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I just confirmed what I suspected by visiting the NASDAQ web site. Here's some of the info related to the rule:
What the New SEC Rules Mean for Investors
January 1997: Individual investors will be able to take advantage of significant changes in how orders are handled when buying and selling securities in U.S. equities markets. New Securities and Exchange Commission (SEC) rules make the markets more responsive to individuals and improve how orders are displayed and executed-providing greater access to the market.
The SEC approved these rules-one governing the display of limit orders, the other governing quotes-as minimum standards applying to all markets. The rules help individual investors become an integral part of the market and ensure equal access to the most favorable pricing available.
Although the new SEC rules apply to all U.S. equity markets, they will benefit Nasdaq(r) investors the most.
Nasdaq President Alfred R. Berkeley has expressed strong support for the new rules, noting that they will lead to "better prices and narrower spreads. This is good news for everyone," he said, "investors, companies, securities firms and the entrepreneurs of tomorrow."
Individual investors will now have greater control over their buy and sell orders and may choose whether to participate in the market by placing a limit order (an order to buy or sell stock at a specified price) or react to the market by placing a market order (an order that is executed at the best current price quoted in the market).
For Nasdaq investors, the new SEC rules mean:
-Limit orders are displayed to all market participants when more favorably priced than the best current quotes.
-Market orders may be executed at prices previously only available to financial professionals trading on proprietary systems.
Limit Orders Seen Market-Wide
The first SEC rule, known as the "Limit Order Display Rule," requires that Market Makers display investors' limit orders in their quotes when they're priced better than the Market Maker quote. This means that the best-priced limit orders will be displayed to all market participants.
Let's suppose you want to buy 200 shares of ABCD stock, and the current best quotes in the market are 10 1/4 to buy, 10 1/2 to sell.
You are not willing to pay the asking price of 10 1/2 and only want to pay 10 3/8. You place a limit order with your broker for 200 shares at 10 3/8.
At 10 3/8 to buy, your limit order is now the most favorable Bid Price. Under the SEC Rule, the Market Maker must either change its bid quote to display your price and order size (200 shares at 10 3/8) or immediately execute your order at your price. Your displayed limit order now participates directly in the market as the most favorable price to buy and appears on the trading screen for all market participants to see.
This new rule allows your limit order to receive greater visibility and, in some cases, a more timely execution.
AND...the phase in date for KOSS was 9/22/97. Anyone else that wants to can verify this information by visiting the web site at www.naasdaq.com.
At least we know why the spread has become more manageable.
Rick |
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