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March 7, 2008

LaBranche Offers Outlook on Firm and Trading on the Big Board

By Peter Chapman

Michael LaBranche,chairman and chief executive officer of New York Stock Exchange specialist firm LaBranche & Co., offered his views on the future of trading at the Big Board during a recent quarterly meeting with analysts. Here are some excerpts.

>>On the NYSE acquisition of Amex:

We sold our equities business on the Amex, so we have a very scaled-down operation there now. I think we have maybe a dozen employees there. If there are opportunities, we will certainly look at them. I think a lot of the trading that is taking place on the Amex will move to Arca. I don't know that for a fact, but that is what it looks like to me. We trade on Arca quite a lot, so I think there's an opportunity for us this year.

>>On Lehman Brothers' purchase of Van der Moolen Specialists USA:

We're moving towards an integrated market-making model. I think a lot of the barriers that exist in the business are-for example, the way Rule 98, which is the Chinese Wall rule, exists today is not actually in keeping with the times. I think that there is some anticipation that there will be more interaction across different products, different venues. I think that is the part of the thing that is driving it.

Regardless of whether or not people think that the cash equity business is a good business or not, it is still an important business, and there's also a link to issuers which also would yield positive benefits for a large broker being close to companies. For example, we are specialists in 570 companies. We have worked very closely with the management of those companies. I think that may be part of it as well.

>>On LaBranche's head count:

Our head count at the specialist division, the LLC, went from a high of 427 people in 2003 down to 97 people today. That is more than a 75 percent reduction. I'm not sure where the head count is going to go, but I don't imagine it is going to go up. Our head count for the overall company went down by about 40 percent during the year of 2007 [from 428 to 257]. The floor is down substantially. We have reduced our head count there from 330 people at the peak to about 60 today.

>>On the odd-lot problem:

The odd lots have been a significant problem for us. They still are a problem, although we hear they are trying to eliminate the abuse that is going on there.

>>On a timetable for NYSE rule changes affecting specialists:

I'm hoping months, a few months.

>>On the future of stock trading:

The world is changing the way stocks trade, and stocks aren't going to be traded in silos anymore. They are going to be traded as part of a bigger package. I think you're going to see more integration of different securities interacting in the marketplace. And so I think that, over time, you'll see that the cash equity business is just one piece of the puzzle and that things are all pretty much integrated, so that it is going to look completely different.

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