SEC urged to relax reform of trading rules
By Andrew Parker in New York
Published: January 26 2005 23:33 | Last updated: January 26 2005 23:33
Regulators have been urged to abandon their interest in radical reform of US stock trading rules.
Public consultation by the Securities and Exchange Commission on its plans for an overhaul of the trading rules closed on Wednesday. The SEC was braced for a last-minute rush of letters, but by early Wednesday it had already received many pleas to limit the scale of its reform.
More than 100 pleas were made by members of the New York Stock Exchange, which is warning the reform could end the tradition of floor-based trading.
Regulation NMS, as the SEC reform proposal is known, seeks to ensure that an investor who buys or sells stock secures the best available price for the order on US markets.
Controversy focuses on plans for a consolidation of the much criticised "trade-through rule", which requires the market that initially receives an investor's order to find the best price, whether it is on its own system or elsewhere.
In a public consultation launched last month, the SEC sought views on two possible ways to apply the trade-through rule to all automated transactions.
The first would only apply the rule to the best quotes available at the top of a market's displayed order book. But the second version, in a radical extension of the trade through rule, could apply the best price principle to quotes deep down the market's order book.
By on Wednesday, the SEC had received 106 similar letters from members of the NYSE, which includes brokers and specialist firms on the trading floor, that call on the SEC not to choose the second version.
The letters said the radical extension of the trade-through rule would result in de facto nationalisation of US equity markets, which in turn could push trading of large stock orders overseas. The SEC had also received 179 similar letters from people or businesses that call on it to allow an opt out from the trade-through rule.
James Angel, associate professor of finance at Georgetown University's McDonough school of business, said in a separate letter that the costs of implementing the trade-through rule, and the damage it could inflict on future innovations in trading systems, "far outweigh any potential benefits".
The SEC commissioners are divided about Regulation NMS, and it may not be finalised until March.
A spokesman for William Donaldson, the SEC chairman, said he had made no decisions on Regulation NMS. |
