NYSE BLACK EYE
By JENNY ANDERSON
February 17, 2004 -- A majority of SEC commissioners appear to support a staff proposal that would change trading rules and deal a major blow to the New York Stock Exchange, The Post has learned.
At least four of the five commissioners appear to favor the proposal, which would kill a rule that requires all trades be made at the best price, even if those trades are made more slowly. However, that support could still change over the next week, as the staff finalizes the proposal and the NYSE furiously lobbies against it. Getting rid of that so-called "trade-through" rule would be a major blow to the NYSE, which has dominant trading marketshare because it usually offers the best price.
On Feb. 25, SEC staffers are expected to propose that traders be allowed to opt out of the current rule.
Critics of the Trade-through rule, including Fidelity Investments, say the best price is not always the most important issue: Sometimes they prefer speed and certainty.
Some market experts compare the trade-through rule to requiring consumers to buy groceries at Wal-Mart: Although its prices are probably the best, the store may not always be the most convenient choice.
Currently, the NYSE posts the best price 93 percent of the time and has about an 80 percent market share in the stocks listed on the Big Board.
Reform of the trade-through rule would likely drive down that market share.
The Big Board has been aggressively lobbying both the SEC and Congress to let the rule stand, and still could prevail. The SEC's staff proposal will be followed by a comment period, after which the commissioners vote on the rule change - and any one could change his or her mind after the comment period.
SEC Chairman William Donaldson is said to be on the side of the NYSE, and in favor of keeping the rule in place.
A spokeswoman for the chairman could not be reached for comment. An SEC spokesman declined to comment.
Last week, a wide range of powerful interests lined up in favor of abolishing the rule altogether.
On Feb. 10, Rep. Richard Baker (R-La.) sent a letter to Donaldson expressing his support for the "total elimination" of the rule, which he called an "ossified relic."
Baker is a member of the House financial services committee and the chairman of the capital markets subcommittee.
Two days after Baker sent his letter to the SEC, Florida Attorney General Charlie Crist sent a similar plea, saying that "Florida's investors (truly all investors) suffer" from the trade-through rule.
The issue is highly contentious, as many of the rule's backers believe its protects investors. According to a study conducted by the exchange, adding the opt-out provision could cost investors upwards of $3.5 billion.
Abolishing the trade-through rule "would increase the volatility of markets, lessen transparency and damage or destroy the intermarket system, which is central to maintaining competition across the markets and dealers in the United States," the NYSE said in a paper on the issue.
Rep. Baker has convened a hearing on Friday to study the issue of "the role of the specialist in the evolving modern marketplace."
"We look forward to testifying before Congressman Baker's committee to discuss these issues," said an NYSE spokesman. |
