NYSE proposals address investor complaints

The head of the New York Stock Exchange said yesterday that the exchange's board has approved proposals to increase automated trading and give listed companies more control over who makes markets in their shares.

The changes will make the NYSE, the world's largest stock exchange, the "best market by any measure," Chief Executive Officer John A. Thain said at a news conference.


The proposals, which go to the Securities and Exchange Commission for review, seek to address complaints by some institutional investors and listed companies that the NYSE's trading system favors floor traders at the expense of investors.

"These measures would be steps in the right direction," Maurice R. "Hank" Greenberg, chief executive of American International Group, said in a statement before the NYSE's announcement.


"Further positive changes would include more electronic trading and better and more timely information about the specialists' performance."

Lack of support

Greenberg said in a December opinion piece in The Wall Street Journal that specialists failed to support the stock price of American International, a large insurance company.

Interim NYSE Chairman John S. Reed said later that he intended to speak to Greenberg about the role of specialists at the exchange.

Other critics of the system include the California Employees' Public Retirement System, the biggest state pension fund. It sued the stock exchange and its seven specialist firms last year to recoup at least $150 million in trading losses the fund said were caused by specialists who traded for their own accounts.

The NYSE also named Amy S. Butte, 36, former chief financial officer of Credit Suisse First Boston's financial-services division, as the exchange's chief financial officer. She replaces Keith R. Helsby, who is retiring.

Thain also appointed David L. Shuler, 41, his chief of staff at Goldman Sachs Group Inc., to the same post at the NYSE and said he also had brought his secretary from the bank to the exchange. Butte will be paid a starting salary of $500,000, Thain said.

He also said executive pay will be lowered this year but didn't provide details. "On the whole, [compensation] levels will be lower," he said.


He also declined to say whether the exchange will sell shares to the public, calling its ownership "a longer-term issue."

Three changes

One change would remove limits on the size and frequency of shares that investors can trade automatically at the currently displayed best price without traders and market-makers, known as specialists, on the exchange floor.

A second would make it easier for a listed company to change the specialist that has exclusive rights to oversee buying and selling of its shares on the floor.

A third change would let institutional investors have more orders executed than they can now without the specialists taking the time to seek a better price.

"These are tremendous moves in the right direction," said North Carolina Treasurer Richard H. Moore, one of 19 people appointed in December to a new board of executives representing exchange constituencies.


"It's good old-fashioned business practice to listen to your customers, and the exchange is going to do everything in its power to do it."

SEC spokesman Herb Perone said it would be premature to comment on a rule proposal the SEC hasn't received. NYSE spokesman Ray Pellecchia declined to comment.

Five of the NYSE's seven specialist firms are trying to reach a settlement with the SEC and NYSE regulators regarding allegations that they traded for their own accounts ahead of customer orders.

The stock exchange estimated this year that the five firms could owe as much as $155 million in penalties and restitution, and the SEC has told the firms they might face civil penalties.

'A gun to their heads'

"Specialists have a gun to their heads to consider doing this," said Junius W. Peake, a professor at the University of Northern Colorado's Monfort School of Business, who has called for the elimination of exchange floors since 1976. "They think they may be able to keep alive by doing this."


Spokesmen at the five firms declined to comment. The five are LaBranche & Co., FleetBoston Financial Corp.'s Fleet Specialists unit, Goldman's Spear Leeds & Kellogg, Van Der Moolen Specialists USA and Bear Wagner Specialists LLC.