More Evidence of NYSE Specialists' Fade
The curtain keeps falling on the NYSE's 135-year old system of organizing trades through the "specialists" who operate from the exchange floor.
A new electronic trading system has drained so much business and profits from once-dominant specialist firms that the value of one company appears to have plunged by nearly half this year, according to the New York Post. Every major specialist firm has slashed its NYSE headcount by at least 50 percent in the past year, the newspaper says.
In June, Netherlands-based Van der Moolen Holding NV said it reached agreement on a two-year option to buy the remaining 15.6 percent of its NYSE specialist subsidiary, Van der Moolen Specialists USA, for $8.3 million.
"According to former partners of the firm, as recently as late last year a one-percentage-point stake in the firm was worth $1 million. Now, a percentage point is worth around $530,000, according to VDM's SEC filing," the Post reports.
The largest Big Board specialist, LaBranche & Co., said Monday it lost money in the second quarter and hired an investment bank to explore alternatives - suggesting the 83-year old publicly traded firm may put itself up for sale. LaBranche also revealed that it sold its American Stock Exchange specialist business to Cohen Specialists LLC for an undisclosed amount.
In May, Bear Stearns bought out its minority partner in Bear Wagner Specialists and wrote down the value of its investment by $225 million.
The NYSE battled for decades against the alternative system of decentralized electronic trading, championed by Nasdaq. But the electronic option has made major inroads since 2005, when NYSE reorganized as a for-profit, public company and acquired Archipelago Holdings, an all-electronic stock exchange. Late that year, the Big Board launched the so-called Hybrid Market, an electronic stock-trading facility, and has expanded it in phases since then.
The demise of floor specialists, and possibly of the floor itself, has been widely anticipated. Parallels have been drawn with the London Stock Exchange, which eliminated its market floor soon after introducing electronic trading as part of the 1986 "Big Bang" reforms. On the other hand, at the Chicago Mercantile Exchange, floor trading continues to thrive alongside an electronic system.