Drop in Specialist Firms Worries NYSE Chief

New York Stock Exchange Chief Executive John A. Thain said further reductions in the number of firms that make markets in shares on the world’s biggest stock exchange could lead to increased volatility.

“I don’t want to see any more consolidation,” Thain said at a news conference Thursday during the Securities Industry Assn.’s annual meeting in Boca Raton, Fla. “Seven specialist firms are probably too few.”

Trading firms that match buyers and sellers, known as specialists, have been hurt by the shift to decimal pricing as well a decline in trading volume.

LaBranche & Co., the biggest specialist, had a third-quarter net loss as the number of shares it handled fell to 22.1 billion, from 23.1 billion a year earlier, amid investor concerns that terrorism, rising interest rates and higher oil prices would crimp corporate earnings.

Thain, who joined the exchange Jan. 15 and introduced his plan for a so-called hybrid market Aug. 2, said he wanted to give investors a choice between trading through a specialist or electronically.

For institutional investors such as Fidelity Investments and American Century Investments that crave speed and certainty when they trade, he has proposed boosting the capability for automatic execution. That would let investors trade directly with each other electronically. For those partial to the floor-based auction, he will continue to allow investors to send orders to floor traders.

“The hybrid market is intended to give customers choices and to make sure we don’t lose market share,” he said. Thain said recent figures showed the NYSE handled 82% of the trading in its listed companies, up from less than 75% when he took the job in January.

Increasing the number of specialists, which declined to the present seven from 31 in 1999, isn’t something the exchange can easily do, he said.

“Somebody said to me: ‘Why don’t you just make there be more?,’ ” Thain said. “And I said that’s a little difficult for me to do because I have to attract capital into the business. In this environment, returns on the capital aren’t attractive.”