Specialist firms hit by fall-out at NYSE
Thu Sep 25, 2:55 PM ET
By Vincent Boland and Andrei Postelnicu in New York
The uncertainty that has dogged the New York Stock Exchange (news - web sites) in recent weeks has taken a toll on securities firms that are most dependent on its continued success for their own survival.
Among the most vulnerable are LaBranche & Co and Van der Moolen, the two specialist trading firms.
Shares of Van der Moolen tumbled nearly 6 per cent on Thursday in NYSE trading, and they have fallen by more than 20 per cent since the resignation on September 17 of Richard Grasso, NYSE chairman. LaBranche stock rose 3 per cent in early trading on Thursday, but it, too, has slumped nearly 20 per cent in the past week.
These two firms - which control order-flow in more than 950 of the NYSE's 2,562 listed companies - are among the largest of the seven specialist firms that control the floor.
They are also the only listed specialist firms; their chief rivals are part of larger securities firms.
Now, as debate rages about the extent to which the exchange must reform in the wake of the furore over pay that forced Mr Grasso's removal, there is a lingering question: if the future of the famed NYSE trading floor is in doubt, is the future of the specialist firms in doubt too?
Michael LaBranche, chairman of LaBranche, the largest specialist firm with control of trading in 577 NYSE-listed companies, is not especially worried.
Specialists have seen change before and survived.
"The role of the specialist is different now from what it was 10 years ago, and it will be different 10 years from now," he told the Financial Times on Thursday.
He attributes this week's fall in his company's share price to three factors: the generally unfavourable environment for trading equities, uncertainty surrounding the NYSE market structure, and a Securities and Exchange Commission (news - web sites) probe into specialist firms' trading practices.
There is a wider issue, however.
US equity markets are already changing fast. A report on market infrastructure by analysts at Merrill Lynch notes: "The US cash equity markets have been in tremendous flux over the past few years as technology, regulation and changing investor needs have transformed the trading landscape."
The resignation of Mr Grasso and the uncertainty it has generated will continue that process. The NYSE's board of directors is under fire for apparently approving Mr Grasso's package without being aware of how much he was earning.
It has also been attacked by some institutional investors, its largest customers, over the lapses in corporate governance that led to the crisis.
The appointment this week of John Reed, the former Citigroup co-chief executive, as its interim chairman is seen as the start of a transformation of the 211-year-old institution that could lead to the separation of its commercial and regulatory functions, a public listing, and a wide restructuring of the trading floor.
"All the scrutiny that's being placed on the exchange is actually going to be beneficial," Mr LaBranche says.
This scrutiny will make the NYSE more competitive, more responsive and transparent than it currently is.
"It's painful in the short term, but we've seen this before and I think we'll be better for it in the long run," says Mr LaBranche.
Robert Fagenson, vice-chairman of Van der Moolen, declined to be interviewed for this article. In the past he has echoed Mr LaBranche's view that specialists will prove their worth in the long run.
He has cited the days in the aftermath of the September 11 terrorist attacks and trading sessions at the onset of the Iraqi war in the spring as examples of the capacity and usefulness of the specialist firms. |
