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Don Weeden: Former Wall Street Maverick Reopens Shop

January 16, 1986

NEW YORK (AP) _ In the early 1970s, perhaps no one rankled the Wall Street establishment more than Donald E. Weeden.

Weeden’s brokerage firm, Weeden & Co., was a leading ″third market″ firm that eschewed a New York Stock Exchange membership but still made markets in NYSE-listed shares off the exchange floor.

He also charged customers less on trades than did exchange-members who were bound by the fixed commission rates then set by the NYSE, which sent a lot of business Weeden’s way.

Weeden led the call for fixed rates to be abolished throughout Wall Street, because he believed competition would increase everyone’s business. He also urged the NYSE to allow its members to deal with third-market firms.

″We felt, reluctantly, that we had to go out and become an advocate for our point of view,″ Weeden, 55, recalled recently. ″With or without Weeden the business was changing, and it was changing much faster than most people felt able to adjust to.″

Many Wall Streeters were aghast at Weeden’s suggestions. Critics predicted such moves would dry up commission revenue, ruin scores of investment firms and perhaps destroy the stock market itself.

But Weeden ″knew he was right, and there were people at the exchange who knew he was right,″ said Robert Sobel, a financial historian and author. Weeden also ″was a very bold character with a way with words″ against whom ″none of those people could match in a debate,″ Sobel said.

Weeden had another ally: the Securities and Exchange Commission. And with SEC prodding, the NYSE finally followed Weeden’s advice on May 1, 1975, when it abolished the fixed-rate system that had stood for 183 years.

Nearly 11 years later, several brokerage firms have folded or been forced to merge, but in general the industry has prospered while trading has surged to record levels.

Ironically, one of the firms forced to merge after ″May Day″ was Weeden & Co., which combined with Moseley Hallgarten six years ago.

But in early January, Donald Weeden returned to Wall Street as an independent, opening the ″new″ Weeden & Co. with 28 people he brought from Moseley Hallgarten.

Weeden & Co., with $10 million in capital, still caters only to pension funds, insurance companies and other institutional investors. But the new firm has a narrower focus than its predecessor, specializing largely in handling block trades of stock.

In an interview at his new office overlooking the East River, Weeden recalled that a key change leading to May Day was that institutions were becoming heavyweight players in the stock market, and consequently were looking to trade at a cheaper price.

Enter third-market firms such as Weeden & Co., which undercut the NYSE’s fixed rates. Weeden and others also figured that the institutions would trade even more as trading prices kept falling and that deregulation and advances in technology would allow brokers to bring those prices down.

″We were taking advantage of those changes, and we were no more than verbalizing and focusing people on those changes,″ he said. ″That is quite apparent, because we’ve been very quiet since 1979 and this change is continuing and, if anything, accelerating.″

Institutions now account for the lion’s share of the rising NYSE trading volume. Commissions for both institutions and individual investors have steadily dropped amid keen competition between brokers. Deregulation also enlarged the list of players, with commercial banks and insurance companies having acquired brokerage firms.

But when Weeden was suggesting such changes might occur, he won few friends.

″If we played any role it was to clarify what was happening and give it some focus out into the future,″ Weeden said. ″And because we were talking about it, we became the bearer of bad tidings as many people thought they were.″

Weeden & Co. was founded by Weeden’s father and uncle in 1922, and the younger Weeden, a native of Oakland, Calif., joined the firm in 1956 after earning an economics degree from Stanford University and spending four years in the Air Force.

After May Day, Weeden & Co. aggressively expanded into several areas of bond trading and opened new offices. But when the bond market skidded in late 1977, the firm’s capital was squeezed and Weeden sought the Moseley Hallgarten marriage.

Weeden acknowledged that May Day allowed Wall Street’s biggest firms to compete with Weeden & Co.’s discount commissions, which narrowed its profit margin. But he insisted that May Day did not cause the firm’s demise.

″Some people said, ‘The spouting whale gets harpooned, and that’s what happened to you,‴ he said, referring to Weeden & Co.’s advocacy for unfixed commissions. ″We got harpooned in 1978 because we had tended to try to grow too fast in too broad a field without the requisite capital.

″We were still doing a good business (in stocks), particularly when the market turned around in April 1978,″ he said.

What remained of the firm as the Weeden Equity Division of Moseley Hallgarten also has been ″consistently″ profitable, which prompted Weeden’s staff to reopen Weeden & Co., he said.

″I am part of that interest and desire to be independent, but if it was only my idea it never would have come about,″ said Weeden, who is president and chief executive of the new firm. ″That desire had to be part of all those men out there who are on the firing line as salesmen and traders who wanted that probably more than I did.″

Weeden, bald with a neatly trimmed silver beard and squinty blue eyes, noted that today the institutions again are urging cuts in commissions. And again there are fears the cuts could torpedo many firms.

But Weeden said Wall Street is reacting differently today.

″They’ve had experience with a period of enormous change,″ he said. ″And while they say we’re going to have just as much, if not more, change in the next ten years, they’re saying it with a positive tone.

″It’s a forward-looking response to these pressures rather than one that’s trying to keep progress from continuing,″ Weeden added. ″I’m just one of many voices today.″

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