Major Trading Overhauls Afoot at NYSE

July 30, 2004 ( - The New York Stock Exchange (NYSE), which has long rebuked attempts at sweeping automated trading reforms, may be prepared to unveil an electronic trading platform for large investors.

NYSE Chief Executive John Thain is expected to file with the US Securities and Exchange Commission (SEC), as early as next week, plans for the electronic system.   The system, known as Direct Plus, would allow large investors trade big blocks of shares electronically on the exchange’s floor , according to a New York Times report.

Thain said the proposal, copies of which have been circulated to the Big Board’s 1,366 seat holders and to institutional investors, would represent a marriage between electronic trading and the exchange’s existing method.   However, critics say such a hybrid system could result in greater volatility in some stocks once specialists are taken out of the picture.

Currently, the NYSE utilizes an open outcry model.   This 212-year-old model relies on the knowledge of floor traders to get the best price for stocks.   However, large investors are increasingly moving toward electronic trading models that offer both speed and anonymity.  

Demands for reform grew even louder following a recent scandal involvingfloor-trading specialists.   To settle the charge that specialists profited from improperly intervening in trades, the exchange’s five largest specialists – Bear Wagner Specialists LLC, Fleet Specialist Inc., LaBranche & Co., Spear, Leeds & Kellogg Specialists LLC and Van der Moolen SpecialistsUSA LLC – agreed to pay $241.8 million and the two smallest – Performance Specialist Group LLC and SIG Specialists Inc – agreed to pay $5.2 million. None of the firms admitted or denied guilt.