NYSE possibly adopting ASTN System?
Big Board Embraces Web Trading
As Electronic Competition Grows
By AARON ELSTEIN
THE WALL STREET JOURNAL INTERACTIVE EDITION
The New York Stock Exchange unveiled plans Friday to adopt a Web-based trading system, amid increasing competition from electronic competitors.
Chairman Richard Grasso said the exchange would create an electronic order book to fill orders of 1,000 shares or less and the new system is expected to be operating by the second quarter of next year.
In a speech Friday at the Securities Industry Association's annual meeting in Boca Raton, Fla., Mr. Grasso said the move signals a "fundamental" change in the way the stock exchange operates. Small investors, he said, will benefit from fast, low-cost, reliable executions and "extended hours trading in NYSE stocks with NYSE safeguards."
Analysts agree it is a major change for an exchange whose members have long sought to protect their franchise of setting prices for stocks by conducting auctions on the trading floor. But with many rival exchanges setting up shop electronically, the Big Board had little alternative.
"Filling orders electronically is well underway already at the Nasdaq and European stock markets, so why shouldn't the world's biggest stock exchange join along?" said Deborah Williams, director of research at Meridien Research, a financial-services industry research firm in Newton, Mass. "Keeping pace is an important matter of perception."
Big Board Considers Electronic System to Fill Small Trades Automatically
In effect, the Big Board is creating its own electronic-communications network, or ECN. ECNs, such as Instinet or Island, are for-profit companies that bring buyers and sellers of stocks together, much like a stock exchange. These networks have become popular venues for online trades because they complete orders, primarily for small technology stocks, more cheaply and quickly than the brokers who operate on the floors of stock exchanges. The rise of ECNs has helped make small stocks quoted on the Nasdaq Stock Market more "liquid," which means they are easier to buy and sell.
Liquidity is not an issue for most stocks quoted on the Big Board, because they already easy for investors to trade. But creating a Net-based trading system means small investors will have an easier time finding the best price on Big Board-traded stock, because online brokers that are members of the exchange will all have access to the same electronic trading book.
Above all, the development indicates that Big Board members are mindful of their new electronic competitors. For example, Archipelago, an ECN whose owners include Goldman Sachs Group, Merrill Lynch & Co., and J.P. Morgan & Co., plans to start executing orders on the Big Board and soon register as a stock exchange.
Faced with these trends, analysts agree the exchange had to act. "They're protecting their flank," said Dan Burke, an analyst at Gomez Advisors, an electronic-commerce research firm in Lincoln, Mass.
Mr. Grasso, the Big Board chairman, also announced a rule change that will eliminate specialists' commissions on system orders executed within five minutes. This will affect 85% to 90% of the exchange's system orders. Just two months ago, the exchange proposed eliminating commissions on orders filled in under two minutes.
He said the exchange would file with the Securities and Exchange Commission for approval of the new trading system by the end of the year. The SEC declined to comment Friday afternoon.
Ms. Williams said "theoretically" the new system will lower trading costs for online investors. Because specialists would no longer fill small orders in the new trading system, there would be one less step in completing an order. The savings realized from this could be passed along to customers.
But Big Board members who hold auctions in designated stocks, called "specialists," already have lost much of the small-order business to smaller stock exchanges and ECNs. "The profits for specialists come in providing execution for big orders from institutional accounts," Ms. Williams said. "This doesn't change any of that."
Mr. Burke of Gomez Advisors said it's more likely that online brokers will deploy any money saved under the new system to build their investment research and advisory operations.
"Now that online brokers have attracted customers, they have to figure out how to keep them and providing them with research and advice is the way to do it," he said. |
