NEW YORK, JAN. 25 -- A leading market-making firm at the New York Stock Exchange agreed today to resign as the specialist in Gould Inc. stock following a Big Board inquiry into trading of Gould shares during the October market crisis.
M.J. Meehan & Co., which makes markets at the exchange in 28 stocks in addition to Gould, said in a statement that it had agreed to the resignation to avoid "a prolonged examination of an isolated event."
Specialist firms such as Meehan are responsible for facilitating orderly trading of stocks at the NYSE. The firms have exclusive franchises for particular stocks and are supposed to help limit volatile price swings, using their own money to do so if necessary.
Because of sharp movements in the price of Gould's stock between the stock market's closing on Wednesday, Oct. 21, and its opening on Thursday, Oct. 22, the Big Board launched an investigation of Meehan's performance as specialist in the stock.
Gould shares lost almost half their value between the Wednesday close and Thursday's opening, dropping from $14.625 to $8 per share. The stock then rose again during Thursday trading to close at $13 per share.
Moreover, Wall Street traders said today that Meehan opened trading in Gould exceptionally late Thursday morning, causing turmoil among investors and traders alike.
One trader said that he attempted to sell Gould shares at $9 at the opening, was told his price was too high, then saw Gould shares trade early in the day at $15 per share. The trader also said that Meehan was slow confirming that trades in Gould had been completed.
Meehan is the second Big Board specialist to resign from an assignment this month. Earlier, Spear Leeds & Kellogg withdrew as market maker in J.P. Morgan & Co. stock following an NYSE investigation of huge swings in Morgan's share price between the stock market's close on Monday, Oct. 19, and its opening the next day.
Neither Meehan nor the NYSE would disclose any findings to emerge from the Big Board's inquiry. A specialist could profit from sharp price movements by buying or selling the shares it helps to trade.
The NYSE inquiry may also have focused, however, on whether Meehan failed to risk its own capital on Gould stock during the market crisis as required by exchange rules.
Some critics, particularly officials at the Chicago futures exchanges, have cited poor performances by NYSE specialists during the week of Black Monday as a significant factor in the market crisis.
Swamped by sell orders, many specialists were unable to begin trading in their stocks until hours after the exchange floor opened.
The delays in opening contributed to the heavy buildup of selling pressure on Monday, Oct. 19, when the Dow fell a record 508 points, and again on Tuesday, Oct. 20, according to a number of traders and financial executives.
A Big Board spokeswoman declined to say whether other specialist firms were under investigation for their performance during the market crisis or whether the inquiry into Meehan was completed.
The NYSE has wide-ranging authority to discipline specialist firms. The exchange can impose fines, reallocate stocks to other specialists, and even bar a firm from the securities industry.
Meehan said in its statement that it agreed to resign from handling Gould "after discussions with New York Stock Exchange officials" about Meehan's performance on Oct. 22.
Officials at Meehan and Gould declined to elaborate.
The NYSE will announce a new specialist firm for Gould stock next week.