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<<NEW YORK, June 28 (Reuters) - A penny saved is not a penny earned -- at least not for firms that act as middlemen in U.S. stock trading,

Traditional share dealers such as LaBranche & Co Inc. (NYSE:LAB - news) and Knight Trading Group Inc. (NasdaqNM:NITE - news) face a rocky road in coming months as the firms struggle to maintain the bumper profits of recent years in the face of a market slump and the seismic shift to trading stocks in pennies.

It's going to be ugly. Second-quarter profits for Knight, previously one of the fastest growing firms in the financial sector, are expected to fall by about 80 percent.

The weak stock market has hurt companies that trade for their own accounts, just as investors around the world have been hurt by the downturn in the past year. Additionally, the decimalization shift has forced firms to throw out centuries-old trading strategies because profit margins on trades are down and costs to process them are up.

``Traders are reactionary in nature,' said Benjamin Weinger, managing partner at Blackwood Trading, which provides software to help traders choose where to send stock orders. ``People knew that decimalization was coming but no one really knew the extent in which it was going to change the way in which stocks were traded. It has taken some time for traders to adjust to a decimalized environment.'>>

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