NYSE Moves to Repeal Rule Prohibiting Off-Exchange Trades
NYSE Moves to Repeal Rule Prohibiting Off-Exchange Trades
New York, Nov. 26 (Bloomberg) -- The New York Stock Exchange
is moving to eliminate a rule government regulators have attacked
as anti-competitive that bars brokerage members from trading some
stocks off the floor of an exchange.
Scrapping the rule, known as Rule 390, may benefit
electronic trading networks known as ECNs, which have grabbed a
third of Nasdaq Stock Market volume. To date, ECNs haven't made
similar inroads on the NYSE.
''This is a huge opportunity for ECNs,'' said Jamie Selway,
an official with the Archipelago trading network, owned in part
by brokerages Goldman Sachs Group Inc. and Merrill Lynch & Co.
''It certainly would make the world more competitive.''
The NYSE's market performance committee took up the proposal
to repeal Rule 390 on Tuesday, people familiar with the situation
said, and the exchange's board is expected to consider it at its
meeting next Thursday.
The rule bars NYSE member firms from using their own capital
to trade stocks listed before 1979 away from a traditional
exchange. International Business Machines Corp. and General
Electric Co. are among the hundreds of stocks that are affected.
Stocks listed since April 1979 already can be traded off the
floor.
An exchange spokesman declined to comment.
For decades the government pressured the exchange to change
rules that restrict where its members can trade. In a speech at
Columbia University in September, Securities and Exchange
Commission Chairman Arthur Levitt referred to 390 as ''more a
barrier than a benefit,'' adding that it ''should not be part of
our future.''
Levitt said the rule was particularly anachronistic given
the exchange's plans to transform itself into a for-profit
publicly traded company. The NYSE needs SEC approval to change
its structure and go public.
Pressure
''Based on ongoing and productive conversations with NYSE
leaders, we remain hopeful that the exchange will repeal the rule
voluntarily sooner rather than later,'' said Joseph Lombard,
counsel to Levitt.
The exchange has been under pressure from members. At the
urging of Levitt, executives from the nation's largest brokers,
including Merrill, Goldman and Morgan Stanley Dean Witter & Co.,
have met to discuss how the stock market should operate in the
future. Goldman Chairman Henry Paulson told the Securities
Industry Association earlier this month he favors one electronic
stock trading system that would centralize buyers and sellers.
Still, many NYSE floor traders don't believe a rule change
is necessary. They say a central market for stocks already exists
-- at the New York Stock Exchange -- and argue that Rule 390
fosters competition because it encourages buyers and sellers to
send orders to the same place and compete for the best prices.
Because of the anti-competition controversy, however, these
members say the rule has become a liability and might as well be
scrapped.
The Nasdaq market plans to change its regulatory status to
become an exchange, which would let brokerages trade NYSE stocks
electronically off the NYSE. Archipelago and the Island ECN have
also applied to become exchanges, which would free up NYSE
members to trade whatever stocks they like on those systems.
As it eliminates barriers the exchange is trying to become
more competitive, cutting costs and automating. It has proposed a
system that would allow online investors to trade electronically
and bypass the trading floor for orders of no more than 1,000
shares. It has a similar proposal for institutional investors. |
