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Two Specialists Surrender Market-Making Roles

February 23, 1988

NEW YORK (AP) _ Two stock specialist firms have agreed to give up their roles as market- makers in three stocks, the New York Stock Exchange said.

The moves are part of a review of the performance of specialists during the October stock market crash, the exchange said in a press release Monday.

The Big Board said that Lawrence, O’Donnell & Co. would surrender its market-making role in Neiman-Marcus Group Inc. common stock next week. La Branche & Co. will give up its rights to market E.F. Hutton Group Inc. and A.G. Edwards Inc. on March 3.

The franchises in the affected issues will be reallocated by the exchange, NYSE officials said. In the case of E.F. Hutton, a large securities firm due to be merged with Shearson Lehman Brothers Holdings Inc., the stock is expected to be delisted by the exchange around March 24.

The exchange’s 53 specialist firms each control lucrative franchises to market certain stocks and are required to maintain orderly trading in those issues by setting opening prices and covering trades when there are too few buyers or sellers.

Following the crash, the exchange launched investigations into the volatile behavior of some issues and the specialists assigned to them. The activity of market specialists also was criticized by a presidential task force and the Securities and Exchange Commission in their separate probes of the October collapse.

The NYSE said the agreements with Lawrence, O’Donnell and LaBranche were reached voluntarily after discussions with the firms.

In the case of LaBranche, the exchange’s review centered on the firm’s handling of Hutton stock, but because of the imminent delisting of that issue, the firm also agreed to accept the withdrawal of its Edwards franchise as a penalty, the exchange indicated.

The exchange did not disclose the results of its investigations into the trading of Hutton and Neiman-Marcus stock, but extreme volatility appeared to have prompted the inquiries.

The NYSE has taken action in four situations since the crash. Previously, Spear, Leeds & Kellogg surrendered its franchise in J.P. Morgan & Co. stock and J.J. Meehan & Co. withdrew its rights to Gould Inc.

Exchange officials would not say whether its inquiries into the activity of specialists were continuing, but NYSE Chairman John Phelan has told congressional investigators that reallocations of stock franchises was one means of repairing the damage caused by the crash.

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