Friday, October 03, 2003

Grasso Pushed Specialist to Boost AIG Stock

I'd say there is a lot more specialist tinkering going on than anyone would care to admit.

From the Wall St. Journal...

Former New York Stock Exchange Chairman Dick Grasso pressured a major Big Board floor firm to increase its purchases of shares of giant insurer American International Group Inc. after Mr. Grasso received written complaints from AIG Chairman Maurice "Hank" Greenberg, Friday's Wall Street Journal reported, citing people familiar with the matter.

The unusual move involving buying of one of the Big Board's largest stocks raises questions about whether Mr. Grasso favored AIG because of Mr. Greenberg'sprevious role as an NYSE director and member of the board's compensation committee. Mr. Greenberg was on the NYSE's compensation committee when the controversial employment contract that ultimately led to Mr. Grasso's ouster was developed and approved.

In an Oct. 23, 2002, letter to Mr. Grasso, Mr. Greenberg complained that the " specialist," or NYSE floor-trading firm responsible for keeping orderly markets in AIG stock, needed to commit more of its own money to buy AIG shares, which had been volatile. People familiar with the matter say that on a number of occasions after receiving complaints like this from Mr. Greenberg, Mr. Grasso would subsequently go to the NYSE trading floor and suggest that the AIG specialist, Goldman Sachs Group Inc.'s Spear, Leeds & Kellogg unit, buy more AIG shares to prevent Mr. Greenberg from moving his company to a rival exchange. Spear would then step up its buying of AIG shares, temporarily stabilizing the stock, the people said. Such purchases were costly for Spear, resulting in roughly $14 million in trading losses on AIG shares for the specialist firm over the past couple of years, and additional losses in previous periods, the people say.

The 211-year-old Big Board uses the specialist system to provide liquidity, or ease of trading, in its listed stocks. Each specialist firm serves as a market maker in specific assigned stocks, matching buy and sell orders from investors. When buyers and sellers can't agree on a price, specialists are required to step in with their own capital to buy or sell shares to facilitate trading.

Any additional buying by Spear of AIG shares could have artificially boosted the insurance company's shares.

Mr. Grasso, 57 years old, was ousted two weeks ago as NYSE chief after an outcry over his retirement pay that totaled $187.5 million, including a $48 million future retirement package, which he said initially he would forgo.

Through a representative, Mr. Grasso declined to comment.

Edward Kwalwasser, NYSE's executive vice president for regulation, said he was unaware of any conversations between Mr. Grasso and Spear. He says the exchange receives about 560 letters a year from firms questioning trading in their stocks. Such concerns, whether sent to Mr. Grasso or others, typically are routed to the NYSE's market-surveillance unit, which would then investigate the matter.

Wall Street Journal Staff Reporters Kate Kelly, Susanne Craig and Theo Francis contributed to this article.

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