July 9 (Bloomberg) -- LaBranche & Co., the largest specialist firm at the New York Stock Exchange, hired an investment bank to explore options that include selling the 83- year-old company, as electronic trading renders market makers on the floor obsolete.

``This is a landmark event,'' said Patrick Healy, a former executive at Bear Stearns Cos.' specialist unit who now heads Issuer Advisory Group LLC in Chevy Chase, Maryland. ``They need to be part of something bigger, like their competitors.''

Chief Executive Officer Michael LaBranche, whose grandfather founded the firm during the 1920s stock boom, failed to counter a slump in revenue as NYSE Euronext CEO John Thain automated much of the work done by floor traders. LaBranche said in a statement today it will post a second-quarter loss because of a ``substantial'' writedown of its specialist business.

The upheaval has spurred rivals including Van der Moolen Holding NV to cut more than a third of its staff on the NYSE floor, and Bear Stearns took a $225 million charge after slashing the value of its specialist unit. LaBranche, which hired New York-investment bank Freeman & Co. Securities LLC and the law firm Weil, Gotshal & Manges LLP, also announced the sale of its business at the American Stock Exchange for an undisclosed sum.

May Sell

LaBranche may sell part of its NYSE specialist unit, find a buyer for the whole company or go private in a management-led buyout, according to a person with direct knowledge of the plans under consideration. The New York-based company, which posted an operating loss in four of the past five quarters, has cut staff by 40 percent since 2003. It also has expanded overseas to London and Hong Kong as well as into trading equity-based options.

Shares of LaBranche rose 36 cents, or 4.8 percent, to $7.87 in NYSE composite trading. The stock has dropped 20 percent for the year, giving the company a market value of around $484 million.

Specialists are required by the NYSE to make orderly markets in the stocks they are assigned, including buying or selling when they can't match orders from other brokers. With the NYSE's new Hybrid Market, floor traders handle about 18 percent of the 1.6 billion shares that change hands daily at the exchange, compared with more than 80 percent at the start of 2006 when the Big Board still restricted automated trading, according to NYSE data.

The number of NYSE specialist firms has declined to seven from 31 since LaBranche first sold shares to the public in 1999. Van der Moolen and LaBranche are the only publicly traded firms, while the remaining five are either units of investment banks or privately held.

`Ton of Experience'

Through June, LaBranche used its own capital to buy or sell about 0.9 percent of the shares traded at the Big Board, according to NYSE data. Floor traders face increasing competition from electronic brokerages that pair off orders in fractions of a second outside of the NYSE, said Jamie Selway, who worked at Nasdaq Stock Market and the Arca electronic exchange before founding White Cap Trading LLC in 2003.

``The function has changed, becoming more about technology and quantitative techniques and LaBranche doesn't have a ton of experience in that,'' Selway said.

Knight Capital Group Inc., which is based in Jersey City, New Jersey, says it handles about 4.8 percent of NYSE-listed shares traded by shuttling orders through electronic markets. Automated Trading Desk LLC, which handles about 6 percent of all U.S. stocks traded, last week agreed to be sold for $680 million to Citigroup Inc., the world's biggest financial-services company. The firms aren't bound by NYSE rules that limit specialists' ability to trade.

`Continued Weakening'

Goldman Sachs Group Inc. said in a regulatory filing last week that it decided against writing down the value of its NYSE specialist despite ``continued weakening of our operating results.'' The New York-based investment bank cited the exchange's plans to alter trading rules to support the ``floor- based market model'' as a reason for the move.

The NYSE has met with officials at the U.S. Securities and Exchange Commission in seeking regulatory approval for changes that would make it easier for specialists to use their own capital and give investors better prices. Thain said May 1 that traders at the NYSE handle enough shares to merit the floor's current size even as investors increasingly rely on automated markets.

``They will continue to add value, which means there will continue to be a floor,'' Thain said during a conference at Baruch College in New York.

Shrinking Floor

The NYSE had as much as 46,000 square feet across five trading rooms before it started to cut back this year for the first time in more than a century. The exchange will move the listing of all exchange-traded funds to the Arca electronic market by yearend, leaving another room vacant. If the room is shuttered, the NYSE's floor would be the same size it was in 1988, when daily trading was a tenth of what it is today.

LaBranche made markets in 546 NYSE-listed stocks as of the end of March, including shares of Warren Buffett's Berkshire Hathaway Inc. and Exxon Mobil Corp., the world's largest company by market value. LaBranche handled 89 companies at the American Stock Exchange, a business it sold today to closely held Cohen Specialists LLC.

LaBranche's second-quarter results will also be hurt by a 21 percent decline in value of the company's investment in NYSE Euronext, the exchange's owner. LaBranche holds 3.13 million shares of NYSE Euronext valued at about $239 million, regulatory filings show. Excluding the writedown and investment loss, LaBranche said it would have had a second-quarter profit.

``There can be no assurance that the review will result in any particular strategic or financial transaction or, if it does, what the terms or the timing will be,'' LaBranche said in the statement, adding that it doesn't expect to comment unless and until the review results in a deal.

To contact the reporter on this story: Edgar Ortega in New York at ebarrales@bloomberg.net.

Last Updated: July 9, 2007 17:58 EDT