Fast Markets Out, Fast Quotes In
Thomas Peterffy, founder and chairman of Interactive Brokers Group (IBG), might have provided the Securities and Exchange Commission with the key to reforming U.S. capital markets in the 21st century. "We would like to suggest that the exception to the trade-through rule that would allow automated markets to trade through open-outcry exchanges focus not on whether an exchange is automated but whether a particular quote disseminated by that exchange is automated," Peterffy said in a proposal that has gained regulators' attention. The trade-through rule bars trading at a price inferior to the best quote displayed on another market. However, trade-through, which predates electronic trading, does not differentiate between electronic venues' firm quotes and floor exchanges' indicative quotes. After listening to dozens of market participants at an April open hearing, the SEC has extended the Reg NMS comment period to June 30 and thoughtfully altered its original proposal. At the heart of the debate are two proposed trade-through exemptions: auto-execution, or "fast", markets could trade through manual, or "slow", markets; and investors could opt out of best-price protection on an individual order basis. Before Reg NMS's publication, the New York Stock Exchange hastily proclaimed its intention to become a "fast" market by lifting time and size restrictions on its Direct+ small-order auto-execution system. However, the world's last major floor exchange would still need to pause Direct+ at times to accommodate its specialists' operations-something the SEC said would fail to meet "fast" market requirements. "When a market's quotation is not accessible through an auto-ex facility, like when the specialist conducts additional price discovery or price improvement, the quotation would be identified as such and order-routers could respond accordingly," the SEC said, in a sign Peterffy's solution might resolve the NYSE quandary.
(Reported by Isabelle |
