New NYSE chief takes heat from rivals at hearing
By Michael J. Martinez
ASSOCIATED PRESS
February 21, 2004
NEW YORK – The new chief of the New York Stock Exchange received a fiery introduction to politics in a House subcommittee hearing yesterday when his competitors criticized the exchange's controversial specialist system as corrupt and outdated and urged Congress to overturn a federal rule they contend gives the NYSE an unfair advantage.
Even veteran members of Congress were surprised at the vitriol directed at NYSE chief executive John Thain's institution from Nasdaq Stock Market chief executive Robert Greifeld and the heads of the Instinet Group Inc. and Archipelago Holdings electronic markets.
Greifeld noted that five NYSE specialist firms agreed to a tentative $240 million settlement with the Securities and Exchange Commission for skimming profits on trades that put investors at a disadvantage, and said the SEC's "trade-through" rule, designed to ensure investors received the best price, was ineffective and handed the NYSE a monopoly.
"The New York Stock Exchange did not protect investors, as the recent settlement makes clear," Greifeld testified before the Capital Markets Subcommittee of the House Financial Services Committee, meeting a few blocks from Wall Street in lower Manhattan. "They are the beneficiaries of an anticompetitive rule that allowed these specialists to intermediate themselves between trades."
Thain defended the exchange's actions in the wake of the specialist scandal and last year's ouster of former CEO Richard Grasso over his $187.5 million compensation package. He said measures have been enacted to prevent specialists from trading illegally and noted that the NYSE has turned over the investigation of Grasso's pay to the SEC and New York Attorney General Eliot Spitzer.
He also defended the trade-through rule, saying specialists ensure that volatility in stock prices remains at a minimum, and that research showed the NYSE had the best price for any given stock 93 percent of the time, despite conflicting figures provided by Greifeld.
"There are many ways to slice and dice data, but I have never seen information used in quite so misleading a way as I've seen here to day," Thain said in a jab at Greifeld.
Rep. Richard Baker, R-La., chairman of the subcommittee, said he hoped to take action on the trade-through rule in the short term, although he admitted he was torn on whether the rule was ultimately beneficial to investors or anticompetitive. While each market has its own competitive reason for its stance on the rule, Baker said the ultimate goal would be to protect investors.
The electronic markets, in seeking to have the rule relaxed or repealed, contend that the best execution of a stock trade isn't necessarily about price. Some investors, primarily large brokerage houses, would prefer to have a trade done quickly over an electronic market than to take the trade to the floor of the Big Board, which takes longer, and taking the chance that a better price might be had. |
