An unusual trading foul-up on the floor of the New York Stock Exchange yesterday inadvertently confirmed rumors that Minneapolis investor Irwin L. Jacobs has been buying large amounts of stock in ITT Corp.
It is not known what Jacobs plans to do with his ITT shares, although there has been considerable speculation that he might soon seek to break up the conglomerate, which has about $14 billion in assets, and sell it piecemeal. Jacobs refused to comment on his plans, and an ITT spokesman said, "We have not been contacted by Mr. Jacobs, and we won't speculate on what his intentions might be."
Not only did the incident give some hint about Jacobs' latest foray, it also illustrated that, in spite of an increasing degree of computerization, the stock market retains enough old-fashioned trading practices to make possible an apparent human error that could cause controversy over a whopping $45 million block of stock.
Events began to unfold yesterday morning at 11:13, when the Dow Jones news ticker, the financial world's major source of news, reported that a 2-million-share block of ITT had changed hands at $30.50 a share. As is common in such cases, neither the buyer nor the seller was identified.
One hour and 21 minutes later, however, the Dow told a different story. It said that the NYSE had corrected the earlier report, and that only 500,000 shares of ITT stock had been traded in that block.
Dow Jones quickly received a call from Jacobs. Usually reticent about details of his investments, Jacobs this time was quite specific. The news service reported that Jacobs said that the block had indeed contained 2 million shares, and that he had bought 1.8 million of the shares through the brokerage that handled the purchase, Jeffries & Co.
Jacobs said in an interview that he had received confirmation of the trade from Jeffries, and believed he now held 1.8 million shares of ITT, in addition to an unspecified amount of a 2.4-million-share block that had traded earlier and any other shares he might have bought previously.
Jeffries, too, thought it had purchased the stock for Jacobs. "We received the report that we purchased 1.8 million shares down in the stock exchange, and as far as we're concerned, it's a good deal," said Ronald Alghini, Jeffries' president. Alghini said his firm had placed an order with one of the NYSE's floor specialists for 2 million shares at $30.50, and had made the deal quickly. The disposition of the 200,000 shares of the block not sold to Jacobs is not clear.
But the floor specialist -- a brokerage firm employe designated by the NYSE to make a market in the stock, who buys and sells shares and occasionally accumulates shares to sell to customers on the market's behalf -- thought Jeffries had purchased 500,000 ITT shares, and recorded that trade with the market, according to NYSE spokesman Richard Torrenzano. The 2-million-share figure was reported to an NYSE floor reporter by a Jeffries broker, and then relayed to the Dow ticker, Torrenzano said. The specialist could not be reached for comment on what may have been a simple misunderstanding on the noisy, frantic trading floor.
One of the NYSE's floor governors, and then a committee of floor governors, ruled in favor of the smaller block. "Exchange rules state that, in a dispute, the smaller lot prevails and that the customer receives what actually was confirmed as traded and not what was erroneously printed on the tape," Torrenzano said. "It is our understanding that the buying broker will appeal the decision."
Regardless of the outcome of that appeal, Alghini said Jeffries felt obligated to deliver the 1.8 million ITT shares requested by Jacobs. "We're going to hold good on our trade with Mr. Jacobs, and we expect the other side to hold good on their trade to us," Alghini said.
Should Jeffries' appeal to the exchange fail, it could be forced to obtain shares elsewhere to make up the block promised to Jacobs, and it might have to buy them at a higher price.
Jacobs said he did not blame Jeffries. "They didn't screw up," he said. "They acknowledge that they have a responsibility to us. . . . They're not trying to renege on a deal with us."
But Jacobs said "somebody is short 2 million shares of stock. I don't know who it is, but it's not us."
Said Alghini of the strange affair of the missing stock: "It smells."