MARKETS - Sweeping the Floor

As the Big Board’s market share continues to disappear, its new senior management team is fundamentally retooling the role of its floor traders.

ON DECEMBER 20, DUNCAN NIEDER auer took to the floor of the New York Stock Exchange to usher in a big change for the 215-year-old institution. During a holiday party for the New York staff of NYSE Euronext, Niederauer, the company’s CEO since December 1, announced that employees would be permitted to wear business-casual clothing to work, ending a long-standing and much-loathed formal dress policy. Days later, after Niederauer left for the night, a group of employees snuck into his office to leave an unusual thank-you note.

“They came in and hung like 50 ties all over my office, saying, ‘We don’t need these anymore,’” he recalls.

The dress code isn’t all that’s changing under Niederauer, who joined the NYSE as president in June from Goldman Sachs Group and was named CEO when fellow Goldman alumnus John Thain left for the top job at Merrill Lynch & Co. Thain transformed the Big Board’s external profile, engineering acquisitions that changed it from an insular membership organization that traded only equities into a global, publicly traded company with fast-growing options, futures and technology businesses. Niederauer’s reign should be more internally focused.

The company must shed the vestiges of an ingrained, public-service-like culture. Niederauer wants to inject more energy and entrepreneurialism into the ranks while integrating people from the various companies Thain acquired. The new dress code is one of several small steps he has taken to do so. Gone is the traditional CEO’s suite, cavernous and remote: Niederauer occupies smaller, more accessible quarters and encourages staff to stop in and chat. Employees now all use “” e-mail addresses in place of those of companies the NYSE has absorbed. Even the lexicon is being reformed: Gone, for example, is the phrase “It’s a heavy lift.”

“It was a euphemism for ‘It’s too hard,’” says Niederauer. “The fifth or sixth time someone said that to me, I kind of got upset. It’s not acceptable to say that. You have to have a can-do attitude.”

“The old way was to sit at your desk, don’t question things, and do your job,” adds Lawrence Leibowitz, an ex-UBS trading executive who joined NYSE Euronext in July as co-COO. “That’s not going to work here anymore.”

Nowhere will the new era be more evident than on the floor, where the share of trading in NYSE–listed stocks is down from about 80 percent to 40 percent since the introduction last year of federal regulations encouraging greater competition. The loss of share to faster, electronic markets such as the Nasdaq Stock Market and BATS Trading, means less fee revenue and threatens the NYSE’s lucrative listings business: Companies whose stocks trade on rival markets may choose to forgo their $500,000-a-year Big Board listings.

No surprise, then, that Niederauer and Liebowitz plan to overhaul the hybrid market structure that Thain introduced to respond to the new rules. The biggest changes center on the role of the floor traders, known as specialists, who are responsible for making fair markets in NYSE-listed stocks. In September the exchange switched the formula used to determine how it shares trading revenue with specialists, from one based solely on market share to one incorporating performance-based criteria, such as how often they improve upon the best available prices. More recently, the NYSE proposed reducing by 75 percent — to $250 million collectively — the capital that specialists must maintain, a nod to the declining rate of specialist participation in trades as more buyers and sellers are brought together electronically. Additional rule changes, aimed at giving specialists different incentives for providing liquidity, are forthcoming. Listed companies will be free to fire underperforming specialists, whose official name also will change, to “primary market makers.”

The new regime is already flushing out old players. In November two floor firms, SIG Specialists and Van der Moolen Specialists, left the NYSE, handing their stocks to Kellogg Specialist Group and Lehman Brothers, respectively. More such moves are likely.

“It won’t shock us if some of the other firms on the floor come to us and say, ‘This isn’t that interesting to us anymore,’” says Niederauer. Instead of hanging up their ties, they’ll be handing in their stocks.