NYX Nyse Euronext

Last year the New York Stock Exchange built booths that allowed some brokers to sit for the first time. This week the exchange asked regulators to permit an even bigger leap: allowing its market makers to use email.

Thirty-one years after Hewlett-Packard Co. (HPQ) introduced its first personal computer and 23 years after Microsoft Corp. (MSFT) launched its first commercial email program, the Big Board operator proposed allowing its designated market makers to use "written electronic communications" from the trading floor. The proposal was made in a filing with the U.S. Securities and Exchange Commission posted this week.

"It's a natural evolution of where the market model, regulation and technology have brought us," said NYSE Euronext (NYX) spokesman Ray Pellecchia.

Under the proposal, designated market makers, who have obligations to maintain an orderly market, would be allowed to use email or instant messaging to communicate with approved coworkers located off the trading floor. They still won't be able to email personal contacts like family members or friends, or use cell phones or BlackBerrys from their trading posts. Currently designated market maker companies can only communicate with their offices through approved telephone connections.

The exchange established stringent rules back when specialists served as market makers and were able to see orders coming into the exchange before other traders. Designated market makers, which formally replaced specialists in 2008, don't have any sort of first look at orders. Their role is to provide quotes in specific stocks and work to smooth trade imbalances in exchange for incentives paid by the exchange.

Tweaking the guidelines makes sense now that the designated market makers no longer have an inside advantage, said Bob Seijas, who spent 22 years as a specialist, most recently with Bank of America, before retiring in 2001.

"It all stems from the fact that specialists were perceived to have a time and place advantage and basically, they did," he said. Previously, if anyone wanted to reach a specialist, his office would alert him and the specialist would go to phone banks off the floor to return the call.

Once, when a panicky chairman called to ask Seijas's advice about a tender offer made for the company, Seijas had to stay inside the exchange's then-smoking lounge until he could summon a floor governor who could go to the floor and halt trading in the stock.

Even under the new guidelines, designated market makers would only be allowed to email about certain topics, like technology issues or getting permission to place a bigger trade. Private order information would not be allowed and the emails will be audited by Wall Street watchdog, the Financial Industry Regulatory Authority, known as Finra.

Floor brokers, who were never privy to the same information as specialists, are already able to use instant messaging and email.

-By Kristina Peterson, Dow Jones Newswires; 212-416-2917;

kristina.peterson@dowjones.com

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