Schwab Pullout Raises Doubts on Logic of NYSE

In a move that throws light on the diminishing value of owning stock-exchange seats, Charles Schwab Corporation is giving up its New York Stock Exchange membership, which the firm’s brokerage arm has come to see as unnecessary.The San Francisco company said yesterday it is selling its three Big Board membership “seats. “The company concluded it didn’t need to actually own the seats because its investor clients can access the NYSE through an agreement in which a unit of UBS AG is providing Schwab with trade-execution services. That pact was struck along with the recent sale of Schwab’s capitalmarkets business to Switzerland-based UBS.The announcement comes near the end of a rough year for seat values, which have declined amid difficult trading conditions and even questions over the NYSE’s future path. Recently, seat prices have been hovering near the $1 million to $1.1 million level, but they are well off earlier peaks. The most recent sale, announced on December 14, left seat prices at $1.05 million, down 30% from where they stood a year ago and off sharply from their all-time high of $2.65 million. That record was set in August 1999 amid the late 1990s bull market in stocks.An associate professor of finance at Georgetown University, James Angel, said Schwab’s decision to part with its seats underscores the fact that brokerage houses don’t need to actually own seats. Memberships – which are called seats because exchange members sat in assigned chairs during the 212-year-old NYSE’s early years – confer the right to buy and sell stocks on the trading floor. But “there are plenty of NYSE members who are happy to provide access,” Mr. Angel said.“It used to be a matter of prestige for a firm to say, “We’re a member of the New York Stock Exchange,” because it meant that you were a real brokerage firm. But brokerage firms don’t have to do that anymore,” said Mr. Angel, a former visiting academic at the National Association of Securities Dealers, which controls Nasdaq. “I don’t think most customers really care if they’re a member or not. They care about the cost of the execution, about the quality of the services they receive.”“We continue to look forward to serving Schwab and their customers,” said Big Board spokesman Richard Adamonis.Schwab’s move also comes amid the firm’s drive to cut its costs.The NYSE acts as a regulator for its member securities firms, policing their activities in areas such as trading and sales practices. Schwab said it expects that the NASD will now be the primary regulator for its brokerage business.Schwab expects to complete the sale of its seats in the first quarter. Schwab’s own stock will continue to be listed on the NYSE and on Nasdaq.“The company has had a long and productive partnership with the NYSE. However, with our exit from the capital-markets arena, we have been reevaluating our memberships on a number of the exchanges,” said Michael Alexander, senior vice president for trading and asset services at Schwab, in a statement. “This change will have no impact on customer order handling; our clients will continue to receive the same superior trade execution they have come to expect from Schwab.”

Schwab Pullout Raises Doubts on Logic of NYSE

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