Readers Report

Scandal at the Amex: Points of View

There are very real risks associated with being on ''the other side'' of every public order to buy or sell options on securities (''Scandal on Wall Street,'' Cover Story, Apr. 26). Many of the buyers and sellers we deal with on a minute-by-minute basis have better and more timely information about stocks than do the market makers on the exchange floor. The option in which ''my crowd'' makes a market routinely offers greater liquidity than is offered by the underlying security, forcing all of us in the crowd to assume a great deal of personal risk. Given our overheads and fees, most of the market makers are making a modest living that does not always compensate us for the amount of risk taken.

The dramatic market move last summer and the severe correction in the market during the last two weeks of April resulted in many market makers losing all their capital and being forced to exit the business. Contrary to your assertion that spreads are too wide, we would argue that the underlying risks are greater than you realize and that the spreads do not adequately reflect those risks. The $150 million in excessive spreads equals approximately $150,000 in additional earnings per trader on the floor. It is very hard to detect the existence of any excess accruing to market makers, especially something of this magnitude.

The fact that a broker might have been able to walk into the crowd and get a better price is a function of chance. There is not a better price reserved for professionals. They could just as easily miss the trade. Those of us on the Amex floor are trying to build a product that will keep investors coming back.

It is in our best interest to treat both professionals and customers in the most careful fashion to ensure that they were dealt with fairly. If not, they will not come back to do business with us. In addition, the Amex has a customer-friendly policy that requires us to match the best bids and offers on all multiple listed options. This is a policy not enforced at other exchanges, and it results in market makers often buying options at the offer and selling options on our bid because the customers' interests are always put first.

By Jeffrey Maas
Matrix Trading LLC
New York

Your story was damaging to the good names of the hundreds of specialists, brokers, and American Stock Exchange employees and their businesses. The allegations involve just a handful of individuals; why slander the whole operation? Scandal and corruption are not rare--just look at our President and government. There have always been, and there will always be bulls, bears, and pigs. It is unfair to slaughter the entire herd because of a few greedy pigs.

Diane E. Alter
Long Branch, N.J.

As a longtime member of the American Stock Exchange, I take offense at your allegation of price-fixing in our option crowds. Since the article railed about the better treatment offered to option orders that are represented by human floor brokers rather than automated execution systems, it seems strange that no blame has been placed on those people who choose not to use a broker.

Would you blindly mail a check to a car dealer for the full sticker price without shopping around? Perhaps you could send your real estate agent to buy a home for you with a blank check with orders not to return without a house? Of course, these examples are absurd, but why would you treat your investments any differently?

In an effort to save a $50 floor brokerage bill, people are losing eighths and quarters on their investments. If that math doesn't add up for you, surely you can't blame others for your lack of trading success.

Vincent Buccigrossi
Progressive Securities Inc.
New York

American Stock Exchange CEO Richard F. Syron explained the rationale for self-regulatory organizations thus: The reason you have SROs is that these things are so complex that the only people who really understand all the details of this in toto are the people who are there, engaged in it, on a moment-to-moment basis. If complexity of operations were reason enough to allow self-regulation, virtually every modern-day large industry would claim it qualifies.

Professional service industries have SROs, not because of their intrinsic complexity, but because of the unverifiability of their output. It is very difficult for a consumer of brokerage service, investment banking, law advice, or management consulting to identify and then prove to a third party any breach of service. Given that clients find it difficult to pursue breach of service, they might hesitate to seek professional service in the first place. To win the confidence and the business of their clients over the long term, professional organizations take on themselves the responsibility of monitoring practitioners' adherence to the professional ''promise'' that their clients' interests will be paramount.

When an SRO forgets its primary monitoring role to build long-term confidence in the profession and becomes an industry guild instead, the profession's reputation begins to erode. Over time, society withdraws such profession's right to monitor itself and instead subjects the profession to the discipline of external monitoring institutions. Witness the ongoing revolution in health-care services.

Ashish Nanda

Coke's Problems Are of Its Own Making

As a small competitor of Coca-Cola Co., I found Coke's spin on its current problems interesting and amusing but hardly realistic (''Price hikes=less fizz for Coke,'' In Business This Week, Apr. 12). As Coke's international profits soared, it turned the U.S. market into a market-share battleground. Coke has publicly stated that its goal is 50% of the total U.S. beverage market. Making money in the U.S. has not been its primary motivation--dominating the market and its competitors has.

How has Coke gained market share? By being the leader in price-cutting. Virtually every market channel (grocery, drug, mass merchandisers, and convenience stores) has Coke products on deal all the time. In Texas, anyone who pays over $5 for a case of Coke (or any other soft drink) is a fool. By having Coke on sale every day, everywhere, consumers and retailers have been well-trained to refuse the higher prices that Coke reports to be pushing in the market. Thus, Coke has cheapened its most valuable asset, its trademark.

Coca-Cola also engages in the same market ploys that have landed Microsoft in court. They bundle products and programs, they write restrictive exclusivity contracts that lock out competitors, and they play hardball with the retailers who have the audacity to want to run their own beverage programs.

In short, Coke's problems in the domestic market are of its own making. Coke's market strength and hardball tactics stifle true competition.

Bill Towler
Leading Edge Flavors
Temple, Tex.

The Right Numbers at Schwab

In ''IPOs: On the outside looking in'' (Personal Business, Apr. 19), the information provided by Charles Schwab & Co. for the chart outlining eligibility requirements for initial public offering participation was incorrect. The chart for minimum balance and minimum trades per year should have read: $500,000-plus in assets and 0 trades per year; or $25,000 in assets and 24-plus commissionable trades per year.

Marta von Loewenfeldt
Director of Media Relations
Charles Schwab & Co.
New York

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Scandal at the Amex: Points of View

Coke's Problems Are of Its Own Making

The Right Numbers at Schwab

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