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When The Price Is Right

Traders Magazine, November 2003

John A. Byrne

Institutional investors are paying far too high a price for the New York Stock Exchange specialist system. These specialists do not adequately facilitate block trades. This is hardly a new charge but - hands up - who can quantify the size of the supposed losses to investors from specialists' questionable intervention on trades? One pro has it all figured out. He's Barry Small, CEO at Weeden & Co. where he runs equity trading. Small believes that, if the specialist system was equitable, specialists would lose some 25 percent of their commissions on block transactions. Today, they get to keep this tidy amount. Small, like other pros, takes his calculation from the estimated commissions - about 25 percent - lost' by upstairs block desks facilitating customers. Small does not hesitate to propose immediate reforms. This is what he has to say in welling@weeden, the newsletter published by Traders Magazine contributor Kathryn M. Welling: Transform the specialist into mostly an agent and create two markets out of this change - one for highly liquid stocks, the other for moderately liquid trades. In this scheme, the specialist would only be permitted to act as principal when he is "cleaning up a print," or stabilizing the market. Price improvement would be a distant memory. However, the specialist would charge what Small calls a toll on all stocks he trades - between 1 and 5 mils - a prospect that would motivate him as an agent.

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