Dutch specialist market maker Van der Moolen Holding said on Friday that an inquiry by the New York Stock Exchange into its stock lending practices was prompting it to close down the operation. Based in part on the NYSE inquiry and an internal review, Van der Moolen said that it had decided to shutter its broker-dealer lending business altogether, "in light of the projected profitability of the stock loan business and the fact that stock lending is not one of its core businesses."
Stock lending involves borrowing securities to deliver when a dealer or investor has sold a stock he or she does not actually own. The lender receives payment until the dealer physically purchases the stock and delivers it to the lender, or arranges to do so with a third party.
The stock lending business employed 12 people, the firm said, and generated a net 600,000 euros ($771,120) during the years 2002 through 2004.
"This is only a small percentage of the total net operating result of Van der Moolen," the company said, adding that the cost of closing down the operation would not be material to its financial position.
Van der Moolen is one of the exchange's seven elite market makers - known as specialists - that buy and sell stocks on the NYSE's trading floor in order to dampen volatility in times of large market swings.
The specialist system has recently been buffeted by allegations of improper trading. In March 2004, Van der Moolen was one of five specialist firms to reach a settlement with the US Securities and Exchange Commission for a total of $241.8 million.
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