Brokers Hope to Keep Footing on NYSE Floor

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

Mogavero, an independent broker, 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 help her client decide 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 [a stock quote] 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 -- even with today’s expected vote by NYSE seat holders to buy a rival exchange and embark on a new era of electronic trading.

The $6-billion deal to acquire Chicago-based Archipelago Holdings Inc. holds the potential for global expansion and a lucrative move into fast-growing securities such as options. Investors like the concept and have bid up the price of a membership, or seat, on the NYSE as well as Archipelago shares.

Although the deal is expected to be approved, the prospect of greater automation is also seen as a threat to the future of the trading floor itself.

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 such as Mogavero who dismiss the worries and believe that 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.”

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 actual 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 trades are done over a nationwide network of brokerages linked electronically.

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

“I think the people down here will be pleasantly surprised at how well they’ll do,” she said. “They’ll be shocked.”

Archipelago, whose shares rose $1.52 on Monday to $60.38, 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 other derivatives, where volume is growing much faster than in traditional equities.

The NYSE 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 now record trades on hand-held personal digital assistants rather than on the scraps of paper that once littered the exchange floor. And about 10% of NYSE orders are now matched electronically.

Still, the NYSE remains tradition-bound.

Those colorful smocks traders don, for example, satisfy a rule that they wear jackets.

The smocks date to pre-technology days when “runners” ferrying orders had to quickly identify their traders. The colors have no meaning today, but traders like the smocks anyway for their multiple pockets and lightweight fabric.

Nostalgia aside, critics say the system of routing orders to floor traders is too slow and cumbersome in an era of lightning-quick financial markets.

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

Earlier this year, the Securities and Exchange Commission approved new rules to encourage electronic trading. Even before the Archipelago deal, Thain hatched a plan for a hybrid market to modernize the NYSE.

For 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 falloff in stock trading.

“This just becomes a piece of the puzzle,” he said, gesturing to one of his company’s trading posts. “But it’s a much bigger puzzle.”

Mogavero, 50, doesn’t fear automation in part because she gets relatively few of the easy-to-execute trades that are the likeliest to be handled electronically.

Instead, she often handles tougher trades in which she must balance the need to trade large share blocks without tilting the price up or down and costing her client money.

“It’s not just me being a carrier pigeon,” Mogavero said. “It’s me being able to help my client assess the facts.”

The daughter of a stock trader, Mogavero began her career at the American Stock Exchange before moving to the NYSE in 1980. She worked for a decade for Ivan Boesky, the famed arbitrageur who went to prison in 1987 for insider trading.

She and partner Jennifer Lee started Mogavero, Lee & Co. in 1989.

Mogavero faced a major challenge in 1995 when the brokerage firms that sent her business cut the commissions they were willing to pay. The partners responded by soliciting business directly from investment firms. It was a risky step at the time but other brokers followed suit.

Along with the rest of Wall Street, business soared in the late 1990s bull market. But the onset of the bear market, the effect of the Sept. 11 attacks and the Grasso pay controversy contributed to a drop in business from which Mogavero is only now recovering. Revenue fell from 2002 through the first half of last year and began picking up only recently.

“I may have already lived through the worst of my times,” Mogavero said.