NYSE Steps Toward Future

Traders also will be able to bypass the electronic system and trade through a specialist in order to obtain a better-than-advertised price for a stock.

Thain, in a news conference, says the reforms are needed to preserve the NYSE's franchise and eliminate the possibility of the Big Board losing market share to rival electronic trading systems and the Nasdaq Stock Market.

"If we didn't respond to that customer base, they would pull their volume off the exchange," Thain says.

The plan, however, will mean big changes for the NYSE's seven specialist firms and probably will reduce their profit margins. Big Board trading firms likely will employ fewer people in the future, reducing job opportunities on Wall Street.

News of the NYSE plan depressed shares of LaBranche(LAB) and Van Der Moolen(VDM), two publicly traded specialist firms. In midafternoon trading, shares of LaBranche fell 13 cents, or 1.6%, to $8.06, while Van Der Moolen declined 23 cents, or 3.6%, to $6.18.

Some critics, however, say the proposal doesn't go far enough. Junius Peake, a business professor at the University of Northern Colorado, says the NYSE proposal still allows too big a role for specialists and is intended to appease an important Big Board constituency rather than do what's best for investors.

The specialist firms are paying members of the NYSE.

The trading proposal comes in the aftermath of a tumultuous year for the NYSE, which began with the furor over former Big Board Chairman Richard Grasso's enormous pay package. The controversy led to Grasso's resignation from the NYSE and an overhaul of the exchange's board.

The Grasso episode also rekindled a debate about the labor-intensive way in which stocks are traded on the Big Board. Critics suggested that the former NYSE chairman had resisted the expansion of electronic trading because it would have been harmful to the financial interests of the specialist firms.

Criticism of the specialist system grew only louder after a joint investigation by the SEC and NYSE found numerous trading violations by the firms. The investigation culminated with the seven specialist firms paying nearly $250 million in fines and restitution.

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