Cashing In Symbols of Success
On a 1982 trip to Zurich, where Wall Street veteran Francis P. Maglio was lining up business for his new brokerage, a Swiss banker asked whether he planned to buy or lease his seat on the New York Stock Exchange. That is, would he be a landlord or a tenant?
Maglio replied that seats were selling for more than $200,000, money he felt could be put to better use as capital for the new firm.
“There was a silence,” Maglio recalled. Then the banker told him: “We are in business longer than you are a country. We anticipate if things work out, we will be doing business with your children.”
Maglio got the message. He bought his first seat the day he returned from Europe.
With rival groups now squaring off over bids to turn the 212-year-old exchange into a publicly traded company, debate rages about whether that transformation would hasten the end of face-to-face trading on the Big Board.
But whoever wins, one venerable tradition would die: No longer would NYSE professionals own “seats” that would carry an equity interest in the exchange along with exclusive trading privileges.
Instead, the exchange would issue trading licenses without ownership rights. In a sense, everyone in the bustling crowd would be a tenant, with the NYSE itself as sole landlord.
For people like Maglio, 61, a Queens native who started out as a part-time runner, or errand boy, at the NYSE during high school, “owning your own ticket” was always the highest aspiration. But like most seat holders, he is no longer an active trader.
Maglio sold his firm in 2002 and, eventually, three of the four seats he had accumulated over the years. His wife, Theresa, who once traded alongside him, owns the remaining seat, which she leases out.
Leasing seats, a practice first allowed in the 1970s, has become more popular as traders -- who once were forced to own their seats -- retired. At the end of last year, 926 of the exchange’s 1,366 seats were leased, meaning fewer than one-third of the traders on the floor were owners.
“I don’t know if you had a full sense of the institution if you didn’t own,” Maglio said.
Theodore Weisberg, founder and head of Seaport Securities, an NYSE floor brokerage, also started out as a runner, doing “whatever I needed to do to get exposed to the business.”
Thirty years after buying his first NYSE seat, Weisberg still spends his days on the trading floor. Seaport handles trading for institutional investors -- insurance companies, mutual funds, pension funds and the like -- and for large individual investors.
The basic job description is trying to get the best possible price for the customer on every trade.
To execute a trade, Weisberg wades into the scrum of people around the big circular trading posts. The posts are manned by “specialist” auctioneers who control stock trading for each of the Big Board’s 2,700 listed companies. With an order in his pocket to sell 10,000 shares of XYZ Co., for example, Weisberg might ask the specialist: “How’s the market in XYZ?”
The specialist will tell him the price that sellers are asking and the price -- slightly lower -- that buyers are bidding. From listening to the chat around the post, keeping an eye on the electronic ticker, catching a glimpse of CNBC and absorbing other signals, Weisberg will get a feel for the market’s direction.
If he thinks prices are falling, he may sell the shares immediately. If he thinks prices are rising, he may take a little walk and come back later. On busy days, the whole process speeds up.
“It’s a job that seems to reward longevity,” Weisberg said. “So much of trading is psychological, and over the years you learn to deal with that.”
Weisberg loves the Big Board, but he acknowledged the need for change and said that he wouldn’t be overly upset by the transition from seat owner to licensee. Everyone on the floor has to abide by the same trading rules, he said, just as cabbies all have to stop at red lights whether they own their taxis or rent them.
Under the proposal unveiled last week by executives of the NYSE and electronic-trading firm Archipelago Holdings Inc., seat holders would be bought out for cash and shares in a new publicly traded company called NYSE Group Inc.
The sale must still be approved by regulators and members. Former NYSE director Kenneth Langone has been trying to build support for a rival buy-out proposal that he claims would give seat holders more money.
NYSE Chief Executive John Thain is selling the marriage with Archipelago as a way for the exchange to quickly develop a long-promised hybrid system to marry the speed of electronic trade execution with human ingenuity. The NYSE’s floor traders still can beat computers at finding the best price for smaller, tougher-to-trade stocks.
The term “seat” dates to the early 1800s, when NYSE members sat in assigned chairs for twice-daily “calls” that were run like art auctions, with an auctioneer calling out the names of stocks and bonds and banging a gavel to close the bidding.
Nowadays, with the trading floor spread across four large rooms, most professionals spend all day on their feet and on the move between trading posts.
Until 1868, the number of NYSE seats would fluctuate as new members were admitted and old ones died or retired. But that year, the exchange rewrote its rules to freeze the number of memberships and allow seats to be bought and sold. Prices went from a low of $2,750 in 1871 to $80,000 in 1901 to a high of $2.65 million in August 1999.
Seat prices have been escalating in recent months, with one selling Friday for $2.6 million. Only three months ago, a seat had sold for $975,000.
Under Big Board rules, clerks and other workers may take orders, answer phones and otherwise help out, but only members -- identified by white plastic badges clipped to their jackets or blouses -- are permitted to execute trades.
Some members are “in house” brokers for the big full-service brokerage firms, such as Merrill Lynch & Co. and J.P. Morgan Chase & Co., executing orders for their firms’ customers. Other members are independent floor brokers -- Maglio and Weisberg, for example -- who can take orders from anywhere.
The rest of the members -- about one-third of the total -- are specialists.
Members and others on the floor often wear jackets with different colors to identify their firms and their jobs -- such as trader, supervisor or messenger.
The rule is one seat, one trader. That’s why as Maglio’s business expanded, he needed more seats and eventually bought four memberships and leased two others so that he could have six traders working at the same time.
By the same token, although Merrill Lynch has more than 50,000 employees worldwide, it needs only a few dozen NYSE seats to get its Big Board trading done. When things get extra busy, Merrill can enlist independent floor brokers to share the load.
The price of seats and seat leases is of special concern to the many NYSE members who no longer work at the Big Board and view their seats as nest eggs.
Former floor broker William J. Higgins, 69, founded the Assn. of NYSE Equity Members in 1994 to look after the interests of such absentee landlords.
A maverick during his years on the floor, Higgins made enemies of some NYSE brass in the 1970s when he and a colleague went to the Securities and Exchange Commission to force the Big Board to allow traders on the floor to take direct calls from customers.
Higgins noted that lease prices had crashed while seat prices had held up fairly well. Leases that were going for $360,000 a year in 2000 and 2001 sank to a low of $60,000 on Nov. 1. Most recently, a seat was leased for $66,000.
Higgins can’t prove it, but he believes that some specialist firms are allowing clerks and other non-members to execute trades, a practice that he said drove down demand for leases.
Retired seat owners who were taking in $30,000 a month in lease payments just a few years ago now are being forced to get by on $60,000 a year, Higgins said. He said he knew of one seat holder who was driving a cab and another who was looking for work as a clerk at a hardware store.
“These people are millionaires on paper, but they’re cash poor,” Higgins said.
He and other absentee landlords welcomed this week’s news that Langone was preparing a rival buy-out proposal. Higgins had criticized the initial bid as giving too much to Archipelago shareholders and not enough to NYSE seat holders.
Higgins, who seems to revel in his reputation as a thorn in the side of NYSE management, said that going public would cure a headache for the Big Board staff.
“The biggest problem they ever had,” he said, “is that every year they had to come back to the seat holders to get approval of the things they wanted to do.”
