Competitors of the New York Stock Exchange (search) could see increased trading volumes in the long-run if the world's No. 1 stock exchange fails to resolve the turmoil over its governance practices, industry observers said Monday.

So far, the impact of the controversy on the exchange's volume is limited, but industry observers said if the turmoil persists amid unrelenting questions about conflicts of interest, it could create an opening for competitors that have struggled to pry loose the Big Board's grip on stock trading.

"Could it force some firms to rethink sending volumes to the NYSE over time? Yes, if it really drags out," said Robert Hegarty, vice president of securities and investments at Tower Group, a Massachusetts-based financial research and advisory firm.

In recent months, the Big Board has endured withering criticism over its corporate governance practices, including questions over the composition of its board and inherent conflicts of interest in its dual role as a regulator and securities market.

The perceived secrecy of its deliberations has also sparked widespread demands for reform.

The appointment on Sunday of former Citigroup Inc. (C) co-Chief Executive John S. Reed (search) as interim head after the forced resignation of Chairman Richard Grasso (search) in the wake of disclosure of his $140 million compensation package has done little so far to ease the controversy.

In the past, the NYSE has consistently bested its rivals — in particular several upstart electronic trading platforms as well as the Nasdaq (search) Stock Market Inc. — in their attempts to erode its dominant 80 percent market share.

But the Grasso imbroglio and the calls for reform "show the vulnerability of the NYSE," said Hegarty.

"The competition loves to jump on those things. Certainly the entire brouhaha has called things into question that probably might otherwise have remained invisible," he said.

Tower is owned by Reuters Group Plc, which is also the majority owner of NYSE competitor Instinet Group Inc. (INET)

Other industry players have also noted the NYSE's potential weakness.

At an equities conference in New York last week, Robert McCooey, Jr, a founder of brokerage firm The Griswold Co. and a floor official at the NYSE, said he was "a little bit worried by the opportunity to our competitors" created by the NYSE's current woes.

Spokesmen for the American Stock Exchange (search) and the Nasdaq declined to comment on how the NYSE's problems might affect their order flows.

Although the NYSE has successfully weathered competition from the advent of electronic trading platforms in recent years — while the Big Board stuck to its traditional open outcry system — observers said a growing host of issues could drive chinks into its armor.

"It doesn't seem as if it's an event-driven thing where once there are problems, people flock away from the exchange," said Steven Schonfeld, chief executive of the Schonfeld Group, a trading firm in New York.

"But after the first or second (event) ... as there are more things in aggregate there's a bigger chance of losing volumes," he said, while adding that technology rather than scandal was the foremost consideration to listed companies.

Any dramatic shift in trading patters hinges most heavily on whether corporate governance issues prompt the Securities and Exchange Commission to impose a new regulatory framework on the NYSE, analysts say.

That means the current crisis environment at the NYSE cannot be dismissed entirely as a one-off event.

"When you think about a lot of the stuff in Washington as a political exercise, certainly (the Grasso pay flap) affects one's political standing," said Matthew Andresen, head of global trading at Sanford C. Bernstein & Co in New York.

"Trading is a very tightly regulated world. The rules are immensely complicated ... and as such, small changes in the regulatory environment could have large changes on the impact of the business," he said.