. Under a service agreement, SIAC

charges the users of its services, other than customers of Sector, their

respective share of its costs.

A summary of operations of SIAC is presented below:

Note 3 Securities Industry Automation Corporation:

Summary of Income

(Dollars in Thousands)For the year ended December 31, 2003 2002

Revenues:Data processing fees from:

New York Stock Exchange, Inc. $253,050 $273,328American Stock Exchange LLC 93,949 97,144National Securities Clearing Corp. 52,132 55,268Sector, Inc. 61,777 63,827Investment and other income 22,873 10,615

483,781 500,182

Expenses:Compensation 240,721 236,784Systems and related support 111,621 106,682Professional services 54,873 74,392Occupancy 29,034 29,593Depreciation and amortization 30,744 27,775General and administrative 10,512 16,949

477,505 492,175

Income before taxes 6,276 8,007Provision for income taxes 2,455 1,016

Net income $ 3,821 $ 6,991

The Depository Trust Company (DTC) and the National Securities

Clearing Corporation (NSCC) are wholly owned subsidiaries of

DTCC. DTC is a central certificate depository and NSCC operates the

clearing systems for its participants.

Under a stockholders’ agreement, entitlement to own the com-

mon stock of DTCC is redetermined each year, based on usage, with

shares to be transferred as appropriate at the adjusted net worth per

share at December 31 of the preceding year. The NYSE acquires/sells

any shares not purchased or sold by the users of DTC’s services. As

of December 31, 2003 the NYSE held 34.73% interest in the common

stock of DTCC which was an increase from the percentage held as of

December 31, 2002, of 34.17%. The 2004 entitlement is yet to be deter-

mined.

The NYSE also owns 50% of the preferred stock of DTCC,

which percentage was the same at December 31, 2002.

Accounts receivables, due from affiliates at December 31 are (in

thousands):

2003 2002

Depository Trust Company $ 1 $ 71National Securities Clearing Corp 4,069 3,051

$4,070 $3,122

Note 4 Affiliates:

Page 35: 2003 Annual book

Note 5 Investment Securities at Fair Value:

Investment securities consist primarily of U.S. Government and federal agency obligations, certificates of deposit, bankers’ acceptances, and

mutual funds.

Investment securities at December 31, 2003 consist of (Dollars in Thousands):

Amortized Estimated Gross GrossCost Fair Unrealized Unrealized

Security Type or Cost Value Gains Losses

Certificates of deposit $157,419 $157,396 $ 17 $ (40)U.S. Government and agencies 569,526 569,888 472 (110)Bankers acceptances 55,694 55,947 265 (12)Mutual funds 41,411 42,475 1,064 —Other 39,254 42,856 3,672 (70)

$863,304 $868,562 $5,490 $(232)

And at December 31, 2002:

Amortized Estimated Gross GrossCost Fair Unrealized Unrealized

Security Type or Cost Value Gains Losses

Certificates of deposit $125,776 $126,073 $ 297 $ —U.S. Government and agencies 350,990 355,250 4,304 (44)Bankers acceptances 35,230 36,330 1,108 (8)Mutual funds 119,771 107,807 — (11,964)Other 28,760 26,681 249 (2,328)

$660,527 $652,141 $5,958 $(14,344)

The contractual maturities of fixed income securities at December 31, 2003 are as follows (Dollars in Thousands):

Cost Fair Value

Due within one year $431,251 $431,273Due after one year through five years 322,762 323,334

$754,013 $754,607

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For 2003 the company realized proceeds from the sale of securities of

$3,480,128. Gross realized gains for the year amounted to $12,645 and

gross realized losses amounted to $6,884. In 2002 the company real-

ized proceeds from the sale of securities of $2,283,692 with gross

realized gains for the year amounting to $8,522 and gross realized

losses of $3,463.

(Dollars in Thousands)December 31, 2003 2002

Land $ 11,162 $ 11,162Buildings 178,627 160,317Leasehold improvements 152,592 140,966Equipment, including capitalized leases of $40,192 in 2003 and $41,926 in 2002 394,606 417,848Furniture and fixtures 29,649 27,654

766,636 757,947Less: accumulated depreciation and amortization 466,495 465,106

300,141 292,841Construction-in-progress 16,304 29,359

Total property and equipment $316,445 $322,200

Note 6 Property and Equipment:

Construction in progress primarily relates to capitalized construc-

tion and equipment costs associated with the continuing effort to

improve technology on the trading floor, modernization of elevators

and renovation projects in various departments of the NYSE.

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The income tax provisions for the years ended December 31 consist of the following (Dollars in Thousands):

2003 2002

Federal

Current $(18,927) $ 28,685

Current deferred 2,922 272Non-current deferred 41,210 (14,219)

44,132 (13,947)

State and local

Current (12,286) 2,902

Current deferred 1,576 150Non-current deferred 21,872 (6,069)

23,448 (5,919)

Total provision for income taxes $ 36,367 $ 11,721

Note 7 Income Taxes:

The current tax benefits for 2003 are largely attributable to previ-

ously deferred compensation paid in 2003.

Deferred income taxes reflect the net tax effects of temporary

differences between the carrying amounts of assets and liabilities for

financial reporting purposes and the amounts used for income tax

purposes. Temporary differences relate primarily to employee

benefits, deferred compensation, depreciation, and unrealized gains

or losses on marketable securities.

2003 2002

Current net deferred tax assets arising from:

Employee benefits $ 3,376 $ 7,191Deferred compensation 36,344 38,452Bad debt and other 4,043 5,905

$ 43,763 $ 51,548

Non-current net deferred tax assets arising from:

Depreciation $ 13,051 $ 16,378Deferred compensation 88,220 131,810Employee benefits 2,048 10,737Other 19,043 21,901

$122,362 $180,826

Effective Tax Rate 2003 2002

Federal statutory rate 35.0% 35.0%State and local taxes (net of federal benefit) 7.2% 1.1%WTC insurance proceeds — (6.9%)Benefit from prior year tax returns — (3.6%)Other (0.5%) 2.2%

41.7% 27.8%

No valuation allowance for the deferred tax asset is necessary in either

2003 or 2002, based on the weight of available evidence. Management

believes it is more likely than not that the assets will be utilized.

The 2003 effective tax rate of 41.7% differs from the federal rate

primarily due to state and local taxes, net of federal benefit. The 2002

effective tax rate of 27.8% is less than the federal rate due to tax

benefits received from prior years and permanent differences attrib-

utable to the receipt of insurance proceeds from the World Trade

Center (WTC) claim. A reconciliation between the statutory and

effective tax rates is presented below:

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The following is a summary of relevant legal matters:

The NYSE was a defendant in a consolidated, purported class

action filed in 1999 in the United States District Court for the South-

ern District of New York (Southern District). The complaint also

named current options exchanges (NYSE transferred its options

business to another exchange in 1997), specialists, market makers,

and others, and sought an unspecified amount of damages (trebled

under antitrust laws), injunctive relief, and attorneys’ fees, on behalf

of a purported class of persons who bought or sold certain equity

options between 1994 and 1999. The complaint alleged, among other

things, a conspiracy to refrain from multiply-listing certain equity

options in violation of Section 1 of the Sherman Act. In 2003, the U.S.

Court of Appeals for the Second Circuit (Second Circuit) entered a

judgment affirming the district court’s 2001 decision, which granted

defendants’ motion for summary judgment dismissing the com-

plaint on the basis of implied repeal of the antitrust laws. Plaintiffs

did not seek Supreme Court review of the Second Circuit’s decision,

which thus became a final dismissal of plaintiffs’ claims against

the NYSE.

On or about December 15, 2003, the California Public Employ-

ees’ Retirement System (CalPERS) filed a purported class action

complaint in the Southern District against the NYSE, NYSE special-

ist firms, and others. The complaint alleges, among other things, var-

ious violations of the Securities Exchange Act of 1934 and breach of

defendants’ fiduciary duty, on behalf of a purported class of persons

who bought or sold unspecified NYSE-listed stocks between 1998

and 2003. The complaint alleges that, with the NYSE’s knowledge and

active participation, specialist firms engaged in manipulative and

deceptive conduct, including interpositioning, front-running and

“freezing” the specialist’s book. The CalPERS suit, which seeks

unspecified compensatory damages against defendants, jointly and

severally, has been consolidated with three other purported class

action suits brought against the specialist firms and others (but not

the NYSE). The NYSE’s time to respond has been extended until after

the appointment of a lead plaintiff and the filing of an amended,

consolidated complaint.

On January 27, 2004, Papyrus Technology Corporation

(Papyrus) filed a complaint in the Southern District against the

NYSE, alleging that the NYSE’s Wireless Data System and Broker

Booth Support System infringe patents allegedly issued to Papyrus

and that the NYSE breached a license agreement with Papyrus. On

March 18, 2004, the NYSE filed its Answer (including Affirmative

Defenses) and Counterclaim, and the discovery phase of the litiga-

tion has commenced.

The NYSE intends to vigorously defend against the above-ref-

erenced lawsuits, the outcomes of which cannot reasonably be deter-

mined at this time.

The NYSE is a defendant in a number of other actions. In the

opinion of management and legal counsel, the aggregate of all possi-

ble losses from all such actions should not have a material adverse

effect on the consolidated financial condition of the NYSE.

In or about October 2003, the U.S. Securities and Exchange

Commission commenced an investigation relating to the Exchange’s

enforcement of compliance by its members or member organizations

and persons associated with its member organizations with the

antifraud provisions and provisions governing the conduct of spe-

cialists under the federal securities laws and the Exchange’s rules.

The outcome of this investigation cannot reasonably be determined

at this time.

In December 2003, the NYSE received a report from the law

firm of Winston & Strawn, which the Exchange had engaged to

investigate and review certain matters relating to the compensation

of the former Chairman and CEO and the process by which that

compensation was determined. The Exchange provided this report

to the SEC and New York State Attorney General’s Office, which

commenced investigations relating to those matters in or about Jan-

uary 2004. The outcome of these investigations cannot reasonably be

determined at this time.

The board is seeking to recover compensation and benefits pre-

viously made to the former Chairman and CEO under his most

recent and previous employment contracts, as well as to negate

any remaining payments that the former Chairman and CEO may

claim are required under the terms of the contracts. Generally

accepted accounting principles preclude the NYSE from accruing

any recovery for its own claims until the dispute is resolved

but require the NYSE to accrue compensation expense related to

the former Chairman and CEO based upon the most recent contract.

At December 31, 2003, the NYSE accrued compensation expense

amounting to $36 million related to the former Chairman and

CEO. This accrual reflects management’s interpretation of the provi-

sions contained in the most recent contract, which provides terms

outlining certain payments to which the former Chairman and CEO

could be entitled upon ceasing employment with the NYSE, if that

contract is found to be valid and the payments were deemed to be

allowable and appropriate under the law. This liability is recorded as

a current liability. Management is currently uncertain as to the ulti-

mate outcome and timing of the resolution of the disputes. If

significant changes relating to the ongoing dispute and the underly-

ing assumptions used by management occur, those changes could

lead to increases or decreases in the recorded liability as of Decem-

ber 31, 2003. These increases or decreases could be material to the net

income of the NYSE.

Note 8 Litigation and Other Matters:

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The NYSE and SIAC maintain separate qualified defined benefit

pension plans covering substantially all of their employees. Retire-

ment benefits are derived from a formula, which is based on length

of service and compensation. The NYSE and SIAC fund pension

costs to the extent such costs may be deducted for income tax pur-

poses. There were contributions made to the NYSE pension plan of

$36,515 in 2003 and no contributions made during 2002. SIAC con-

tributed $29,032 in 2003 and $10,000 in 2002 to its pension plan.

The NYSE bases its investment policy and objectives on a review

of the actuarial and funding characteristics of the Retirement Plan,

the demographic profile of plan participants and the business and

financial characteristics of the NYSE. Capital market risk/return

opportunities and tradeoffs also are considered as part of the deter-

mination. The primary investment objective of the NYSE plan is to

achieve a long-term rate of return that meets the actuarial funding

requirements of the plan and maintains an asset level sufficient to

meet all benefit obligations of the plan. Based on the plan’s primary

investment objective and on the NYSE’s review of relevant plan char-

acteristics, the NYSE has established 70% equity and 30% fixed

income allocation targets for the plan’s investment program.

The NYSE and SIAC also maintain a nonqualified plan, which

provides supplemental retirement benefits for certain employees. To

provide for the future payments of these benefits, the NYSE has pur-

chased insurance on the lives of the participants through company-

owned policies. At December 31, 2003 and 2002 the cash surrender

value of such policies was $27.7 million and $26.0 million, respec-

tively, and is included in other non-current assets.

The costs of the plans for 2003 and 2002 have been determined

in accordance with SFAS No. 87, “Accounting for Pensions.”

Note 9 Retirement Benefits:

Pension Plans

2003 2002NYSE SIAC NYSE SIAC

Projected benefit obligation at December 31 $359,032 $212,736 $315,609 $179,665Fair value of plan assets at December 31 $336,819 $192,399 $253,175 $138,332

Funded (unfunded) status $ (22,213) $ (20,337) $ (62,434) $ (41,333)

Accumulated benefit obligation at December 31 $319,485 $165,721 $279,253 $141,857Prepaid benefit cost recognized/(accrued benefit liability) in the

consolidated balance sheets $ 9,232 $ 39,368 $ (26,078) $ (3,525)Intangible asset — — $ 6,282 $ 2,394Other comprehensive loss attributable to minimum pension liability — — — $ 19,691Net periodic benefit cost $ 7,487 $ 8,704 $ (969) $ 4,566Employer contribution $ 36,515 $ 29,032 — $ 10,000Benefits paid $ 12,241 $ 6,584 $ 11,298 $ 5,689Effect of plan amendments on benefit obligation — — $ 3,816 $ 1,613

Pension Plans Cost

2003 2002NYSE SIAC NYSE SIAC

Cost of benefits earned during the year $ 12,497 $ 9,681 $ 9,683 $ 7,851Interest on benefits earned to date 20,535 11,655 19,220 10,584Net amortizations 941 1,145 (3,083) 251Estimated return on plan assets (26,486) (13,816) (26,789) (14,120)Additional (gain) or loss recognized due to:

Settlement — — — —Curtailment — 39 — —

Aggregate pension expense $ 7,487 $ 8,704 $ (969) $ 4,566

SERP Plans

2003 2002NYSE SIAC NYSE SIAC

Projected benefit obligation at December 31 $ 111,136 $ 33,628 $ 159,475 $ 30,106Fair value of plan assets at December 31 — — — —

Funded (unfunded) status $(111,136) $(33,628) $(159,475) $(30,106)

Accumulated benefit obligation at December 31 $ 104,445 $ 28,726 $ 135,244 $ 25,395Prepaid benefit cost recognized/(accrued benefit liability) in the

consolidated balance sheets $(104,445) $(28,726) $(135,244) $(25,395)Intangible asset $ 7,535 $ 3,413 $ 7,492 $ 4,067Other comprehensive loss attributable to minimum pension liability $ 17,277 $ 2,876 $ 8,816 $ 874Net periodic benefit cost $ 25,449 $ 4,349 $ 39,477 $ 8,378Employer contribution — — — —Benefits paid $ 64,752 $ 2,366 $ 4,352 $ 11,909Effect of plan amendments on benefit obligation $ 1,399 — $ (894) $ (903)

Page 39: 2003 Annual book

SERP Plan Costs

2003 2002NYSE SIAC NYSE SIAC

Cost of benefits earned during the year $ 3,986 $1,420 $28,337 $1,055Interest on benefits earned to date 6,450 1,916 6,569 2,146Plan amendments — — — —Net amortizations 5,817 918 4,571 1,048Estimated return on plan assets — — — —Additional (gain) or loss recognized due to:

Settlement 9,196 94 — 2,303Curtailment — — — 1,826

Aggregate SERP expense $25,449 $4,348 $39,477 $8,378

Weighted-average assumptions as of December 31:

Discount rate 6.00% 6.00% 6.50% 6.50%Expected long-term rate of return on plan assets 8.00% 8.50% 8.50% 9.00%Rate of compensation increase—Pension 4.00% 5.00% 5.00% 5.00%Rate of compensation increase—SERP 4.00% 6.00% 5.00% 6.00%

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To develop the expected long-term rate of return on assets assump-

tion, the company considered the historical returns and the future

expectations for returns for each asset class as well as the target asset

allocation of the pension portfolio.

In addition to providing pension benefits, the NYSE and SIAC main-

tain defined benefit plans to provide certain health care and life

insurance benefits (the “Plans”) for eligible retired employees. These

Plans, which may be modified in accordance with their terms, cover

substantially all employees.

The net periodic postretirement benefit cost for the NYSE was

$5,571 in 2003 while the comparable cost for 2002 was $4,220. SIAC’s

benefit cost was $5,580 in 2003 and $4,542 in 2002. The Plans are

unfunded.

Note 10 Other Employee Benefit Plans:

2003 2002(Dollars in Thousands) NYSE SIAC NYSE SIAC

Benefit obligation at end of year $(103,552) $(53,325) $ (80,029) $(41,693)Benefits paid $ 4,182 $ 1,765 $ 3,854 $ 1,379Accrued benefit cost $ 102,678 $ 26,696 $101,289 $ 22,881Discount rate as of December 31, 6.00% 6.00% 6.50% 6.50%

For measurement purposes, the NYSE assumed a 9% annual rate of

increase in the per capita cost of covered health care benefits for

2003. The rate is assumed to increase to 12.5% for 2004 and then

decrease gradually each year to 5% for 2014 and remain at that level

thereafter. SIAC assumed a 10% annual rate of increase in the per

capita cost of covered health care benefits for 2003 which will

decrease on a graduated basis to 5% in the year 2013 and thereafter.

In December 2003 the President signed the “Medicare Pre-

scription Drug, Improvement and Modernization Act of 2003” into

law. In accordance with a Staff Position issued by the Financial

Accounting Standards Board (FASB), the NYSE has elected to defer

reflecting the impact of this law until the FASB provides specific

authoritative guidance on the proper accounting treatment. As such,

any measure of the Accumulated Plan Benefit Obligation and the net

periodic postretirement benefit costs are not reflected in these finan-

cial statements and footnotes. The issuance of this guidance could

require the NYSE to change previously reported information, though

management believes the impact will not be material to these finan-

cial statements.

The table below shows the effect that a 100 basis point increase

or decrease in the 61⁄2% discount rate and 81⁄2% expected rate of

return on plan assets would have on the Company’s pension, SERP

and other post retirement benefits obligations and costs:

1% Increase 1% Decrease

Change in the discount rate:

Pension, SERP and OPEB

obligation (103,891,000) 126,304,000Net periodic pension, SERP

and OPEB cost (11,538,000) 11,242,000

Change in the expected rate of

return on plan assets:

Net periodic pension cost (4,742,000) 4,742,000

The NYSE also maintains savings plans for which most employees are

eligible to contribute a part of their salary within legal limits. The

NYSE will match an amount equal to 100% of the first 6% of eligible

contributions. The NYSE also provides benefits under a Supplemen-

tal Executive Savings Plan to which eligible employees may also con-

tribute and receive an appropriate company match. SIAC maintains

similar though separate plans. For 2003 the savings plans expense

was $13.7 million and $13.3 million for 2002. Included in accrued

employee benefits payable was $60.5 million and $130.1 million at

December 31, 2003 and December 31, 2002, respectively related to

these plans.

Page 40: 2003 Annual book

The NYSE has a Capital Accumulation Plan (CAP) for desig-

nated senior executives. Under the CAP, each year, participating exec-

utives are credited with an amount based upon a percentage of their

annual Incentive Compensation Plan award. These awards vest, for

each executive, between the ages of 55 and 60, and are transferred

into a Rabbi Trust as they vest. Unvested CAP amounts earn interest

based upon the 10-year Treasury Bond rate as of December 31st of the

prior year. Participants may elect to receive their vested account bal-

ances in a lump sum distribution or annual installments following

termination of employment. The total amount of the awards for 2003

was $1.1 million and $6.7 million for 2002. Included in accrued

employee benefits at December 31, 2003 and 2002 is $14.0 million and

$16.8 million respectively related to this plan. Awards and any related

interest are included as compensation expense in the year earned.

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NYSE and SIAC are individually parties to several leases of office

space and equipment, which expire at various dates through 2023.

Rental expense under these leases, included in the Consolidated

Statements of Income, was $79.3 million in 2003, and $76.3 million

in 2002. Minimum lease rental commitments at December 31, 2003

follow (Dollars in Thousands):

Capital LeasesYears Equipment

2004 $ 8,1432005 3,9732006 2,4002007 1,7192008 2992009 – 2013 —2014 – 2018 —

Total future minimum lease payments 16,534Less—Amount representing interest 2,311

Present value of net minimum lease payments (including

$6,648 due within one year classified as current) $14,223

Note 11 Commitments and Contingencies:

Operating LeasesYears Office Space Equipment Total

2004 $47,453 $22,347 $69,8002005 49,741 12,882 62,6232006 49,759 6,437 56,1962007 51,084 3,587 54,6712008 52,287 17 52,3042009 – 2013 154,520 — 154,5202014 – 2018 45,035 — 45,035

$495,149

In the normal course of business, the NYSE may enter into con-

tracts that require it to make certain representations and warranties

and which provide for general indemnifications. Based upon past

experience, the Exchange expects the risk of loss under these

indemnification provisions to be remote. However, given that

these would involve future claims against the NYSE that have not yet

been made, the NYSE’s potential exposure under these arrangements

is unknown.

Page 41: 2003 Annual book

R E P O R T O F

I N D E P E N D E N T A U D I T O R S

To the Board of Directors and Members of the

New York Stock Exchange, Inc.:

In our opinion, the accompanying consolidated balance sheets and

the related consolidated statements of income, and equity of mem-

bers and comprehensive income, and cash flows of the New York

Stock Exchange, Inc. and its subsidiaries present fairly, in all mater-

ial respects, the financial position of the New York Stock Exchange,

Inc. and its subsidiaries at December 31, 2003 and 2002 and the

results of their operations and their cash flows for the years then

ended in conformity with accounting principles generally accepted

in the United States of America. These financial statements are the

responsibility of the New York Stock Exchange, Inc.’s management;

our responsibility is to express an opinion on these financial

statements based on our audits. We conducted our audits of these

statements in accordance with auditing standards generally accepted

in the United States of America, which require that we plan and per-

form the audits to obtain reasonable assurance about whether the

financial statements are free of material misstatement. An audit

includes examining, on a test basis, evidence supporting the

amounts and disclosures in the financial statements, assessing the

accounting principles used and significant estimates made by man-

agement, and evaluating the overall financial statement presentation.

We believe that our audits provide a reasonable basis for our opinion.

New York, New York

April 2, 2004

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Page 42: 2003 Annual book

T H E S P E C I A L T R U S T F U N D

Statements of Operations and Net Assets

(Dollars in Thousands)For the year ended December 31, 2003 2002

Operations for year:Investment income, net of expenses $ 382 $ 543Net assets at beginning of year 19,725 19,182

Net assets at end of year $20,107 $19,725

At December 31, consisting of:Cash and investment securities, at cost (approximates market) $19,933 $19,523Accrued interest receivable 179 206

20,112 19,729Less: Accrued expenses 5 4

Net assets $20,107 $19,725

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Note—The Special Trust Fund was established under provisions of

the Constitution of the New York Stock Exchange, Inc. The purpose

of the Fund is to provide assistance, primarily from funds con-

tributed by the NYSE to The Special Trust Fund, to customers threat-

ened with losses due to the financial condition of certain member

organizations.

The Statements of Operations and Net Assets of The Special

Trust Fund are prepared on an accrual basis and accordingly recog-

nize interest income when earned, expenses when incurred and

recoveries when realizable. Future expenditures from the Fund are

not expected to exceed its net assets. Some recoveries of prior expen-

ditures by the Fund may be received in the future.

Page 43: 2003 Annual book

T H E G R A T U I T Y F U N D

Statements of Operations and Net Assets

(Dollars in Thousands)For the year ended December 31, 2003 2002

Operations for year:Contributions from members $1,441 $1,035Investment income 38 66

1,479 1,101

Expenses:Gratuities to beneficiaries of deceased members 1,500 1,100Provision for income taxes and other expenses 2 7

1,502 1,107

Decrease in net assets (23) (6)Net assets at beginning of year 1,613 1,619

Net assets at end of year $1,590 $1,613

At December 31, consisting of:Cash and investment securities, at cost (approximates market) $2,264 $2,401Contributions receivable 102 —Other 182 184

2,548 2,585Less: Gratuities and other liabilities payable 958 972

Net assets $1,590 $1,613

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Note—The Gratuity Fund was established under provisions of the

Constitution of the New York Stock Exchange, Inc. The Fund pays

beneficiaries of deceased equity members $20,000 if membership

was held for a year or less, which amount increases in increments of

$20,000 per additional year of membership up to a maximum of

$100,000 or so much as may have been collected from surviving

equity members. Each surviving equity member is required to

contribute an amount from $15 to $75 upon the death of an equity

member, which contribution is dependent upon the period of time

the deceased maintained membership.

The Statements of Operations and Net Assets of The Gratuity

Fund are prepared on an accrual basis and accordingly recognize

interest income when earned and expenses when incurred.

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John S. Reed

N Y S E B O A R D

O F D I R E C T O R S

Madeleine K. AlbrightHerbert M. Allison, Jr.

D. Euan Baird

Marshall N. Carter

Shirley Ann Jackson

James S. McDonald

Robert B. Shapiro

Dennis Weatherstone

John A. Thain

Page 45: 2003 Annual book

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John S. ReedChairman New York Stock Exchange, Inc.

John A. ThainChief Executive OfficerNew York Stock Exchange, Inc.

Madeleine K. AlbrightPrincipalThe Albright Group LLCFormer Secretary of State

Herbert M. Allison, Jr.Chairman, President and CEO TIAA-CREF

D. Euan BairdChairman of Rolls-Royce plc and former Chairman, President and CEOSchlumberger

Marshall N. CarterChairman and CEO (Retired)State Street Bank and Trust

Shirley Ann JacksonPresident Rensselaer Polytechnic Institute

James S. McDonaldPresident and CEORockefeller & Co.

Robert B. ShapiroRetired Chairman Pharmacia Corporation andretired Chairman and CEO Monsanto Company

Dennis WeatherstoneRetired Chairman J.P. Morgan & Co.

B O A R D O F

D I R E C T O R SAs of April 2004

■ Member firms that deal with the public

James E. CayneChairman and CEOThe Bear Stearns Companies Inc.

John J. Mack Chief Executive OfficerCredit Suisse First Boston

E. Stanley O’Neal Chairman and CEOMerrill Lynch & Co., Inc.

Henry M. Paulson, Jr.Chairman and CEOThe Goldman Sachs Group, Inc.

Philip J. PurcellChairman and CEOMorgan Stanley

Thomas A. Renyi Chairman and CEOThe Bank of New York

William B. Summers, Jr.ChairmanMcDonald Investments Inc.

■ Specialists

John F.X. DolanPartnerVan der Moolen Specialists USA LLC

Peter J. MurphyChief Executive OfficerBear Wagner Specialists

■ Trading floor brokers

Robert H. McCooey, Jr.President and CEO The Griswold Company

Doreen Mogavero President and CEOMogavero, Lee & Co., Inc.

■ Lessor members

Joseph A. Mahoney

Donald Stone

■ Institutional investors

Laurence D. FinkChairman and CEOBlackRock, Inc.

Richard H. MooreState TreasurerNorth Carolina

Allen ReedPresident and CEOGeneral Motors Investment Management Corporation

■ Individual investors

Kurt P. StockerProfessorNorthwestern University

■ Listed companies

Louis C. CamilleriChairman and CEOAltria Group, Inc.

Carly FiorinaChairman and CEOHewlett-Packard Company

Jeffrey W. GreenbergChairman and CEOMarsh & McLennan Companies, Inc.

Mel KarmazinPresident and COOViacom, Inc.

B O A R D O F

E X E C U T I V E SAs of April 2004

Page 46: 2003 Annual book

O P E R A T I N G

C O M M I T T E E SAs of December 2003

N Y S E B O A R D C O M M I T T E E SAs of December 2003

■ Regulatory Oversight &Regulatory BudgetCommitteeMarshall N. Carter,

ChairmanShirley Ann JacksonDennis Weatherstone

■ Regulation, Enforcement& Listing StandardsCommitteeLarry W. Sonsini, ChairmanMarshall N. CarterShirley Ann JacksonDennis WeatherstoneJohn F. X. DolanA. James JacobyDoreen MogaveroWilliam B. Summers, Jr.

■ Human Resources andCompensationCommitteeD. Euan Baird, ChairmanAll Board members act as a

committee of the whole(except the CEO)

■ Nominating andGovernance CommitteeMadeleine K. Albright,

ChairmanAll Board members act as a

committee of the whole(except the CEO)

■ Audit CommitteeJames S. McDonald,

ChairmanHerbert M. Allison, Jr.Robert B. Shapiro

■ Market PerformanceCommittee

Board of Executives FloorRepresentativesJohn F. X. DolanRobert H. McCooey, Jr.Doreen M. MogaveroPeter J. Murphy

Specialist GovernorsCharles J. Bocklet IIIJoseph BongiornoStephen H. FrankKevin F.X. FeeleyMyles D. GillespieArthur Jacobson, Jr.Michael LaBranchePeter E. LaceySean McCooey

Floor Broker GovernorsJoseph M. BenantiJoseph N. CangemiRobert CunninghamRobert A. CutroRobert N. DelaneyRichard A. GennaKaren Nelson HackettRodolfo MassBernard McSherryThomas T. Thresher

Allied MemberRepresentativesRobert KarofskyAnthony D. LautoRichard LynchEdward McMahon *Robert MooreMichael O’HareWilliam Schneider

Institutional InvestorRepresentativesRichard BlockKevin Cronin **Robert FelvinciAnn C. HartwellPeter W. JenkinsSteven ListorTimothy Mahoney

* Ex-officio voting member

** Ex-officio voting member as of

December 18, 2003

■ Allocation Panel

Floor Broker MembersBradley M. BaileyPerry P. BarbJeffrey A. BushPeter S. CastelliCharles CatalanottoDermott W. ClancyPatrick J. Collins IIIRichard ComoSusan Conway

Richard DanieleChristopher P. DruckerJames C. FerrisLora GehrkeJohn P. Gilmartin, Jr.Steven G. HorowitzJames M. IngrilliThomas M. KayRobert KeenanJeffrey R. LeachWilliam V. MarsaliseJacqueline MoranJohn J. PryorEdward RodeJohn P. RuaneJames SeipMichael J. SpadaroAndrew StrobelLeigh J. Surkis

Executive Floor OfficialMembersChristopher AlbertiPeter E. KannRichard A. RosenblattDaniel W. Tandy

Senior Floor OfficialMembersJoseph A. Atanasio, Jr.Peter P. CostaAngelo DeGaetaFrank V. DeGarciaBrendan R. DowdJoseph R. JaegerJames Francis KellyDouglas F. LangeEdward T. LynchKenneth J. PolcariEdward G. SchreierBenedict P. Willis III

Allied MembersWilliam Bertsch/

Scott BacigalupoScott CohenJoseph Gervais/

Joseph ScafidiRaymond Hawkins/

Michael EagerScott Lynch/

John O’DonoghueBrian RiddleEric Weiner/Halley ZinavoyJames Whelen/

Michael Murphy

Institutional MembersMinder ChengRichard FelegyMadison GulleyLisa Marie Utasi

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YS

E_

AR

.2

00

345

A D V I S O R Y C O M M I T T E E S

T O N Y S E B O A R D O F D I R E C T O R SAs of December 2003

■ Exchange Traders Advisory Committee

Dennis SullivanCommittee ChairmanLazard Frères & Co. LLC

Angelo J. AntonucciSchwab (Charles) & Co. Inc.

Joseph A. Atanasio, Jr.BNY Brokerage Inc.

Christopher D. BurnsBear, Stearns & Co. Inc.

Arthur D. Cashin, Jr. *UBS Financial Services Inc.

Robert L. CunninghamMerrill Lynch, Pierce,Fenner & SmithIncorporated

Robert A. CutroLehman Brothers Inc.

Robert N. DelaneyCredit Suisse First Boston

Joseph L. FerrareseMorgan Stanley & Co. Inc.

Richard A. GennaGoldman Sachs & Co.

Thomas M. KayJ.P. Morgan Securities, Inc.

Douglas F. LangeUBS Securities, LLC

Edward T. LynchSuntrust Capital Markets, Inc.

William V. MarsaliseBernstein (Sanford C.) & Co., LLC

Bernard McSherryPrudential Equity Group Inc.

Michael J. NewmanEdwards (A.G.) & Sons, Inc.

Edward G. SchreierDeutsche Bank Securities Inc.

Vincent P. ShanleyCitigroup Global Markets Inc.

William J. SimpsonMcDonald Investments Inc.

Thomas T. ThresherBanc of America Securities LLC

Michael E. WhalenCIBC World Markets Corp.

* Ex-Officio Member

■ European AdvisoryCommittee

Marc Vienot Committee ChairmanSociété GénéraleFrance

Carlo De BenedettiCIR S.p.A.Italy

Gösta BystedtAB ElectroluxSweden

François CornélisTotalFinaElf S.A.Belgium

Ignacio Gomez-AceboGomez-Acebo & PomboSpain

André LeysenGevaert N.V.Belgium

Lord Marshall ofKnightsbridgeBritish Airways PlcUnited Kingdom

Sergio OrlandiniThe Netherlands

Ricardo Espirito SantoSalgadoEspirito Santo FinancialPortugal

Guido N. Schmidt-ChiariConstantia-Iso AGAustria

Jürgen StrubeBASF AGGermany

Robert StuderSwitzerland

Poul J. SvanholmDen Danske BankDenmark

Serge TchurukAlcatelFrance

Marco Tronchetti ProveraPirelli, S.p.A.Italy

Vesa VainioUPM-KymmeneCorporationFinland

Sir Iain D.T. VallanceThe Royal Bank of ScotlandEngland

Lodewijk C. van WachemZurich The Netherlands

Jarl WhistNorscan Partners S.A.Norway

■ Legal AdvisoryCommittee

Martin LiptonCommittee ChairmanWachtell, Lipton,Rosen & Katz

William T. AllenNew York University Centerfor Law & Business

Richard E.T. BennettHSBC Holdings plc

Rosemary BerkeryMerrill Lynch

Kenneth J. BialkinSkadden, Arps, Slate,Meagher & Flom

James H. Cheek III *Bass, Berry & Sims

Peter ClapmanTIAA-CREF

John C. Coates IVHarvard Law School

Thomas A. ColeSidley Austin Brown & Wood

Diana M. DanielsThe Washington Post Co.

Nicholas DeRomaNortel Networks

Frank L. FernandezThe Home Depot Inc.

Edward F. Greene *Cleary, Gottlieb,Steen & Hamilton

Linda W. Hart *The Hart Group

Dixie L. JohnsonFried, Frank, Harris,Shriver & Jacobson

Milton P. Kroll *Foley & Lardner

John M. LiftinPrudential Financial Inc.

Jonathan R. MaceyCornell Law School

Jack Nusbaum Willkie Farr & Gallagher

Kathryn A. OberlyErnst & Young LLP

Ernest T. PatrikisAmerican InternationalGroup, Inc.

Richard RoweProskauer Rose LLP

Stanley SporkinWeil, Gotshal & Manges LLC

Esta E. StecherGoldman, Sachs & Co.

Richard H. WalkerDeutsche Bank AG

Herbert S. WanderKatten Muchin Zavis Rosenman

John W. White Cravath, Swaine &Moore LLP

William J. Williams Jr.Sullivan & Cromwell

Wendell Willkie IIMeadWestvaco Corporation

■ International CapitalMarkets AdvisoryCommittee

Kurt F. ViermetzCommittee ChairmanJ.P. Morgan Chase & Co.

Richard A. DebsMorgan Stanley Dean Witter& Co.

Jeffrey EdwardsMerrill Lynch & Co.

Ambassador Richard N. GardnerMorgan, Lewis & Bockius L.L.P.

Paul B. GrosseFinTel Consultants, Inc.

Professor Trevor S. HarrisMorgan Stanley Dean Witter& Co.

Robert D. HormatsGoldman SachsInternational

Thomas E. JonesInternational AccountingStandards Board (IASB)

Ralph LaymanGE Asset Management Inc.

Martin L. LeibowitzTIAA-CREF

Edward E. MatthewsAmerican InternationalGroup, Inc.

Nassos MichasRobeco/Weiss Peck & Greer

Ikuo MoriDaiwa Securities America Inc.

Robert C. PozenHarvard Law School

S. Lawrence PrendergastLaBranche & Co. Inc.

Alan H. RappaportBank of America Private Bank

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Jeffrey R. ShaferSalomon Smith Barney International

Jeremy W. SillemBear, Stearns International Limited

Hideyuki TakahashiNomura Holding America, Inc.

Edmond D. VillaniDeutsche Asset Management

■ Institutional TradersAdvisory Committee

Kevin CroninCommittee ChairmanAIM Capital Management

Richard BlockPutnam Management Co.

Andrew M. BrooksT. Rowe Price Group

Michael H. BuekVanguard Group

Minder ChengBarclays Global Investors

Jeanne M. CostiganDavid L. Babson &Company, Inc.

Betsy CoyneColumbia ManagementAdvisors Inc.

Richard P. FelegyMorgan Stanley

Robert J. FelvinciAlliance CapitalManagement

Mark A. FlahertyWellington Management

Doreen L. GeeCapital Research &Management Company

Madison S. GulleyFranklin Templeton

Ann C. HartwellMFS InvestmentManagement

Tom HeardenStrong Capital Management

Mary McDermott-HollandFranklin PortfolioAssociates

Peter W. JenkinsDeutsche Asset Management

Jeremy LewJanus Capital Corporation

Frederic R. LexowJP Morgan Fleming Asset Management

Steven ListorBank of New York

Tim MahoneyMerrill Lynch Investment Managers

Mellany S. MoyerColorado Public EmployeesRetirement Association

Michael RyanState Street Research &Management Company

Lisa Marie UtasiSmith Barney AssetManagement

■ Upstairs TradersAdvisory Committee

Benjamin S. BramGoldman Sachs & Co.

James DeasyCredit Suisse First Boston

John M. DonahueFidelity Investments

Timothy J. HeekinThomas Weisel Partners, Inc.

James ManfredoniaBear Stearns & Co. Inc.

David MemmottMorgan Stanley

Michael L. MurphyWachovia Securities

Michael J. NewmanCitigroup Global Markets

Michael O’HareLehman Brothers, Inc.

Ciaran T. O’KellyBanc of America Securities

Gregory RosenbergDeutsche Bank Securities

William A. SchneiderUBS Securities

■ Listed CompanyAdvisory Committee

Brian L. HallaCommittee ChairmanNational SemiconductorCorporation

Edward W. BarnholtAgilent Technologies

Robert E. BeauchampBMC Software Inc.

Eric F. BillingsFriedman, Billings, RamseyGroup Inc.

Jack O. Bovender Jr.HCA

John S. ChenSybase Inc.

Janet DolanTennant

Ronald W. DollensGuidant Corporation

Anthony F. Earley Jr.DTE Energy Company

Michael FeuerOfficeMax, Inc.

Paul D. FinkelsteinRegis Corporation

Paul R. GarciaGlobal Payments Inc.

Kerry K. KillingerWashington Mutual Inc.

Stephen J. LuczoSeagate Technology

Jeffrey L. McWatersAMERIGROUPCorporation

William T. MonahanImation Corp.

George SamenukNetwork Associates, Inc.

Joseph V. TarantoEverest Group Ltd.

Lawrence A. WeinbachUnisys Corporation

46

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■ Individual InvestorsAdvisory Committee

Kurt P. StockerCommittee ChairmanNorthwestern UniversityMedill School of Journalism

Stephen Buckles *Vanderbilt University

Randall R. EleyThe Edgar Lomax Company

David GardnerThe Motley Fool Inc.

Paula L. Gavin *YMCA of Greater New York

Joe Grills

Christopher W. HansenAARP

Frederick W. HillJP Morgan Chase & Co.

Kenneth S. JankeNational Association ofInvestors Corp.

Myron KandelCNN

John J. LaFalceCanisius College

Edward J. MalloyBuilding & ConstructionTrades Council of GreaterNew York

Hervey C. Parke IIIInternational BusinessMachines

Veronica PollardToyota MotorNorth America, Inc.

James P. ProutTaylor Rafferty

Thomas E. StitzelBoise State University

■ Pension ManagersAdvisory Committee

Myra DruckerCommittee ChairpersonGM Asset Management,GM Trust Co.

Mark AnsonCalPERS

Mary CahillEmory UniversityEndowment

Donna J. DeanRockefeller Foundation

David P. Feldman *AT&T InvestmentManagement Corp.

Gary A. Glynn *U. S. Steel & CarnegiePension Fund

T. Britton HarrisVerizon InvestmentManagement Corp.

Rawdon McArthurBellSouth

John MyersGeneral Electric AssetManagement

George PhilipNew York State TeachersRetirement System

D. Ellen ShumanCarnegie Corporation

Coleman StipanovichFlorida State Board ofAdministration

Pervis ThomasShell Oil Company

William C. Thompson Jr.NYC Comptroller’s Office

■ Latin AmericaAdvisory Committee

Jorge Paulo Lemann Committee ChairmanGP Investimentos S/C Ltda.Brazil

Andronico Luksic C.Committee Vice ChairmanBanco de ChileChile

Albert J. CussenViña Concha y ToroChile

Fernando Xavier FerreiraTelefonica Group in BrazilBrazil

Carlos Ferreyros A.Ferreyros S.A.Peru

Ing. Dionisio Garza MedinaAlfaMexico

Claudio X. GonzalezKimberly-Clark de MexicoMexico

Erling S. LorentzenAracruz Celulose S.A.Brazil

Carlos Slim H.Telefonos de Mexico andGrupo CarsoMexico

Gustavo Vollmer A.CorpalmarVenezuela

Lorenzo H. ZambranoCEMEXMexico

■ Asia PacificAdvisory Committee

Washington SyCipCommittee ChairmanThe SGV GroupPhilippines

Don R. ArgusBHP BillitonAustralia

Rahul BajajBajaj Auto LimitedIndia

Morris ChangTaiwan SemiconductorManufacturing Co., Ltd.Taiwan

Hugh A. FletcherFletcher Challenge Ltd.New Zealand

Toyoo GyohtenInstitute for InternationalMonetary AffairsJapan

Douglas Tong HsuFar Eastern Textile GroupTaiwan

Nobuyuki IdeiSony CorporationJapan

K.V. KamathICICI LimitedIndia

Minoru MakiharaMitsubishi CorporationJapan

Chumpol NaLamliengThe Siam Cement PublicCompany Ltd.Thailand

Shijuro OgataJapan Development BankJapan

Azim H. PremjiWIPROIndia

John B. PrescottAustralian SubmarineCorporation Pty Ltd.Australia

Ratan N. TataTata Industries LimitedIndia

Edward Sunning TianChina NetcomCorporation Ltd.China

Marjorie YangEsquel Group of CompaniesHong Kong

Wee Cho YawUnited Overseas Bank Ltd.Singapore

Jaime Augusto Zobel deAyala, IIAyala CorporationPhilippines

* Ex-Officio Member

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N E W F I R M S

A D M I T T E D I N 2 0 0 3N E W E Q U I T Y

M E M B E R S

Christopher M. Alegre

Sharon M. Aprilante

Michelle L. Arenson

Derek Barnes

Frederick B. Bond

James C. Bossert

Thomas S. Caldwell

John R. Carty

Robert J. Chersi

Timothy M. Clorite

Peter J. Coleman, Jr.

Brian D. Conroy

Paul Corvino

James T. Crowley

David J. Cunningham

Michael A. DiCaprio

Sean F. Dillon

Robert T. Dorey

Christopher A. Dowling

Rohit M. D’Souza

Gary M. Esayian

Joseph L. Ferrarese

Shane D. Finemore

Renee R. Frank

David M. Gelber

Charles E. Grose

Robert Grubert

Richard D. Gueren

Jeffrey S. Hersch

Douglas E. Hill

David A. Horowitz

Kevin Y. Hoshino

John P. Hughes

Estelle J. Ivker

Declan P. Kelly

Mitchell J. Lieberman

Coleen E. Maguire

Simon H. Mansell

Stephen M. Martini

Mary C. McCooey

Anne F. McLaughlin

Miriam F. Meehan

Craig C. Messinger

David J. Miller

Lisa A. Minero

Carey S. Pack

Steven Paraggio

Brian F. Peters

Paul A. Pricoli

Ronald A. Purpora

John P. Ragan

Andrew Reich

Richard W. Reinemann, Jr.

Mathias K. Roberts

Shane M. Rogers

Donna A. Sabatini

Ronald A. Safir

Donna Lee Sawan

Brian A. Sears

Barbara J. Seskis

Brian T. Shea

William L. Short, III

Martin T. Sosnoff

Craig J. Spector

Michael A. Spencer

Jeffrey S. Swartz

Richard A. Thornton

Janet B. Valvano

Robert J. Virgilio

Patrick J. Whalen

The NYSE also admitted 60new Lessees, 6 newElectronic Access and 1 newPhysical Access Membersin 2003.

Number of memberships atYear End:

1,366 Equity of which 957have been leased toLessee members

29 Electronic Access4 Physical Access

1,399 Total

Intrade, LLCElectronic Access MemberNew York, NYTrading

MJQ Securities Corp.LesseeNew York, NYFloor Brokerage

Shue Securities, Inc.LesseeNew York, NYFloor Brokerage

Troy Securities, Inc.LesseeNew York, NYGeneral Brokerage

Global Direct Equities,LLCLesseeNew York, NYFloor Brokerage

Integra Securities Corp.LesseeNew York, NYFloor Brokerage

Marquis Holdings, Inc.LesseeNew York, NYFloor Brokerage

JTR Securities LLCEquityNew York, NYFloor Brokerage

Baseline Securities, Inc.LesseeNew York, NYFloor Brokerage

A.L. Sarroff, LLCEquityNew York, NYRCMM/Trading

Wachovia CapitalMarkets, LLCEquityCharlotte, NCClearing/Carrying

Keeler & Co., LLCLesseeHarrington Park, NJGeneral Brokerage

Gilt-Edged Securities, Inc.LesseeNew York, NYFloor Brokerage

Ethos Securities Corp.LesseeNew York, NYGeneral Brokerage

Joseph A. Sangimino, Inc.LesseeStaten Island, NYFloor Brokerage

Dermott W. Clancy Corp.LesseeNew York, NYGeneral Brokerage

Kellogg PartnersInstitutional Services LLCEquityNew York, NYGeneral Brokerage

DFH Equities Inc.LesseeNew York, NYFloor Brokerage

HYY Forbes, LLCLesseeNew York, NYFloor Brokerage

PMJ Securities, Inc.LesseeNew York, NYFloor Brokerage

G.P. Direct Corp.LesseeNew York, NYGeneral Brokerage

Page 51: 2003 Annual book

N Y S E O F F I C E R SAs of April 2004

John S. ReedChairman

John A. ThainChief Executive Officer

Richard G. Ketchum*

Chief Regulatory Officer

Robert G. BritzPresident and Co-ChiefOperating Officer

Catherine R. KinneyPresident and Co-ChiefOperating Officer

Richard P. BernardGeneral Counsel

Amy S. Butte**

Chief Financial Officer

■ Executive Vice Presidents

Noreen M. CulhaneCorporate Listings &Compliance

David P. Doherty†

Enforcement

Richard A. Edgar

Edward A. KwalwasserRegulation

Salvatore Pallante†

Member Firm Regulation

Bryant W. Seaman IIIInternational

Robert T. ZitoCommunications

■ Senior Vice Presidents

Richard C. AdamonisCommunications

Anne E. AllenFloor Operations

Paul B. BennettChief Economist

Dale B. BernsteinHuman Resources andAdministration

Roger BurkhardtChief Technology Officer

James L. Cochrane†

Strategy & Planning

James F. DuffyAssociate General Counsel

James C. EspositoSecurity

William M. FreemanAssociate General Counsel

Keith R. Helsby††

Chief Financial Officer

Robert J. McSweeneyCompetitive Position

Christopher R. MorinEurope, Africa &Middle East Region

Alain Y. MorvanInternational Relations

Regina C. MysliwiecMarket Surveillance

Louis G. PastinaNext Generation Trading Floor

Richard L. Ribbentrop††

Government Relations

Thomas E. VeitListing and Client Service

■ Vice Presidents

David W. BartgesTrading Technology

Raymond L. BellListing and Client Service

Daniel BeydaArbitration and ChiefHearing Officer

Samir BhaumikListing and Client Service

Ananias Blocker IIIGovernment Relations

Peter E. BoyleCorporate Infrastructure

Mary L. BrienzaCorporate Audit andRegulatory Quality Review

Judith A. BryngilMarket Trading Analysis I

James G. BuckleyMember Trading I

Michael C. CohenMarketing Communications

David R. GriffithsEurope, Africa &Middle East Region

Thomas E. HaleyMarket Data

Ronald JordanMarket Data Products

Susan E. LightEnforcement 1/Sales Practice

Robert A. MarchmanEnforcement 2

Aldo J. MartinezMarket Trading Analysis II

Elaine S. MichitschRegulatory Development &Services

Rex W. Mixon, Jr.Enforcement 3

Bruce J. MottoReal Estate & Facilities

Janice S. O’NeillCorporate Compliance

Richard A. PecheurEquity Sales &Client Service

Angela A. PosillicoRegulatory &Corporate Systems

Anand K. RamtahalMember Firm Regulation

Michael G. RufinoMember Firm Regulation

Daniel SaporitoMember Trading II

Milton M. SteinHearing Officer

Glenn W. TyranskiFinancial Compliance

Donald van WeezelRegulatory Affairs

Robin L. WeissInvestment BankingServices

William J. WollmanMember Firm Regulation

■ Assistant Vice President

I. Bruce DavisEnforcement

■ Chief of Staff

David L. Shuler

■ Controller

Alan Holzer

■ Corporate Secretary

Darla C. Stuckey

■ Assistant Secretary

Mary C. Yeager

* On March 8, 2004, Richard G.Ketchum assumed the role ofChief Regulatory Officer.

** On April 12, 2004, Amy S. Butteassumed the role ofChief Financial Officer.

† Retired April 1, 2004

†† Retirement effective May 1, 2004

NY

SE

_A

R.

20

03

49

Page 52: 2003 Annual book

“ Our obligation and responsibility is to provide the highest-quality

and most cost-efficient equities market, one beyond reproach.

We strive to provide investors the best price when buying

and selling stock, to ensure the fairest and most open market, and

to optimize value for issuers and all constituents. No market

does more or works harder for its customers than the NYSE.”John A. Thain, Chief Executive Officer

Page 53: 2003 Annual book

To ensure the future success of the NYSE, the Exchange is

committed to creating and maintaining a culture that fosters an

inclusive, diverse work force and an environment in which

every employee has an opportunity to be successful to the full

extent of his or her ability.

D I V E R S I T Y S T A T E M E N T

Designed and produced by Taylor & Ives, Inc., NYC

Project management by CN Communications

Printed by tanaseybert on paper manufactured by StoraEnso

Photography credits:

David Allison: cover, inside front cover, and pages 1, 13 (right), 14,20, 50 and inside back cover

James Salzano, Salzano Studios: pages 5, 7, 8, 12, 13(left), 21 , page 42

Mel Nudelman and Tammy Gray, Media Photo Group, Inc.: pages 15, 17 and 18

Courtesy of John S. Reed: page 3

The New York Stock Exchange, NYSE, The WorldPuts Its Stock In Us, the NYSE building Façade,NYSE Composite Index, Institutional XPress,iXpress, Network NYSE, The Opening Bell, TheClosing Bell, NYSE Direct+, NYSE MarkeTrac,NYSE MarkeTrac Live, NYSEnet, NYSE e-Broker,NYSE OpenBook, NYSE LiquidityQuote, NYSEBroker Volume, the NYSE Listed Companyemblem and all images of the NYSE trading floorare trademarks and service marks of the New YorkStock Exchange, Inc. Other trademarks, tradenames, service marks and logos used in this annual report are the property of the New YorkStock Exchange, Inc. and/or their respective owners.

Page 54: 2003 Annual book

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