The setback is nothing new for shareholders. For years, specialists like LaBranche have taken heat from Wall Street. The demand for their services -- matching buyers and sellers on an exchange and smoothing out fluctuations in stock prices -- is declining as electronic trading takes hold.

LaBranche's stock price has fallen as its services become less relevant, and shares now fetch just a third of their 2002 price.

"If you were a LaBranche bear, you would say that their operations are so tied to the floor of the NYSE, that they go away with the floor," says Jamie Selway, a former Archipelago official who now is managing director at White Cap Trading in New York.

"Bulls say that LaBranche will get a productivity boost as the NYSE rolls out the hybrid platform," Selway adds, referring to the electronic trading that Archipelago specialized in. "Still, I don't see how hybrid holds back the tide."

Holding NYSE shares was certainly good to LaBranche and some of its rivals back in the first quarter, when the firm booked some $100 million in profit on the appreciation of its NYSE stake. But while NYSE shares remain above their secondary offering price, their second-quarter drop saddled LaBranche with the big writedown.

The writedown is far from LaBranche's only problem, of course. In the earnings warning, the firm said second-quarter principal trading revenue totaled about $20 million, down $47 million from the second quarter of 2005.

"I would say I'm as concerned about the specialist future as anyone," says Rich Repetto, equity analyst at Sandler O'Neill. "The results are just as volatile as they were in the past. The NYSE could even prosper while LaBranche doesn't. There are so many moving parts in their business, so it's pretty difficult to say."

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