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AmericasJanuary 3 2005

Rule challenges NYSE tech plans

The US securities & Exchange Commission’s (SEC) late proposal to alter rules on stock trading has caused concern at the New York Stock Exchange (NYSE) that the proposed hybrid electronic/voice trading model would be made inoperative.
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The well intended overhaul to provide investors with the best available price when buying or selling stock presents the option of expanding the trade through rule, which links the NYSE, the Nasdaq, regional exchanges and ECNs, allowing investors to execute trades in markets other than the one that originally received the investor’s order.

The proposal gives two options, the first applying the rule to quotes at the top of a market’s order book, the second would apply the same principle to quotes in depth within the order book.

A spokesperson for the NYSE said that the proposal would “make that model inoperative by eliminating the opportunity for customers to choose the auction component of the hybrid model which a mandatory order routing would do. It would make the hybrid model in [Republican] Commissioner [Paul] Atkins’ words ‘dead on arrival’.”

The spokesperson said that the proposal would create a bad experience for investors. “As you attempt to route dozens of prices across nine different markets simultaneously, the natural execution and cancellation of orders across multiple markets will result in a lack of complete execution, and the portions that are unexecuted will return to the original market and quite likely experience an inability to obtain liquidity that was originally in that market place due to intervening transactions.”

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