US SEC weighs ban on subpenny stock prices-source
By Kevin Drawbaugh
WASHINGTON, Feb 17 (Reuters) - Quoting stock prices at
increments of less than a penny would be banned under a basket
of market reforms being considered by U.S. regulators, a source
familiar with the matter said on Tuesday.
As regulators tackle a major retool of America's intricate
and aging national market system, a subpenny pricing ban was
said to be under internal review at the U.S. Securities and
Exchange Commission, along with several other reforms.
"Subpenny" quotes have spread since U.S. markets joined the
rest of the world about two years ago in expressing stock
prices to the penny instead of fractionally in 16ths.
While "decimalization" has saved investors money by
reducing spreads, some markets have taken it further by
expressing prices beyond the second decimal place.
That is slicing traders' profit margins razor thin and
making limit orders harder to fill, say critics.
The Nasdaq Stock Market <NDAQ.OB> has said it would prefer
there to be a penny limit on stock quotes. But it has also
asked the SEC for permission to start quoting in sub-pennies to
keep up with competitors.
Subpenny pricing is just one of several nagging problems
with the national market system, last overhauled in 1975, that
the SEC almost two years ago began trying to solve.
Another of several staff recommendations included in a
package under internal SEC review calls for possibly relaxing
the "trade-through" rule, which requires traders to execute
clients' orders at the best price available.
The chairman of a key market-oversight panel of Congress is
asking the SEC to kill the rule. Richard Baker, who heads the
House Capital Markets Subcommittee, said he supports "total
elimination" and called the rule "an ossified relic" in a Feb.
10 letter to SEC Chairman William Donaldson.
Long a friction point between the NYSE and smaller,
electronic markets, the rule channels orders for listed
securities to the market with the best price. As a result, it
directs many orders placed elsewhere to the NYSE floor.
The NYSE -- the world's largest stock market -- has long
defended the rule as good for investors. But electronic rivals
have complained that it unfairly protects the NYSE's
dominance.
Some big investors have said they sometimes favor speed and
certainty of execution over price. The NYSE, with its system of
human specialists, they say, can be slow and uncertain. These
traders want to be able to opt out of the trade-through rule,
bypass the NYSE and execute trades on electronic markets.
An SEC spokesman said Donaldson was committed to a
fundamental review of market structure issues, including the
trade-through rule, adding "we appreciate Chairman Baker's
views, as well as the views of other members of Congress."
With an eye on the SEC, the House of Representatives
Financial Services Committee has scheduled a field hearing on
market structure issues on Friday in New York City.
The SEC staff has also recommended possibly banning or
capping fees charged by markets for access to quotes on their
systems, in an attempt to fix trading glitches critics blame on
the fees, as well as wider and faster sharing of quote data
among markets and a reordering of market data revenue flows. |
