Letter to The Association of New York Stock Exchange Equity Members

Letter to The Association of New York Stock Exchange Equity Members
This letter generated 350 proxies and $320,000 in Contributions.


Dear fellow New York Stock Exchange Equity Members:

I am writing to you today to ask you to join with your fellow Equity Members in establishing an organization to protect the value of your assets at the Exchange. This association is needed because there are now 870 of us who lease our Seats. The recent announcement that the Exchange is considering a public offering makes it necessary for us to act now in our own best interest. While I have not had the opportunity to analyze the Board's proposal in detail, I am very uneasy about what I know of it. It seems that the current Members will own a class of stock that will allow us to continue leasing our Seats. The class of stock to be sold to the public will be shares in a new "Enterprise". The money raised by the public offering, in addition to our share of the $750 million in the treasury, will be used to develop an electronic exchange and new business in which we will have little or no equity and no vote. It is very possible that in a short period of time, "face to face" trading will no longer exist. The Enterprise share owners will have our business and we may have nothing. I think that we can do better. I believe that our Memberships have value beyond their sale or lease price. Therefore, we need to establish the total value of an Exchange Membership, not just the value of an Exchange Seat (trading license), before we can go forward.

We share a common interest in that the 1366 Members of the Exchange have a controlling vote and ownership in a marketplace that was established in 1792 with the U.S. Government as its first customer. Today, the Exchange has three thousand listed companies, with revenue exceeding three million dollars each trading day. Members' cash equity on deposit at the Exchange is calculated at over $750 million or $550 thousand per Membership share. The New York Stock Exchange Inc. is the envy of every other marketplace in the world. Is it any wonder that others want to own a part of our Exchange? I am not for or against giving up an interest in my Membership and could not make a recommendation to anyone because I don't have enough information. I don't think anyone else does either. I believe we should not act hastily nor should we act independently and above all, we should not act without good counsel and advice. Therefore, I am proposing to you that we unite together for the good of all, that as business partners, we share the expenses of securing counsel for legal advice and a firm of economists to evaluate the true value of a Membership share of the Exchange. I think we should explore where the Exchange's future lies and what new products could be added to our revenue stream. If the Board proposes that the Exchange changes from a "not for profit" to a "for profit" corporation, we all would have prime pre-issued stock in one of America's most sought after IPO's. I, for one, don't want to give away my stock. However, because our investment warrants a better return than we have been receiving, I would recommend changing to a "for profit" corporation even if the Board does not recommend it.

I am sure by now that some of you are beginning to think like me and others are starting to say: "Why should I trust Higgins and not our Board?" This concern cannot be answered delicately no matter how I try. So let me say at the start that I like and respect Chairman Grasso. I hold him as a friend and sincerely believe that he is the best Chairman we have ever had. I have been at the Exchange since 1955, became a Member in 1968 under an ABC Agreement with Pyne Kendall & Hollister and finally purchased a seat in 1974. During this time, I have seen management and the Board give away Members' assets and opportunities time and time again. The tombstones read "R.I.P.": New York Stock Exchange Quotation Company, New York Stock Exchange Clearing Corp., Central Depository, New York Stock Exchange Ticker Tape. These were replaced by free execution through ITS and DOT. How many of the Internet Trading Systems would exists today if they were not given backdoor privileges to the New York Stock Exchange? Sure, there are those who will say we had to capitulate. You only have to give in after a judge says to. We never went to court to preserve our assets. If we had, we might have retained them or been compensated for our losses. We might have fought and lost, but we might have fought and won. The truth is that we never fought.

I don't trust our Board to do what is in the best interest of the Equity Members. It is the members of the Board (very few of whom own an NYSE Membership) and the Staff who have put together this proposal to go public. We can hardly expect them to have only our best interest in mind. They sold us out in the past and I have no reason to believe they would not do it again. When, you say, did our Board sell out the Membership? In 1977, our Board proposed two new classes of Memberships, Physical and Electronic Access. PhYSical Access was disguised as a way for widows to lease their husbands' Seats. No one except me and a few friends made any effort to educate the Members that what they were voting for was an unlimited new class of annual Memberships at an annual fee of $25,000 (dues included). These new Memberships would put a ceiling on any potential Seat appreciation. We could not persuade enough Members to vote against this proposal and it passed. The Members and their widows began leasing their Seats for $17,000 per year. Soon, the supply dried up and the Exchange created and leased the first Physical Access Seat to Jack Burke for $25,000 per year. Now I had the Floor's attention. It became obvious that the Exchange could create and lease Seats, thus keeping both the lease amount and the Seat prices severely depressed. I started a class action against the Exchange charging that Members' assets were being diluted without compensation. The judge said: "But you voted". I replied that the Members did not understand the ramifications. He allowed a new vote. There was no question that the Membership would vote out the Physical Access type of Annual Memberships. Management and the Board wanted Open Access to the Exchange Trading Floor and began a campaign of meetings, lunches and personal visits to the Floor, persuading those who had voted against continuing Physical Access to change their vote. When this activity was brought to my attention, I suspected that the proxies were being inspected before the balloting had been closed in order to target those Members who were voting to abolish Physical Access Memberships. Having good reason to believe that the balloting was no longer secret, I proceeded to collect proxies from friends and supporters. In all, I held 97 proxies and voted them five minutes before the box was sealed. We won 574 to 510 Y2. At that time, Seats were selling for $190,000. The Vice Chairman said: "...the Membership votes to close the door and step back into the past..." The Board was so determined in its commitment to dilute the Membership that it refused to endorse the vote of the Membership and challenged it. We had a difficult time with the SEC. I was told that the Exchange's legal department would not represent the will of the majority of Members who had carried the vote; that our lawyers worked for the Chairman and the Board, not the Members. I don't know how you feel about "stepping back into the past", but I like Seats selling at $2.6 million and leasing for $300 thousand per year. I learned not to trust Management, the Board and many of our fellow Members. By telling you this story, I hope I have won your trust and confidence and have given you an insight into why I don't trust a Board that does not share an equity interest in our assets. I have a clear picture of what I want to do, but I can't do it without your support and financial help.

These are my objectives:

  • 1. Establish an Association of Equity Members.
  • 2. Fund the Association with enough capital to secure proper counsel and to contract with a national firm of economists to establish the value of a Membership today and its potential future value.
  • 3. Expand the New York Stock Exchange Board to provide a minimum of three Directors to represent the Lessor Members. We should not have to rely on newspapers and hearsay to have an insight into a business where a share costs $2.6 million.
  • 4. Add new income producing products and fees to the Exchange revenue and distribute these funds to the Equity Members. The first of these changes should be the distribution of the Electronic Access fee in a manner similar to the distribution of the Physical Access fee.

One should be modest and not blow his own horn. However, many of you may not remember me or may have no first-hand knowledge of my accomplishments. Since I am asking for a vote of confidence from many strangers, I will outline some of the things I am proud to have been associated with that have benefited the Membership.

  • 1. I was the Founder of the Alliance of Floor Brokers. At that time, the Chairman referred to me as an organizer of a gang. The Alliance has indicated to you that they will represent "the man or woman who wears the white badge". They may, but be advised that today many on the Floor wear white badges without having an equity ownership. Some 870 Lessee Members, not counting the employees of Member Firms, wear white badges. Today, unlike in the past, even Exchange employees wear white badges. I submit to you that as well meaning as the Alliance is, any organization that represents everyone, represents no one. I founded the Alliance after APAM, the Association to Preserve the Auction Market, refused $2 Brokers representation on their Board. They were an organization of Specialists and wanted to represent the Specialists view. I founded the Alliance to represent the view and concerns of the $2 Brokers. I am still a believer in single purpose organizations.
  • 2.I was the co-founder of the Organization of Independent Floor Brokers. Because $2 Brokers felt they were no longer being represented by the Alliance of Floor Brokers, we reorganized.
  • 3.I was the founder of The Floor Members Emergency Fund. This Fund provides up to $250,000 in coverage to Floor Members to settle Question Trades ("QT's"). I was president for the first eight years the Fund was in operation. A quarterly statement was always sent to each participant detailing all disbursements. This emergency Fund is still active and providing help to Floor Brokers to settle open trades.
  • 4.I negotiated an Omnibus Clearing Contract with U.S. Clearing Corp. to clear open trades for Floor Members who did not otherwise have an error account. This gave Floor Brokers the ability to clear an open trade for $35 commission plus the difference of the QT. It was a face saving service for Floor Brokers. They did not have to go hat in hand begging a Specialist to clear an open trade.
  • 5.I negotiated the elimination of the Use and Proceed Agreement. This permitted a Seat owner to join a firm without making his/her Seat available to the general creditors of a Member firm. Members became free to qualify NASD firms for Exchange Membership and collect a fee, enhancing the return on their Membership without encumbering their Seat.
  • 6.I pursued the Exchange and then the SEC for over six years to have a regular business telephone installed in my booth. I demonstrated that it has always been a right of Membership, dating back to the Buttonwood Tree, to collect orders from customers and that the Exchange was wrongfully preventing communication between Members and their clients. I am told that today there are more than six hundred such phones. My efforts made it possible for fund and pension managers, investment advisors and NASD firms to call directly to the Floor to place orders. This is the new client base for our Floor Brokers. Without direct telephone access, Floor Members were captive sub-contractors to large Member firms who controlled their income. There might not be enough revenue for Lessee Members to pay your lease without this new client base.
  • 7.I developed and introduced the first wireless telephone in 1979, long before anyone heard about cell phones. I was striving to bring back the prominence to the Floor Broker that had been lost over the years. I estimate that there are some five hundred cell phones in use on the Floor today.
  • 8.I negotiated the secret ballot. Proxies are now submitted to an outside firm for tabulation. Only the results are forwarded to the Board. Today, Members are free to vote without fear of political consequences. I could go on, but you have gotten the picture by now. A newspaper editor once complemented me, stating that I was the most forceful advocate of Member rights. My parting pitch is that if I had not won the proxy fight with the Board in 1979 by holding out 97 votes until it was too late for the Staff to react and the Exchange had been permitted to continue issuing an unlimited number of Physical Access Memberships, there would be no reason to write to you today. Seats would probably be still selling for $200 thousand. But, I did win that proxy fight for all of us. Seats are selling for $2.6 million and the world wants a piece of your asset. We are all partners without a managing partner. We need an organization now. If you will give me your support and confidence as a short term manager, I believe I can do what needs to be done for all of us.

Thank you for your interest in reading my letter. I hope you will join with me and the other Equity Members in protecting our assets and in looking to the future. In order to get organized, I am requesting that you return the enclosed application and a check for $2000 which is about 1 % of your lease income for last year. I am advised that this is a deductible business expense. I don't anticipate any further requests at this time if we get a respectable response. I will publish a list of those Members who support this effort so that they may be recognized by their friends.

E-mail is the most efficient way to keep in touch, so even if you don't use e-mail yourself, send me your grandchild's e-mail address. But most importantly, send me your check for $2000 so that we can immediately begin to figure out our best course of action to protect our investment and enhance its value.

Fraternally Yours,
William J. Higgins

P.S. I think you should know that the Exchange has been less than cooperative in providing me with the material I requested to facilitate this mailing.

This letter generated 350 proxies and $320,000 in Contributions.

Post Script:


A final accomplishment was convincing the Board of Directors of the Exchange to include two Lessor Members on the Board. I made an appeal to a subcommittee of the Board of Directors, chaired by Leon Panetta and Alex Trotman, Chairman of Ford Motor Company. My contention was that 870 Equity Lessor Members of the Exchange had no direct representation on the Board, and that a majority of the Equity Ownership of the Exchange had rights, specifically the right to participate in the future direction of the Exchange as its owners.

After deliberation, we were offered one Directorship. I refused the offer and reasoned with the Committee that every other group had two representatives. They reconsidered and agreed to give Equity Lessor Members two positions on the Board. Unfortunately, the Grasso scandal derailed the appointments and Chairman Grasso was removed (or resigned) from office. A reorganization of the Exchange's Governing Body was implemented and the promises made to include two Lessor Members on the new Board did not happen.