Cendant Halt on NYSE Helps Rivals

The New York Stock Exchange boasts that “the world puts its stock in us.” But when investors in Cendant Corp. rushed to sell Thursday, they had to go elsewhere.

About 12 million shares of Cendant, a franchiser and direct marketer whose brands include Avis rental cars, Howard Johnson hotels and Coldwell Banker real estate offices, traded via so-called third-market brokers and independent electronic networks before the first trade took place on the NYSE.

“The New York [exchange] has fallen down on the job,” said Sharon Preston, a head trader at Avatar Associates.

The flood of trading in the third market, where brokerages such as Cantor Fitzgerald & Co. and Jefferies & Co. arrange trades among institutional clients and where independent electronic networks allow institutions to trade with each other, demonstrated the rising power of these off-exchange alternatives.

Coincidentally on Thursday federal regulators proposed new rules for regulating the electronic networks.

Cendant didn’t begin trading on the NYSE for more than an hour and a half. During that time the shares plunged more than half to $17 from $35.63 in off-market trading, wiping out more than $15 billion in market value. The stock closed at $19.06, down $16.56.

The NYSE delay occurred as the specialist firm responsible for keeping order in Cendant struggled to match buy and sell orders.

A deluge of sell orders early Thursday followed Cendant’s disclosure late Wednesday of “accounting irregularities” that would reduce earnings for last year and this year.

The first NYSE trade was recorded at 11:04 a.m. Eastern time, when 17.8 million shares changed hands at $18.75. The trade was the ninth-largest ever on the Big Board, said Diana DeSocio, a spokeswoman for the exchange.

Trading began as soon as possible, given that sell orders outweighed buy orders, DeSocio said. NYSE officials make the decision on when to begin trading, not specialists, she said.