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July 15, 2007

The NYSE Floor Wins an Upstairs Privilege

By Gregory Bresiger

New York Stock Exchange floor brokers now don't have to go upstairs in their search for liquidity beyond the NYSE.

That's because the Securities and Exchange Commission just approved the Big Board's booth premises rule filing. The NYSE's SR-NYSE-2007-51 was given the okay by the SEC to amend Exchange Rules 54 and 70.

These changes will allow a Big Board member organization to run a booth premises on the floor similarly to an upstairs office.

Although there was no legal prohibition of a floor broker booth, exchange rules-until these changes-had discouraged such floor booths. For example, member organizations' staff were constrained in how they were allowed to process orders sent to the booth.

So why is the NYSE easing up and granting floor brokers this privilege? It's a question of survival for some floor brokers and competitiveness for the NYSE, a brokerage executive who didn't want to be quoted by name told Traders Magazine. "We need this," he said, pointing to trading numbers in the NYSE filing.

Business is off for the floor because of competition for listed business from outside sources. Indeed, NYSE officials, in the filing, said there had been a 49 percent decrease in floor brokers' share of NYSE trading volume between the first quarter of 2006 and the first quarter of 2007.

The booth, which will function as a branch office for floor brokers, will give them greater capabilities to search for liquidity outside the NYSE, according to Big Board officials.

"The NYSE believes that this will provide the floor brokers with the ability to remain competitive in view of the changes in the markets and the manner in which customer orders are handled and executed," NYSE officials told the SEC.

A floor broker executive said using a booth will centralize his operations and will allow better coordination of efforts to find liquidity, especially for big orders that have been broken up into pieces and places in various venues.

"This is excellent. We'll have an improved capability to access dark pools and Nasdaq and other liquidity sources," said Richard Rosenblatt, chief executive of Rosenblatt Securities. He added that this will likely make floor brokers "much more competitive."