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August 23, 2005

Latest NYSE Hybrid Plan Helps Specialists; Amendment Spawns Chorus of Critics

By Gregory Bresiger

The NYSE has been forced more and more into an electronic model because of the increasingly competitive landscape created by Reg NMS. The trading industry official, citing NMS, said NYSE officials now want to find a way to help specialists.

He asked: "In that electronic model, how does John Thain ensure that specialists make enough money to get a rate of return on their capital? So now that's why he's come back in this last hybrid amendment. The specialists have all warned him that they were not going to make money under the previous amendments so they wanted some changes, even though they will be controversial," the trading industry official said.

Indeed, here is a partial point of agreement. NYSE officials, in their latest filing, also concede that their way of re-working the auction market represents a set of signal and likely controversial changes, changes that will probably roil the trading industry.

"The Exchange recognizes that the hybrid market represents a significant change to the operation of its market by providing greater electronic access and executions within the context of the continuing benefits of the auction market. The Exchange also recognizes that views of various market participants may differ on how the ideal market should operate."