Another day, another example of the way in which regulatory and technological change can breach the moat of once unassailable economic franchises. In this case, I'm referring to specialist firms that ensure orderly trading in NYSE-listed stocks (for many years, the status of specialist was a license to print money).

With NYSE Group's (NYSE:NYX) matched volume up 18% year on year during the second quarter and the VIX index (a measure of market expectations of near-term volatility in the S&P 500) averaging 14.5% over the same period (up from 13.4%), investors might have expected good things from Van der Moolen's (NYSE:VDM) earnings announcement last Thursday. (VDM owns NYSE specialist firm VDM Specialists.)However, VDM's specialist unit showed a year-on-year decline across nearly all financial and business metrics, as the firm outlined extra initiatives to diversify its revenue base and capitalize on sweeping industry changes.

Let's take a look at the numbers. Euro figures are restated in U.S. dollars at the average rate of USD/EUR = 0.80. All percentage changes refer to a year-on-year comparison.

On a diluted basis, VDM produced a loss from continuing operations of $0.16 per share, compared with a profit of $0.04 per share. Revenues increased 49% to $32.4 million, bolstered by strength in European Trading and revenues from newly acquired market-maker/broker Curvalue. Revenues in the firm's largest unit, VDM Specialists, fell 6% to $16.8 million. One-time items were significant and the company's consolidated loss was largely the product of an $8 million goodwill impairment to Curvalue and $2.2 million in charges relating to the settlement of the NYSE's stock loan investigation and a related class action lawsuit. Excluding these items, net income attributable to common shareholders was a profit of $0.04 per share.

Although I commend VDM on providing full financial statements as part of its earnings announcement, I was less than impressed with management's nonsensical explanation of the impairment charge on Curvalue as a question of timing and IFRS (GAAP's main counterpart) convention. After all, management recognized that the rollout plans of Curvalue's brokerage product have been delayed by 12 months due to lack of scalability in the back-office technology. Upgrading this technology will require time and unplanned capital expenditures, all of which sounds very much like an impairment in economic value, not an accounting creation.

With the adoption of Regulation NMS on April 6 and the introduction of the NYSE's Hybrid System, which blends automated execution and the exchange's traditional auction format, the seven NYSE specialist firms face disruptive change in their business model. In response, VDM announced its strategy of further diversifying its revenues through its brokerage activities and expansion into the Asia-Pacific time zone (VDM Specialists' share of consolidated revenues has already dropped to 52% from 80% in the year-ago quarter). In addition, the company has announced a series of strategic alliances with derivatives exchanges CBOE and International Securities Exchange (NYSE:ISE) to launch equity exchanges in which VDM is a partner and equity investor.

No one can be sure who will come out on top of this transition period in the U.S. equity markets, so it makes good business sense to spread your bets in this manner. However, some of VDM's specialist competitors, such as Bear Stearns' (NYSE:BSC) Bear Wagner and Goldman Sachs' (NYSE:GS) Spear, Leeds & Kellogg have parents with deep pockets and may be better armed to manage change. Furthermore, despite one senior manager's characterization of VDM as a "technology-driven enterprise," I was surprised to learn that the company only had 13 employees (less than 5% of the total) dedicated to the development and maintenance of its technology (though this was at the end of 2005).

Due to the significant uncertainty surrounding industry change and the company-specific factors I've mentioned, value investors should consider that purchasing VDM shares is closer to speculating than investing. There is only one other publicly traded specialist firm, LaBranche & Co (NYSE:LAB); but investors interested in this space could look at NYFIX (OTC BB: NYFX) or Knight Capital Group (NASDAQ:NITE). Fair warning, though: these firms all sit at the high end of the risk spectrum. Those who are seeking exposure to the development of the equity markets at a lower risk level may be better off climbing the "value chain" and purchasing the exchanges themselves, either NYSE Group or the Nasdaq Stock Market (NASDAQ:NDAQ). Both firms have strong franchises with great leadership who are driving change in the industry.

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Fool contributor Alex Dumortier has no beneficial interest in any of the other companies mentioned in this article. He welcomes your (constructive) feedback. The Motley Fool has a strict disclosure policy.