Feb. 23 (Bloomberg) -- New York Stock Exchange Chief Executive Officer John Thain said the Big Board wants to recoup a ``very substantial'' part of the more than $140 million former Chairman Richard Grasso was paid by the exchange.

Thain said in an interview he's trying to restore investor confidence in the NYSE by removing some limits on electronic trading and listening to listed companies that have complained about flaws in the trading of their stocks. He also said that floor brokers may play a smaller role at the NYSE in the future.

``The new governance structure with John Reed as the interim chairman and me as the CEO is much more focused on being transparent, on being straightforward,'' Thain said about the work that he and the former Citigroup Inc. CEO have done. Reed left retirement to replace Grasso at the end of September.

Since taking over at the NYSE six weeks ago, Thain has asked the Securities and Exchange Commission to approve rules to allow more automated trades, has given listed companies more control over trading in their shares and hired a new chief financial officer, chief of staff and lobbyist. He's also defended the stock specialists who match buy and sell orders, saying it would be wrong for technology to supplant them.

Thain, the former president of Goldman Sachs Group Inc. who took the NYSE job on Jan. 15, said the New York State Attorney General and the Securities and Exchange Commission are deciding whether to proceed with claims against Grasso, who collected $140 million and said he was owed another $48 million.

`Excessive' Compensation

Calling Grasso's compensation ``excessive,'' Thain said he wants to put the pay issue behind the exchange as soon as possible.

The NYSE's trading and governance practices have come under scrutiny since the Grasso pay controversy erupted. A probe into whether its five biggest market makers traded ahead of investors has also hurt the exchange's reputation. Thain said today he is determined to resolve the specialists' investigation as well.

The market makers have agreed to pay $240 million to settle the allegations, people familiar with the matter said.

Institutional investors, state treasurers and executives for some listed companies have praised Thain, saying he's helping to reform an institution that protected specialists and ignored investor interests under Grasso.

``From where we started in September, we've really made a lot of progress,'' said Iowa State Treasurer Michael Fitzgerald, who oversees $16 billion in pension funds. ``I'm glad Thain has taken on the specialists. I'd like to see him move toward totally electronic trading.''

Trade Through Rule

The Securities and Exchange Commission tomorrow is expected to propose easing the ``trade-through'' rule that enables investors to choose speed and certainty of execution over the best price. The agency may allow the best price to be bypassed by up to a few pennies a share, people familiar with the matter have said.

Thain said he doesn't think the SEC should abolish the rule.

``I'm sympathetic to the concerns of the investors who say that there are times when they would be willing to pay an extra penny or two to get speed, certainty and anonymity that isn't currently offered on the NYSE,'' Thain said. ``Once we have equally fast markets it should remain the fact that you have to get the best price'' for customers.

On Friday, Thain testified before a committee of U.S. Congress that the exchange's auction market and its floor-based traders remain the most effective system for ensuring small investors the best price for trading stocks as well as for guaranteeing big mutual funds the most efficient trades.

`Tarnished' Reputation

The NYSE has been ``tarnished'' and has to pay more attention to its customers, both institutional investors and companies that list their stock, Thain said then.

By proposing to automate more trades and signing onto the SEC rule change, Thain is winning over some NYSE critics.

``We're pleased with what we see but we want to see more,'' Vanguard Chief Investment Officer Gus Sauter said in an interview on Friday.

Vanguard and rival Fidelity Investments have complained about the NYSE's trading system. Last October, Fidelity criticized ``outdated monopolistic trading rules'' at the NYSE ``that favor members on the NYSE floor over investors.''

The fund companies also said they've been forced to rely on more expensive electronic markets that can process buy and sell orders faster than the Big Board.

Vanguard

Vanguard, the second-biggest U.S. fund company after Fidelity, still has qualms about ``a structural impediment on the exchange'' that allows NYSE floor traders to deprive investors of a trade by offering a penny more to buy shares or a penny less to sell them, Sauter said.

Amid the controversy over the NYSE's technology, Thain has also installed several new executives, signaling his desire to put his own management imprint on the institution. He hired his former Goldman chief of staff, David Shuler, in the same position at the NYSE and recruited former Credit Suisse First Boston finance executive Amy Butte as chief financial officer.

Thain has brought on lobbyist Kathleen Shanahan, the former chief of staff to U.S. Vice President Dick Cheney and to Florida Governor Jeb Bush, to represent the NYSE's interests at the SEC and in Congress.

He's also waiting for the arrival of former Nasdaq President Richard Ketchum as the NYSE's new chief regulatory officer. Ketchum isn't set to join the exchange until June because Nasdaq is enforcing a non-compete clause in his contract.

Reed Successor

Thain also is waiting for Reed to name his successor. He said today that he would be happy if the former banker would remain as chairman but said Reed wants to return to retirement. ``He's continuing the search for candidates,'' Thain said.

The exchange's 1,369 members, including some 900 retired traders, are angry about the falling value of seat prices and have asked Reed to reveal a report critical of the former NYSE board for approving multimillion dollar pay packages for Grasso and current NYSE Presidents Robert Britz and Catherine Kinney.

Asked how he's adjusting to life as head of the NYSE after a career at Goldman Sachs, Thain said: ``It's different. It's challenging.''

Kenneth Edgar, Grasso's lawyer, did not return a call for comment.

To contact the reporter on this story: Jed Horowitz in New York at jhorowitz2@bloomberg.net.

Last Updated: February 23, 2004 17:21 EST