Big Board chief wants banker-broker overlap clarified
Boca Raton, Fla.
The chairman of the New York Stock Exchange, William M. Batten, has added his voice to a growing list of securities executives calling on Congress to revise the Glass-Steagall Act. The act prevents banks from doing business in the securities area.
In an interview with the Monitor, Mr. Batten said there are ''a lot of gray areas'' where banks and securities companies overlap, and he said Congress would have to provide ''clarification'' in these areas.
''Something will have to be done,'' he stated, ''or there will be a gradual infiltration by the banks.''
Mr. Batten also said the Big Board's major current concern revolved around settling the question of ''upstairs'' marketmakers competing with the exchange (called the order-exposure issue by the industry). A large brokerage house with major computer capacity now can match its own customers' buy and sell orders in its own ''upstairs'' office. as Mr. Batten noted, however, the customer is not necessarily assured of as good a price as can be obtained on the floor of the exchange, where the orders are matched in a competitive marketplace. He did not rule out a role for the big brokers, noting that ''if we don't get the business (through competitive bidding), we don't deserve it.''
(Separately, William A. Schreyer, the president of Merrill Lynch & Co., said he felt a rule governing such trading would soon be forthcoming. A year-long study by Ralph DeNunzio, chairman of Kidder, Peabody & Co., made some suggestions on how this issue should be resolved. The DeNunzio study suggested that all orders - big or small - should be given 30 seconds of exposure in the competitive marketplace before being crossed by an upstairs marketmaker. ''We could support a plan as presented by the DeNunzio report,'' Mr. Schreyer said.) John Shad, chairman of the Securities and Exchange Commission, praised the DeNunzio report in a speech before the brokers here, but did not indicate when the SEC would issue any rules concerning it. Sources indicated separately, however, that the commission would be issuing such an order within the next two weeks.
Mr. Batten said if this issue were not taken up, it could result in substantial structural changes. For example, he said, he could foresee more mergers and acquisitions, further concentrating the industry. (According to figures released by the Securities Industry Association, the industry is already substantially concentrated. The association said 25 of its largest firms held 73 percent of the industry capital and received 77 percent of the revenues in the first half of this year. More than two-thirds of the industry's pretax profits were earned by the 10 largest investment banking firms.
Mr. Batten also indicated that the capital position of member firms was at an all-time high as heavy trading has buoyed firms. Moreover, many firms now owned by insurance companies or large diversified service companies, such as Sears, Roebuck & Co., have particularly strong capital positions.
The New York Futures Exchange is doing well, he said, especially since it started trading futures based on its own stock indexes. ''We believe trading in indexes is in an early stage, and will become an important tool for portfolio managers,'' he added. ''Managers could not buy the market, in the past, only selective stocks. Now they can buy the market.''
Mr. Batten said he was not surprised by the recent surge in the market: ''By any historical standard stocks are cheap.''
John Phelan, president of the New York Stock Exchange, said the exchange was prepared to handle 150 million-share days on a consistent basis. He said it could handle a peak volume of 250 million shares.
To further upgrade the exchange's systems, Mr. Phelan said, it is planning to spend an extra $6 million to $7 million. In the past year and a half the Big Board and its members have spent $70 million to get ready to handle the volume surge.
The exchange is also experimenting with increasing the speed of the ticker tape. Although only 10 percent of its members use the tape, which frequently runs late, he said the exchange would try to increase the speed of the information crossing it.