The New York Stock Exchange. reeling from the recent Securities and Exchange Commission order allowing non-members telephone access to the NYSE floor, wants to prevent that access from including portable phones. The exchange last week was on the verge of asking the SEC for an order that would limit floor brokers to using phones in their booths when talking to non-members, exchange officials said. In addition. the NYSE planned to ask the SEC to prohibit Big Board specialists from having any telephone access to the public.
Independent floor brokers, meanwhile, rushed to connect their booth telephones to the outside Lines that the exchange board of directors has decided not to contest. They said that they already have been contacted by prospective institutional clients who for the first time will be able to place orders directly to brokers on the floor. Before, the SEC order, only NYSE members, who paid as much as $1 million for a seat, could talk to floor brokers.
The phones will "make superstars out of people on the f1oor." said William Higgins, the independent or $2 broker who forced the Big Board to allow the phones by taking the issue to the SEC.
Higgins, in fact, has already begun using a wireless phone on the floor thanks to the SEC's May 6 order which required the Big Board to allow him to do this. He said he plans to offer his services to a handful of institutional clients that want a "tiffany-type service." Higgins emphasized that he does not plan to undercut the commission rates charged by upstairs brokers.
Higgins took the telephone access issue to the SEC after the NYSE board refused his request for a wireless phone in 1981. The board was pressured to turn Higgins down by the powerful upstairs trading community that was worried that telephone access would allow their customers to circumvent them and go directly to floor brokers. Some traders have suggested their firms might leave the exchange if non-members are allowed such access (IDD. 5118).
The SEC said Higgins' request. had to be allowed immediately because the Big Board had no rule prohibiting such telephone access. The NYSE obtained a 35-day delay in the order, which expired last week.
Exchange officials pointed out that the SEC order only mentioned Higgins and Michael Robbins, another $2 broker who joined Higgins' action after it was filed. The exchange planned to file a request with the SEC last Friday that would extend the order to all members. But it will request the ban on wireless and hand-held phones. While the SEC considers this request, the exchange will allow other floor members to connect outside lines to booth phones but will not permit any more portable phones.
An NYSE official explained that the Big Board wants to ban mobile phones to prevent professional traders from having a "time and place advantage" over the public. For example, a floor broker at the IBM trading position on the NYSE floor would have such an advantage if he were in direct communication with a broker trading the IBM option at the Chicago Board Options Exchange, he said.
The NYSE wants to forestall the public from obtaining telephone access to specialists because that would conflict with the Big Board's "auction" trading system. the official said. That system depends on brokers representing their clients interests when dealing with specialists, the only market makers on the stock exchange floor. Specialists could not act as the client's agent and trade against the client at the same time without suffering a conflict of interest. he said.
A source close to the SEC said the Commission may approve some "reasonable" limits on the use of the telephones if the NYSE can prove that disorder could be created on the floor of the exchange.
Higgins said he did not think portable phones would give floor brokers any. additional advantage. He noted that many booth phones are situated so that brokers using them would be able to communicate with gestures to a co-worker standing in a trading crowd. "Wireless phones would eliminate the unfair advantage [these traders] have" he said.
Higgins also suggested that such a prohibition may be a violation of anti-trust law.
Exchange officials said it is not clear whether Higgins will be allowed to keep his existing wireless phone if the SEC approves the ban the Big Board is seeking.