January 19, 2010
The Dwindling Specialists...
Last Thursday, it was reported that Barclays Bank had purchased LaBranche & Company's New York Stock Exchange specialist business. The roughly 700 listed stocks covered by LaBranche will be joined with the approximately 900 others handled by Barclay's other specialist businesses.
The number of specialists - recently re-titled "Designated Market Makers" - now stands at four (with six other firms chipping in as "Supplemental Liquidity Providers"). Whereas live order fulfillment on the famed Floor of the NYSE was estimated at 25% a couple of years back, the number is presently thought to be considerably less, as computerized trading/direct order routing has grown.
Numbers aside, the resilience of the "open outcry" system of trading may be the more interesting story than its diminished role. NASDAQ, a cyberspace stock exchange employing numerous "market makers" in each listing, commenced operations in the early 1970s. Separately, the London Stock Exchange abandoned "peopled" Floor trading over 20 years ago.
For a discussion of the history of the Specialist system in the U.S. and a federal case having impact thereon, see the abstract of my 2008 article, "Not Dead Yet: How New York's Finnerty Decision Salvaged the Stock Exchange Specialist." The abstract is available at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1517214 .
January 19, 2010 | Permalink