Recent news reports about the compensation of New York Stock Exchange chairman Richard Grasso have focused unusual attention on questions of governance and the absence of market discipline at the NYSE. Because the NYSE is owned and operated by its members and enjoys special government benefits that limit competition for its services, market discipline may not be effective to control costs. One area of NYSE operations that has received recent attention in this respect is the specialist system, in which every NYSE-listed security is assigned to a specialist who is charged with maintaining a market in the security. This exclusive role gives rise to questions similar to the Grasso compensation issue. What outside discipline is brought to bear on specialist compensation, and is it working? This event, the second in AEI's year-long series on the structure of the securities markets, will consider a paper by Brian Becker on the profitability of the specialists who trade NYSE-listed stocks.
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