New NYSE CEO Hints About Changes

Updated from 8:42 a.m.

Despite John Thain's hints about altering the structure of the New York Stock Exchange when he takes over as chief executive, some observers say a major overhaul isn't in the cards.

In a morning news conference announcing his appointment, Thain, who is the president of Goldman Sachs(GS Quote), said electronic trading could play a larger role in the Big Board's future.

"My job is to make sure the exchange remains the most liquid, most efficient marketplace in the world," he said. "That may involve a greater degree of electronic trading, but that remains to be seen. We'll see in the next couple of months what the best structure is for the exchange going forward."

The NYSE and the specialist firms that operate there as part of the current floor trading system have been under fire recently, and both were sued Wednesday by the California Public Employees Retirement System for allegedly violating a host of trading rules. The NYSE itself is in the process of fining the firms for alleged violations.

Specialists are responsible for making an orderly market in the thousands of stocks traded on the exchange through an "open outcry" auction system that sometimes requires them to buy and sell shares for their own account. Critics say the system is too slow compared to electronic trading and is susceptible to manipulation because floor brokers have an entrenched advantage.

While pressure to reform the system has been building, skeptics say John Thain isn't the man to shake things up.

"It's interesting that Goldman Sachs also owns a big specialist firm," said Junius Peake, professor of financse at Kenneth W. Montfort College of Business. "That raises a bit of a red flag for me."

Goldman Sachs acquired Spear Leeds & Kellogg Specialists in 2000. Any changes that would limit the role of specialists, or get rid of them completely, could possibly hurt Goldman and send the share price lower. At the start of the year, Thain owned 3.1 million shares of Goldman, which amounts to about $300 million today. "Will he still have an interest in Goldman Sachs? If he does, I don't think it's as independent as it ought to be," Peake said.