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November 1, 2004

Role of Floor Pros in the Hybrid Market?

By Editorial Staff

Tell us more. Give us much more information.

That's the position of the Securities Industry Association, which filed a comment letter with the SEC on the New York Stock Exchange's proposed hybrid plan.

"We believe it is difficult to evaluate the effects of the proposal without more information," wrote Donald Kittell, executive vice president at the SIA. He emphasized that, at this point, the SIA neither supports nor opposes the proposed Big Board rules changes. The SIA contends that the filing is unclear on issues such as floor broker and specialist trading. For example, Kittell said the plan doesn't clarify how floor members will operate in the hybrid market.

"The proposal provides for specialist interest files and floor broker agency interest files that are not necessarily displayed unless a quotation in either happens to be the best bid or offer," according to Kittell. "This raises questions about the appropriateness of creating a hidden reserve book for those with time and place advantage relative to the marketplace," he added.

Kittell held that the filing doesn't go into enough detail about the changing role of specialists. He wants to know how much specialists, when trading for their own accounts, will be able to influence stock prices.

"More information is needed," Kittell said, "on how priority and parity will work with respect to the specialist files and whether orders in those files have any have priority or precedence over incoming orders." SIA compared the hybrid plan with Nasdaq's SuperMontage, which took several amendments before the trading platform won final approval.

A spokesman for the Big Board, who had seen the SIA letter, said the chairman of the NYSE, John Thain, "will be providing additional information on the plan within weeks."