Hybrid Trading Costs Jobs
Liz Moyer, 01.23.07, 4:35 PM ET
On Wednesday, NYSE Group will put the finishing touches on its part-electronic, part-human-run hybrid trading system, but already the firms that employ the floor brokers are feeling the pain.
It's no secret that the so-called specialist firms have been hurting from the shift to more electronic trading and away from the floor-based auction model. But recent layoffs at the big firms add salt to the wound.
On Tuesday, anticipating Wednesday's NYSE (nyse: NYX - news - people ) move, Van der Moolen (nyse: VDM - news - people ) announced it was firing 30% of the workers in its U.S. trading operations and taking a one-time charge of $1.5 million. The cuts aim at annual savings of $4.5 million.
"This action is being taken as the NYSE completes the move of all listed securities to its new hybrid market system," Van der Moolen (nyse: VDM - news - people ), a Netherlands-based company, said in a statement issued in Amsterdam.
NYSE's hybrid market system will add 105 stocks to the electronic trading queue on Wednesday, bringing the total of listed stocks and exchange-traded funds trading on the system to 3,618.
Under the hybrid system, stocks will trade electronically most of the time, especially the biggest, most easy-to-trade stocks. The system will kick to a floor trader at the request of the client, or during high volatility in the particular stock that would require a trader to step in to facilitate trading. Small, less liquid stocks would more likely be handled by floor brokers.
Van der Moolen is one of five big specialist firms that together handled the bulk of trading in NYSE-listed stocks. All have been cutting back on floor brokers in anticipation of the hybrid system.
LaBranche & Co. (nyse: LAB - news - people ) has cut half its workers in the last few years and says that further cuts are possible. Earlier this month, Goldman Sachs (nyse: GS - news - people ), which owns the formerly named specialist firm Spear Leeds Kellogg, confirmed it was disbanding its direct-access floor broker business. Banc of America Specialist has also been cutting jobs.
The New York Stock Exchange has not been immune to sharp cuts in its staff and operations. It announced it plans to close down its newest trading floor, ironically the home to the post of the Bear Wagner specialist assigned to trade NYSE's own stock. The Big Board itself is also cutting 500 jobs.
The cuts are part of NYSE's plan to squeeze $200 million in cost savings out of its acquisition last year of Archipelago Holdings, the electronic trading network.
The merger with Archipelago, coming roughly at the same time that rival Nasdaq added two electronic networks to its stable, confirmed the trend toward electronic trading and marked what everyone thinks is the beginning of the end for the human-run auction system.
NYSE's next acquisition, European electronic exchange Euronext, is set to close in the coming months. Meanwhile, Nasdaq is attempting to woo the London Stock Exchange, which itself has already moved to electronic trading.
Beyond the world of equities, Nymex Holdings (nyse: NMX - news - people ), parent of the New York Mercantile Exchange, struck a deal with Chicago Mercantile Exchange (nyse: CME - news - people ) last year, allowing its benchmark oil and other energy contracts to trade through CME's electronic system.
The deal was seen as necessary to push back the competitive threat of upstart Atlanta electronic exchange Intercontinental Exchange, which in just a year has taken away 25% of the market share in Nymex's benchmark oil futures contract.
NYSE Chief Executive John Thain has tried to reassure the remaining specialists that they are not destined for the scrap heap, but it probably doesn't help their cause that they continue to get tripped up in regulatory problems.
NYSE Regulation fined seven specialist firms a total of $2.8 million this month for "failure to honor firm quote obligations," among other trading violations.
The fact that a computer would be less likely to violate exchange rules is not lost on the NYSE. "These violations occurred prior to the launch of Hybrid Market trading system enhancements that significantly limit the possibility of similar violations from occurring due to automatic execution and safeguards embedded into the Display Book," it says on its Web site. |
