SEC sounds death-knell for open-outcry trading at NYSE
From Abigail Rayner in New York
THE US Securities and Exchange Commission (SEC) has bowed to mounting investor pressure and has drawn up proposals to reduce the New York Stock Exchange’s reliance on open-outcry trading.
America’s chief financial watchdog is planning to issue a consultation paper to banks, stockbrokers, investors and regulators, inviting them to comment on the present system of open-outcry trading compared to a screen-based system. News of the consultation comes less than a week after Fidelity, the world’s biggest fund manager, called on the NYSE to overhaul its antiquated trading system. AIG, the insurance group, has also objected to the NYSE’s reliance on open-outcry. Opponents want the system either to be scrapped or altered to allow screen-based traders to win a bigger slice of the pie.
If the SEC is successful in introducing the changes, it would be the biggest shake-up in the 211-year history of the exchange. The NYSE is the last big stock market to still use the open-outcry system, a model that can be open to abuse because specialists are allowed, even encouraged, to trade on their own behalf.
At present, 82 per cent of the biggest FTSE stocks, such as GE and IBM, trade on the NYSE via open-outcry. The rest are traded through electronic trading platforms such as Instinet, majority owned by Reuters and Archipelago.
Initially, the SEC is hoping to create a forum for debate. Implementing new trading rules would require the blessing of the exchange’s members, most of whom are open-outcry “specialists”.
William Donaldson, the chairman of the SEC, giving testimony before Congress on Thursday, hinted that change was on the horizon for US stock markets. He said: “In the coming months, the commission will be focusing with increased intensity on the structure of the US equities markets, with particular regard to their fairness and efficiency.We must seek to provide a level-playing field in which all markets can compete fairly and aggressively.”
However, there will be opposition to change. Michael Bachner, a New York securities lawyer, said: “It’s entrenched. A lot of jobs are at stake” Even a partial introduction of technology, as the NYSE is proposing as a way to keep an eye on trading abuses, will not go down well. He added: “It’s an old boys club . . . A lot of them are in their 50s and 60s, they worked hard to get where they are and it’s hard to teach old dogs new tricks. ” |
