Exchange Wars: Snafu Pits NYSE vs. Nasdaq

Electronic trading's combination of anonymity and rapid execution is a big reason human assistance has been dwindling since the NYSE accelerated adoption of the so-called hybrid platform beginning earlier this year. As a result, floor brokers now handle less than 20% of the Big Board's daily volume, down from 86% in early 2006.

In addition, Bernstein & Co. recently shuttered its floor broker operation, and specialist firms such as LaBranche (LAB Quote) and Van Der Moolen (VDM Quote) have been laying off employees in rising numbers. Specialists' ranks have declined more than 30% since last year, according to The Wall Street Journal.

"With the New York Stock Exchange's move to a hybrid market, the earnings capacity of specialist firms has been hurt dramatically," Bear Stearns (BSC Quote) Chief Financial Officer Samuel Molinaro recently said, after his firm took a $225 million charge to reduce the value of its floor-trading operation.

But as with most sensationalistic headlines, reports of traders' deaths may be exaggerated.

"The floor is not going away. OK?," Duncan Neiderauer, president and co-CEO and head of U.S. Cash Markets, said at NYSE Euronext's (NYX Quote) recent analyst day, according to a transcript at the NYSE Web site. "If I'm hearing the customers properly, they do not want us to be Nasdaq. They do not want another super-fast video game with no price improvement and high volatility. What they want is a market that's fast when they need it to be fast, but also can discover prices for blocks when that's called for."

Neiderauer was unavailable Friday, as he was in a Washington, D.C., meeting with Securities and Exchange Commission officials. Presumably, he was there to discuss rule changes "in places where I think the pendulum has swung too far," in terms of the balance of opportunities vs. risks for NYSE specialists, as per his comments at the analyst day.