NYX Nyse Euronext

Brokers on the floor of the New York Stock Exchange could face a sizeable hit to business when Citigroup Inc. (C) engineers a reverse-stock split later this spring.

Citi's 1-for-10 reverse split is expected to drastically curtail interest by high-frequency trading firms, which bought and sold large volumes of the bank's cheap stock. Floor traders helped execute those deals in an unusual partnership with their computer-driven colleagues.

The ranks of brokers on NYSE Euronext's (NYX) floor have thinned over the years as the exchange has become more electronic. However, as the rise of global electronic trading has sent more business away from traditional exchanges, high-frequency firms have also helped keep floor brokers afloat, becoming their fastest-growing business by some accounts.

Citi's popularity has been largely based on low share price and high volume. But when the bank executes a 1-for-10 reverse split of its stock in May, the price will move upwards of $40 from its current $4 price tag while the number of shares available will sink sharply. The widely expected dropoff in high-speed algorithmic trading in Citigroup will likely spill over to more traditional traders.

"It's certainly going to hurt floor brokers," said Clarke Roberts, co-founder of Pico Quantitative Trading. "It definitely kept them busy, so I would see more of an impact on them than off-floor brokers."

Floor brokers, who earn commission per share traded, could see revenues decline if high-frequency traders turn away from the brokers to whom they had previously flocked, thanks to the two key advantages they offer.

First, traders who entered an order through an NYSE floor broker were able to get a slightly bigger rebate for posting offers. Stock exchanges offer tiny monetary incentives for posting bids or offers in a stock, and high-frequency traders were able to profit handsomely by snapping up many shares of the low-priced Citi stock and quickly turning them over.

Second, both floor brokers and designated market makers at the NYSE benefit from an exchange rule called "parity." Unlike most other exchanges, where the first trader to submit an order snaps up the first available shares, the NYSE allows floor brokers and market makers to capture some of the first available shares without having to be first in line.

When many traders are all bidding on a stock, the first person to set the best price gets the largest portion of the available shares. Meanwhile, those on the floor--and their customers--can join that price and also get a piece of the order.

That's a big advantage in a stock as heavily-traded as Citigroup, where only the fastest computers and those with parity could often get in on the action.

"The parity argument, if it applies anywhere, applies to Citi," said Jamie Selway, managing director at Investment Technology Group and a board member at exchange operator BATS Global Markets.

But when Citi shares become more expensive, trading likely won't center on the same price points as much. "There'll be less need to break ties, so something like parity will matter a lot less," Selway said.

It's hard to quantify the exact blow floor brokers will feel. Currently, around 520 million shares of the roughly $4 stock trade per day, according to Birinyi Associates.

By contrast, over the past year, just under 39 million shares of J.P. Morgan (JPM), which costs just over $46 a share, traded per day. While a higher-priced stock may attract some institutional investors that weren't permitted to trade Citi while it is under $5 a share, their business isn't likely to make up for the number of shares traded by the high-frequency community.

Still, it's hard to predict whether high-frequency finders will find another low-priced, widely available stock to replace Citigroup, or if their activity will see an overall decline. But floor brokers are confident that high-frequency traders won't desert the NYSE floor.

"We don't believe that they're just going to take their ball and go home," said Keith Bliss, senior vice president at Cuttone & Company, a brokerage on the NYSE floor. "The high-frequency traders have built a lot of infrastructure and built business models around this type of trading."

-By Kristina Peterson, Dow Jones Newswires; 212-416-2917; kristina.peterson@dowjones.com

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