bringing_down_the_temple (1)

bringing_down_the_temple (1) - 1/22/2011 Bringing Down The...

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Search Fortune Enter quotes RSS Newsletters Video Home Fortune 500 Technology Investing Management Rankings More from Fortune 2011 buzzword alert: Rebalancing Is Google really interested in ridding its results of spam? Immelt joins Obama's kitchen-CEO cabinet FORTUNE 500 Current Issue Subscribe to Fortune Bringing Down The Temple Investors lose billions of dollars a year to the middlemen at the New York Stock Exchange. At long last, they are demanding a change. By Shawn Tully November 10, 2003 (FORTUNE Magazine) – For 132 years the New York Stock Exchange has extolled its specialist system as the keystone of its stature as the world's greatest marketplace for trading stocks. The folks in the black and colored jackets who deftly referee the melee of frantic buyers and sellers on the exchange floor are as much a symbol of unfettered capitalism as the NYSE's monumental Greco-Roman facade. What's not to like about a bunch of regular blue-collar guys who, when they depart the temple at Wall and Broad each evening, meet for beers at Harry's bar? But suddenly the specialists' role as capitalism's noble traffic cops is under siege, and the attack threatens to pull down the temple itself. SEC chairman William Donaldson and congressional lawmakers are "assessing" whether the NYSE's rules allow human market makers to impose many billions of dollars a year in extra costs on investors--first, by grabbing markups for themselves at customers' expense; second, by forcing them to pay excessive commissions to the floor brokers who work for Wall Street firms; and ultimately by skewing the stock prices that investors pay. What has finally pushed regulators to the brink of action, after years of ignoring such complaints, is the swelling rage of the NYSE's most powerful customers--institutional traders like mutual funds and state pension funds. Seizing on what appear to be deep fissures in the once-untouchable institution and the spate of scandals that have put the Big Board on the defensive, the traditionally whisper- shy funds are now screaming for radical change. Even the NYSE admits that the specialists have at times abused their position as middlemen to fleece customers. The Big Board--pushed hard by the SEC--is in the midst of an investigation that has so far unearthed evidence that specialists sometimes sold investors stock from their own inventories at inflated prices when the clients could have bought it cheaper directly from another seller. The NYSE reportedly wants the specialists to pay the biggest settlement in the exchange's history, more than $150 million in restitution and fines. The SEC says it might stiffen the penalties if the NYSE is too soft. But the biggest problem, the funds contend, isn't the headline-grabbing abuse but rather an outmoded regulation that lies at the heart of the system: the trade-through rule. Instead of instantaneous, computer-to-computer transactions on electronic networks known as ECNs, the
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This note was uploaded on 02/17/2012 for the course FIN 4504 taught by Professor Banko during the Spring '08 term at University of Florida.

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bringing_down_the_temple (1) - 1/22/2011 Bringing Down The...

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