Specialists under fire
The NYSE has 443 specialists who handle more than 2,800 stocks, according to the exchange. They make up about a third of the traders on the floor of the exchange.
Those specialists work for seven firms: Bear Wagner Specialist, a Bear Stearns (BSC: news, chart, profile) affiliate, Fleet (FBF: news, chart, profile), LaBranche (LAB: news, chart, profile), Performance Specialist Group, Spear Leeds & Kellogg, owned by Goldman Sachs (GS: news, chart, profile), Susquehanna and Van der Moolen (VDM: news, chart, profile).
Criticism of the specialist system has been mounting since the NYSE disclosed it was investigating improper practices on the floor in April. The system was untouchable under the eight-year reign of Dick Grasso. But with Grasso's ouster last month, critics including Scott DeSano, head of global equity trading at Fidelity Investments, and Hank Greeberg, CEO of insurance giant AIG (AIG: news, chart, profile), say its time to eliminate the anachronistic system.
Critics of the specialist system argue that it invites front running; the practice of specialists buying stock ahead of their customers, then marking up the shares for sale to their clients. They say that other global exchanges, including the London Stock Exchange and the Nasdaq in the U.S., have the NYSE beat by taking temptation out of the process through electronic systems.
"There is too much slack and sloppiness in specialist system at the NYSE and not enough transparency," O'Keefe said. "This problem has always existed and even though these weaknesses are known by most in the industry no one has done anything about it - including the SEC."
Proponents of the specialist system say it keeps the market reined in. For instance, can vary orders by using the guidance of a specialist. A buy order for 1,000 shares can be tweaked to 5,000 or 500, if the customer discusses the price with the specialist.
David Weidner covers Wall Street for CBS MarketWatch.com. |
