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August 9, 2006

Big Board Specialists Warm to Arca

By Peter Chapman

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  • Big Board Specialists Warm to Arca

New York Stock Exchange specialists are cottoning to NYSE Arca. Their interest comes at a time when Big Board execs are discussing internally the possibility of shifting trading in the more liquid NYSE-listed names over to the all-electronic Arca platform. SIG Specialists recently became the first Big Board specialist to become a "lead market maker" at NYSE Arca when it agreed to support a new listing called Darwin Professional Underwriters. The stock is one of 10 primary listings on the NYSE's sister exchange, most of which are supported by two obscure trading houses-Sun Trading and CRT Capital. The affiliate of the large equities and

derivatives market maker Susquehanna International Group is the smallest specialist on the floor of the New York, trading about 150 common stocks and other securities. SIG's sister company Susquehanna Capital trades another 3,000 names on Nasdaq.

A Premier

SIG Specialists' president Aaron Hantman said in a statement that he expects NYSE Arca to become a "premier marketplace" and his firm to provide support for more issues in the future.

SIG is not alone. Michael LaBranche, chairman and chief executive of LaBranche & Co., the New York's largest specialist, has also indicated an interest in making markets on NYSE Arca.

"I consider it to be a great opportunity," LaBranche said recently. "We are interested in doing that and anticipate that we would participate."

NYSE Arca is being positioned to compete with Nasdaq for new listings of smaller companies unable to meet the stringent financial requirements of the Big Board.

In addition to its primary listings, NYSE Arca counts another 180 stocks that are also listed on the New York. NYSE Arca picked up about 220 listings when it acquired the Pacific Exchange last year.

NYSE Arca's primary listings effort will get a big shot in the arm later this year when Barclays Global Investors transfers 20 of its exchange-traded funds from the American Stock Exchange to NYSE Arca. (Another 70 are going to the Big Board.)

NYSE Arca has been courting market makers to support its listings effort for about a year. In contrast to arch-rival Nasdaq, it chose to not allow multiple market makers to trade a single stock. Only one firm will be able to make markets in any given security

A lead market maker on NYSE Arca is akin to a specialist. It is obligated to make tight, two-sided markets at all times. To make those conditions palatable to traders, NYSE Arca is offering them certain privileges not available to other traders.

There are four primary benefits. First, lead market makers are paid more than other types of market makers to supply liquidity, earning $0.004 per share. That compares to a rebate of $0.002 for orders in Nasdaq, Amex and ETF names and $0.001 for NYSE-listed names.

A Discount

Lead market makers are also charged slightly less than other traders when taking liquidity in their stocks, paying $0.0025 per share. Other traders wishing to take liquidity in Nasdaq, Amex and ETF names pay $0.003 per share (Lead market makers also share with NYSE Arca in market data revenues in certain cases as do other traders.)