A Big Board Specialist Firm With a Burden of Debt By LANDON THOMAS Jr. Published: March 17, 2004 aBranche & Company, the largest market maker on the New York Stock Exchange, warned in a filing yesterday that it might have difficulty meeting its payments on $100 million in debt due in August. LaBranche said it recently received a $25 million line of credit and would consider using it, selling assets or tapping into funds from related companies if it was not successful in refinancing its bonds. Advertisement With a 28 percent market share, LaBranche is the leading specialist trader on the floor of the exchange. Its disclosures, listed under risk factors in the release of its annual report yesterday, arrived at an awkward time for the company. Last month it agreed to pay $63.5 million in fines and restitution to regulators, the highest amount among the top five specialist firms on the exchange, to settle accusations that it improperly traded ahead of its customers. The firms neither admitted nor denied the accusations. LaBranche also said that market structure changes being contemplated by the Securities and Exchange Commission could shift some trading from the exchange to its electronic rivals, further reducing revenue. The Big Board's market share of trading in its listed stocks has decreased to 77 percent in February from a high of 82 percent in 2002. Still, in spite of a loss of $156.9 million that LaBranche incurred last quarter and a debt burden of $377 million, analysts expect that the company will be in a position to meet its financial obligations. They point to its $508 million in cash as well as the relative strength of its bonds, which yesterday were trading above par value. Still, the disclosure underscores what a troublesome year 2003 was for the specialist firms on the stock exchange. Specialist firms bring buyers and sellers together on the exchange floor and ensure that stocks trade in an orderly fashion by using their own capital to maintain a balance of buy and sell orders. But an S.E.C. investigation showed that some trades were done at their customers' expense, resulting in a $240 million settlement by the firms and calling their role into question. The S.E.C. has proposed that investors be able to opt out of the trade-through rule, which states that brokers must use the best price when making trades, regardless of the exchange. If it institutes such a provision, investors seeking speedier trades could use rival electronic trading platforms, taking market share away from the Big Board. One of LaBranche's primary responsibilities as a top specialist is in the use of its own capital in making market-calming trades. Accordingly, New York Stock Exchange rules dictate that the firm must have at least $446 million in cash available to make markets. While its current $508 million may be enough for the short to medium term, it does not leave the firm a great deal of financial breathing room. LaBranche went public in 1999 at the height of the stock market boom, and its shares reached a high of $51 before beginning a downward trend. The shares closed yesterday at $11.06, down 44 cents.