NYSE mulls shift to more electronic trade--sources
Reuters, 01.30.04, 11:24 AM ET
By Patrick Fitzgibbons and Brendan Intindola
NEW YORK, Jan 30 (Reuters) - The New York Stock Exchange is considering a shift to more electronic trading, sources familiar with the matter said on Friday, a move that could address criticism of the open-outcry system that some say unfairly benefits insiders on the trading floor.
The Big Board is the last major exchange to use an open-outcry system, relying on specialist traders to manage the auction of specific shares allocated to them.
During periods of market volatility, specialist are obligated to use their own capital to dampen dramatic swings in share prices and add liquidity to maintain a fair and orderly market.
An industry group representing the specialist firms said the potential changes were not considered a threat to their business.
At the same time, nearly 6 percent of NYSE daily volume is routed through an automatic matching system, called NYSE Direct Plus. This handles limit orders of 1,099 shares or less. To increase the electronic trade, the NYSE is considering the elimination of the size limit, the sources said.
A limit order is an order to buy or sell only at specified prices.
Ray Pellecchia, NYSE spokesman, said, potential changes are under discussion with exchange members and talks are ongoing.
"We continue to seek customer input as we look to further broaden the NYSE's order-delivery and execution platform in ways that are consistent with our goals of providing investors with the highest levels of market quality and ensuring the best prices," Pellecchia said.
With less than two months on the job as the NYSE's chief executive, John Thain is preparing a report on electronic trade to be discussed by the NYSE's reconstituted and much smaller board of directors at its next meeting, scheduled for Thursday, the sources said.
The new NYSE board of executives is also to meet on Thursday and will also consider the proposals. The second board is filled with Wall Street executives -- including two from specialist trading firms -- and representatives from large investors, the public and listed companies.
Thain, the former president of Goldman Sachs Group, has been speaking to members of the exchange ahead of the meeting in order to get a consensus on his ideas for change.
Despite Thain's previous association with Goldman -- which owns specialist firm Spear, Leeds & Kellogg -- he has said more electronic trading would be good for the market.
Meanwhile, the Specialist Association, the New York-based industry group that represents the specialist firms, said the NYSE"s move would attract more volume to the exchange.
"Our focus will remain on what is best for the retail investors, and large investors. We think that this is going to bring orders back to the exchange," said David Humphreville, president of the trade group.
HARD TIMES
A shift would come as the NYSE attempts to recover from a year of public relations and corporate governance disasters.
The push for reforms at the 211-year-old exchange was started by the controversy over former Chairman and CEO Richard Grasso's $188 million compensation package and a wide probe into the trading practices of the specialists.
Grasso was forced to resign last September after intense criticism over the size of his pay package.
Reed implemented a sweeping change in the NYSE's board, replacing all but two of its members. Several former members of the old board are now on the board of executives.
FLOOR TRADING
Since last year, the NYSE and federal regulators have probed whether specialists had executed their own trades before dealing with customer orders and had intervened in trades in which buyers and sellers should have been matched.
Three of the exchanges, largest floor-trading firms, LaBranche & Co. (nyse: LAB - news - people) , Van der Moolen Holding <VDMN.AS> FleetBoston Financial Corp.'s Fleet Specialist unit, have all said they were notified that the SEC is considering filing civil charges against them. They also face disciplinary measures by the NYSE for improper trading that could have cost clients millions of dollars.
The two other largest specialist firms on the NYSE floor are Spear, Leeds & Kellogg, and Bear Wagner Specialists LLC, partly owned by Bear Stearns Cos. Inc.
Shares of LaBranche fell 1.5 percent to $9.85, and Van der Moolen lost 3.2 percent to $8.45, both morning trade on the New York Stock Exchange. (Additional reporting Jackie Sindrich)
Copyright 2004, Reuters News Service |
