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July 31, 2004

The NYSE Rises Once Again: The Big Board now says it's ready for a turnaround

By Nina Mehta

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The Big Board will change for the better in more ways than one, according to supporters of the exchange, an embattled institution that may be slowly emerging from a dark and difficult period.

These New York Stock Exchange diehards - floor traders and brokers, and an assortment of other professionals both inside and outside the exchange who are proponents of the auction market system - concede missteps. They agree that the much-maligned NYSE has taken several black eyes over the past year, much to the delight of its electronic competitors.

But now many of the Big Board's members say that it is ready to make constructive changes, which will transform it into a hybrid market. And it will also battle back in a public relations war that it has been losing. This is a media contest in which the old market has been depicted as a virtual evil empire.

"We've got to fight it, move through it," says Ed Rode, an NYSE floor broker with Capital Institutional Services (CAPIS), an agency broker. "The industry is so huge that we don't have the right to play with this prototype."

At stake are the jobs of hundreds of NYSE trading pros. These jobs are threatened by a dynamic marketplace and the NYSE's public relations problems. The exchange is now pulling out the stops to win the hearts and pocketbooks of the investing community.

Floor pros say the biggest attraction of the 212-year-old NYSE is price discovery. "Here, it's not about exchanging ownership of shares," Rode says. "Our whole raison d'etre is responsible price discovery - to determine the price of a given company's shares at a particular point in time."

Richard Volpe, a specialist with Van der Moolen Specialists, agreed. "The NYSE gives all investors equal opportunity to participate in the auction market system," says Volpe, a 25-year floor veteran. "We are here to maintain fair and orderly markets."

Traders Magazine recently was down on the floor of the Big Board to witness these markets in action. Rode and Volpe were two of the trading pros who were interviewed while they were on the front line.

These pros have weathered many storms. It has been a controversial 12 months. Indeed, the grand titan of stock exchanges has been out of work for more than a year. Dick Grasso was hounded from his job as chairman of the NYSE after revelations surfaced about his huge $140 million pay package. This fueled an impression of the NYSE as a private clubhouse run amok. Blame for the scandal was running deep, so the Big Board reformed its governance structure.

The problems didn't end there.

Earlier this year, the NYSE's five largest specialist firms were forced to pay $241 million in a settlement with the Securities and Exchange Commission and the NYSE. Regulators found that the firms had ignored their fiduciary duties by trading ahead of customer orders between 1999 and 2003.