Van der Moolen's
U.S. specialist unit is in dire condition.
The Dutch brokerage firm reported that Van der Moolen Specialists had a loss of $2.9 million in the first quarter. Revenue, which the company had already warned would be lower, dropped 69% from a year earlier to $8.5 million.
The company reported a total loss of $5.9 million in the first quarter.
Specialist firms, which earn commissions for matching buyers and sellers on an exchange, also make money from trades made to smooth out fluctuations in stock prices. The firms are permitted to make proprietary trades for their accounts, but not at the expense of any customer.
Many brokerage firms that have a presence on the floor of the
New York Stock Exchange
are feeling the heat as
embraces more electronic trading through its so-called hybrid market and as it closes trading floors.
Profit margins at many specialist firms including Van der Moolen, Bear Wagner and
have also been crushed as listed companies turn to faster electronic brokers to provide liquidity to stocks.
Van der Moolen said in January that it had cut 55 jobs, or 30% of its U.S. specialist operation. The company warned last month that first-quarter revenue in the unit would be lower, mainly due to the full implementation of NYSE Euronext's hybrid market and the decline of NYSE market share and specialist participation.
The company has previously said that it is "reconsidering" its strategic focus in the U.S.
"Obviously these are changing and challenging times for the specialist business in the U.S. on the NYSE," said Richard den Drijver, CEO of Van der Moolen and head of the specialist business, in a release Wednesday.
"The implementation of the NYSE hybrid system is a learning curve for the company and we have a proven track record in Europe in changing from floor trading to screen trading," he said. "We see it as a challenge to be successful in this process. We see the value of the NYSE hybrid system and the value that it brings to the investing public with regard to trading transparency, committing capital and providing liquidity to the investor's community."
NYSE has attempted to provide relief for the specialist firms by creating a revenue-sharing program and eliminating some monthly transaction fee caps. But observers say the move is just a band-aid on a more fundamental problem that will virtually eliminate the role of a specialist as we know it.
Earlier this week,
said it had bought the remaining minority stake in its joint venture specialist firm, Bear Wagner. The New York investment bank will also take a $225 million writedown on the unit in the second quarter.
"It is becoming painfully clear that the specialist system, and the value that it brings to the investing public with regard to trading transparency, committing capital and providing liquidity, is rapidly approaching the point where it is no longer a viable business model," said Peter Murphy, Bear Wagner's CEO, in a statement on Monday.
Some industry participants say that Van der Moolen will also have to infuse additional capital to its specialist firm in order for it to remain in operation at this point.
On a bright note, the Van der Moolen's specialist unit gained six new customers that listed on NYSE this year.
Quadra Realty Trust
American Eagle Outfitters
Tongjitang Chinese Medicines
chose VDM Specialists as their specialist firm.
American Eagle, a Warrendale, Pa.-based retailer, transferred its stock listing from the
Nasdaq Stock Market
. It was NYSE's largest stock listing transfer this year. The other five companies underwent IPOs, raising a total of $2 billion in capital, Van der Moolen said.
Shares of Van der Moolen rose 6 cents to $4.80 on the New York Stock Exchange.