Goldman Sachs wants more NYSE reform
By David Wells, Gary Silverman and Vincent Boland in New York
Published: November 20 2003 19:50 | Last Updated: November 20 2003 19:50
Goldman Sachs yesterday joined the calls for reform of the way shares are traded on the New York Stock Exchange.
John Thain, president of the investment bank, suggested that some of the trades should be handled electronically rather than by the "specialists" who make markets in individual stocks. Goldman owns the second-largest specialist firm on the NYSE, Spear Leeds and Kellogg.
At a conference in New York, Mr Thain said: "I personally think that the NYSE is going to have to move to a hybrid system."
The remarks come as the NYSE considers a wide range of reforms. Yesterday, a coalition of US state treasurers condemned the NYSE for not going far enough in its corporate governance proposals to ensure the independence of directors and the separation of its regulatory and market functions.
The specialists system has come under fire following allegations that specialists do not always offer the best price to investors. Fidelity, the biggest US fund manager, is among those calling for reform.
John Reed, interim NYSE chairman, has defended the specialist system since his appointment in September, surprising those who thought the technology-fan would suggest scrapping it.
In an interview with the Financial Times last week, Mr Reed said the system added value to the NYSE "but that could change over time."
Moving to a hybrid system would be a substantial change for the exchange because the specialist system is central to the NYSE's auction market model and trading floor.
Most of the world's largest stock exchanges, such as London, have already made the switch to electronic trading.
The specialist firms are fighting hard to preserve their control over trading on the world's largest stock exchange. Michael LaBranche, the chief executive the biggest of the seven specialist firms, yesterday defended the current system which he said provided low trading costs and reduced stock price volatility.
Mr Thain said the opinions he expressed were his own, not Goldman's, and stressed that he did not want the specialist system to go away.
"A specialist can make the market function better," he said. But "it doesn't make sense to me in a penny spread world to run all trades through the floor."
Mr Thain said specialists should be used for large trades where buyers and sellers are out of balance but trades of highly liquid stocks could be done faster and cheaper electronically.
Moving to a hybrid system would not be hard for Goldman. It has invested heavily in trading technology, one reason it bought Spear Leeds for $6.2bn in 2000, its biggest acquisition ever. Goldman is often criticized for paying too much for the specialist business, an argument it counters by saying it really bought Spear Leeds for its clearing business, execution skills, and trading technology. |
