NYSE traders sold on merger

Many feel acquisition of electronic exchange will broaden traditional trading floor


NEW YORK -- It's two minutes before the opening bell at the New York Stock Exchange, and Doreen M. Mogavero hurries to one of the Big Board's 20 trading posts to check on the stock of drug giant Merck & Co.

Mogavero, chief executive of Morgavero, Lee & Co., an independent brokerage, spent much of the previous day selling 300,000 Merck shares for a large investment firm. Now, she is looking for any intelligence she can glean as to how the stock may fare - such as whether any big buyers or sellers are in the wings - so she can advise her client whether to sell more shares, or stand pat.

"You can get a feel for a stock just by talking to me," Mogavero says. Clients "will call and ask if we can give them some color on a stock. Sometimes they'll look at their Quotron and get a snapshot that kind of leaves them cold."

This has been her way of life for 25 years, and she's betting it won't end anytime soon - despite yesterday's historic vote by Mogavero and the NYSE's other 1,366 seat holders to buy an electronic exchange and embark on a new era of trading.

The $9 billion deal to acquire Archipelago Holdings Inc. of Chicago was approved yesterday by 95 percent of the NYSE's seat holders and by a majority of Archipelago's shareholders. The deal promises to be a lucrative move into fast-growing securities such as options. Investor enthusiasm has sent NYSE seat prices and Archipelago shares soaring.

But the prospect of greater automation also is viewed as a threat to the future of the trading floor.

As buyers and sellers link directly via computers, they may funnel fewer trades through the brokers and specialists who have formed the heart of the U.S. financial market since traders first gathered under a buttonwood tree on Wall Street 213 years ago.

"Down here, there's a lot of trepidation, and rightfully so, because their jobs are on the line," said Achille Mogavero, Doreen's husband, who retired in 2001 after a long career on the floor.

But for every naysayer, there are traders like Doreen Mogavero who believe the changes will help the floor.

"Markets are going to get faster," she said. "People who are good traders are going to get more valuable than ever. This new marketplace is going to require my skills to survive."

Computers are necessary but they lack the instincts for market forces developed by people working close to the action for many years, she said.

"I think the people down here will be pleasantly surprised at how well they'll do," Mogavero said. "They'll be shocked."

The NYSE has two types of traders. Brokers such as Mogavero execute buy and sell orders for clients with large pools of capital, such as mutual funds and brokerage firms. Specialists oversee the trading, matching buyers and sellers whenever possible and putting up their own money to do trades when no one else will.

The NYSE is an auction-style, or open outcry, market. Brokers wedge shoulder-to-shoulder at trading posts to yell out buy and sell orders. Trades go to those offering the best prices. The Nasdaq stock market, by comparison, has no trading floor; all its trades are done over a nationwide network of brokerages linked electronically.

Archipelago, whose shares slid 43 cents to $59.95 yesterday, is one of a new breed of electronic upstarts that emerged in the 1990s to challenge the dominance of the NYSE and Nasdaq.

Computerized trading offers fast executions and anonymity - attributes that are prized by mutual funds and other large shareholders, who want to prevent word of their intentions from seeping out and affecting the price of a stock before they've finished buying or selling shares.

Archipelago operates the Archipelago Exchange, known for its cutting-edge technology. Its acquisition would boost the NYSE's computerized trading capabilities, while giving it entree to trade other types of securities, such as options and derivatives, where volume is growing much faster than in traditional equities.

The NYSE theoretically could build such a system from scratch, but that would be time-consuming in a rapidly evolving electronic environment. Archipelago offers a faster path to the future.

The NYSE has made limited concessions to technology over time, although nothing on the scale of the Archipelago acquisition. Brokers record trades on hand-held personal digital assistants rather on the scraps of paper that once littered the exchange floor. And about 10 percent of NYSE orders are matched electronically.

The push to boost automation came from John A. Thain, who became NYSE chief after his predecessor, Richard A. Grasso, was ousted amid a furor over his pay.

Even before the Archipelago deal, Thain hatched a plan for a "hybrid" market that will boost electronic trading. Federal regulatory changes are also encouraging the NYSE to act.

For George M.L. "Michael" LaBranche, chief executive of LaBranche & Co., the biggest specialist firm with 39 seats, the prospect of branching into new securities outweighs fear over a decline in stock trading. "This just becomes a piece of the puzzle," he said, gesturing to one of his company's posts. "But it's a much bigger puzzle."

Walter Hamilton writes for the Los Angeles Times.

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