NITE Nightstar Therapeutics Plc ADS

While the number of specialist operations on the New York Stock Exchange floor shrank further this week, the business still has life and could grow in the coming months, according to a top NYSE Euronext executive.

The anticipated spin-off of some securities overseen by LaBranche & Co. Inc.'s specialist unit, sold Wednesday to Barclays Capital, has drawn the attention of market-making firms not currently active on the floor, according to Joseph Mecane, NYSE Euronext's head of U.S. cash markets.

Separately, the planned addition of Nasdaq OMX-listed stocks to NYSE Euronext's Amex platform by March has boosted interest in that platform's designated market-maker program from automated market-making firms.

Officials at trading firms Getco and Knight Capital Group (NITE) confirmed Thursday that they are joining up as designated market makers at NYSE Amex, and Mecane said he's seeing similar interest in the NYSE floor from proprietary trading groups.

"The NYSE designated market-maker model is one where a lot of firms who have established robust trading infrastructures can leverage that and establish themselves in a new market," Mecane said.

The exchange operator this week saw the exit of one of the oldest and biggest specialist units from its historic trading floor, as the 119-year-old LaBranche sold its operation to Barclays for $25 million.

That deal lowered the number of specialist firms to four, with Bank of America Corp. (BAC), Kellogg Group, and Goldman Sachs Group (GS) unit Spear, Leeds & Kellogg operating alongside Barclays. A decade ago there were 35 such firms.

Specialist firms, now called designated market makers, use their own capital to facilitate trading in stocks listed on the exchange, often by taking the other side of orders from brokers. By standing ready to buy and sell at all times, they can help keep price volatility in check, playing a pivotal role on the NYSE trading floor.

The business was seen coming under siege in 2007, when NYSE Euronext shifted to a hybrid model of electronic and floor-based trading. The percentage of NYSE volume executed on the floor has since slipped to around 17%.

Some specialist operations have cut back on staff, and such others as Susquehanna International Group LLP of New York and Van der Moolen Holding N.V. of the Netherlands left the business altogether.

Robert Pavlik, chief market strategist at Banyan Partners, said that the specialist business can still be profitable with enough scale, but acknowledged it isn't what it was. "I don't see anybody starving on the floor, but there's a lot fewer people on the floor," he said.

Meanwhile, algorithm-driven electronic trading outfits have taken center stage as liquidity providers across nearly all listed U.S. markets, and NYSE Euronext's Mecane said that some are looking at applying their models to the NYSE floor.

"Being a designated market maker has some additional responsibilities and components that come along with it, but as the cost of technology has gone down significantly, the scale becomes a broader theme as people look to expand their models," Mecane said.

Meanwhile, the continued concentration of the specialist business this week has prompted concerns around systemic risk, with so many securities being handled by an increasingly smaller pool of big firms.

"Clearly, having too much concentration is something that we always keep a close eye on, and is part of why Barclays is going to be selling a portion of the [LaBranche] book," Mecane said. "But we're not at the point where we have significant concerns about too much concentration."

-By Jacob Bunge, Dow Jones Newswires; (312) 750 4117; jacob.bunge@dowjones.com

(Kristina Peterson and Donna Kardos Yesalavich contributed to this article.)

Nightstar Therapeutics Plc ADS (NASDAQ:NITE)
Historical Stock Chart
From Jun 2024 to Jul 2024

Nightstar Therapeutics Plc ADS (NASDAQ:NITE)
Historical Stock Chart
From Jul 2023 to Jul 2024