LaBranche on a Limb

LaBranche's (LAB Quote) bullish take on the Big Board is trampling the specialist firm's stock.

LaBranche plunged 24% in a single day last week after it warned of a $23 million second-quarter loss. The setback comes as the New York firm's business of trading stocks on the floor of the Big Board comes under increasing pressure from cheaper electronic traders.

But the warning also highlights the risks LaBranche took by sitting out the NYSE Group's (NYX Quote) $1.5 billion secondary offering this past spring. Observers say LaBranche, which holds $210 million worth of NYSE stock, effectively doubled its bet on its troubled trading business by passing up an opportunity to cash out and invest elsewhere.

"It seems like a lot of shares for the company to hold, and it does not seem like a prudent thing to do on their part," says Tim Ghriskey, chief investment officer at Solaris Asset Management and former LaBranche shareholder. "The market is their business, so certainly their investment leverages them even more to their business." ...