LABRANCHE & CO.

WisdomTree Investments

"LaBranche has redeemed a total of approximately $100 million from several WisdomTree ETFs," says Jessica Caris, spokeswoman for WisdomTree. "We have designated Spear, Leeds & Kellogg Specialists as a specialist for several of our funds. In addition, Susquehanna International Group will act as the specialist for two WisdomTree funds."

Total assets in all WisdomTree ETFs are nearly $500 million, the highest level since the New York asset-management company launched its 20 ETFs on June 16, Caris said.

Specialists are market makers on the floor of the New York Stock Exchange tasked with ensuring an orderly market between buyers and sellers. The move is unusual because LaBranche only has had the funds since June.

"Wisdom Tree requested a new specialist and I don't know what the reason was," says Michael LaBranche, chief executive of LaBranche & Co., the parent of specialist firm LaBranche Structured Products Specialists. "Our market quality was very good, but the volumes have been a little bit lower than we expected. You make an investment, but you need the volume to be commensurate with the investment. That's how it works with these things. Taking the money out is logical if we're no longer the specialist."

According to the New York Stock Exchange web site, LaBranche was the specialist on WisdomTree's High-Yielding Equity Fund, Total Dividend Fund, DIEFA Fund, DIEFA High-Yielding Equity Fund, Europe High-Yielding Equity Fund, Europe Total Dividend Fund, Japan Small-Cap Fund , Pacific ex-Japan High-Yielding Equity Fund and Pacific ex-Japan Total Dividend Fund.

Many of these funds have traded fewer than 10,000 shares a day, with volume on some days as little as just 100 shares. That may have had something to do with the moves, observers say.

"I can't recall this ever happening before and there are only two reasons I could suspect for the change," says Sander Gerber, chairman of XTF, a portfolio manager and market maker for ETFs on the American Stock Exchange. "The WisdomTree ETFs are not very liquid. So, there may have been some concern by WisdomTree that the market that LaBranche was offering may not have been offering investors the best price."

Also by providing seed capital for WisdomTree ETFs LaBranche "may have been disappointed by the compensation from Wisdom Tree or the volumes from the ETFs for which they provide the seed capital because specialists make their money off the volume," Gerber said.

WisdomTree hit the market in June with great fanfare by launching the largest group of original ETFs ever issued on the New York Stock Exchange. In addition, the ETFs defied convention by being based on fundamentally-weighted indexes, instead of traditional market-capitalization weighted indexes. WisdomTree's benchmarks are based on dividends instead of stock price. The philosophy being fundamental indexes give better returns with less volatility.

With the backing of hedge-fund legend Michael Steinhardt, advice from market maven and University of Pennsylvania professor Jeremy Siegel and the leadership of Jonathan Steinberg, the former publisher of Individual Investor, the company's pedigree made almost as big of a splash as the concept. Recently Arthur Levitt, the former Securities and Exchange Commission chief, joined the ranks as a senior advisor.

While switching specialists is unusual, James Pacetti, president of consulting firm ETFinternational.com, says with exchanges moving to electronic trading it may become more difficult in the future for companies to get seed money for ETFs from specialist firms.

"With electronic trading there's little incentive for a specialist to seed the products," says Pacetti. "I think LaBranche may be ahead of the curve and this could be a harbinger of things to come with electronic trading."