Fears over launch of trading law
By Anuj Gangahar in New York, Doug Cameron in Chicago and Jeremy Grant in Washington
Thu Mar 1, 7:20 PM ET
The US stock and options market will come under fresh pressure next week with the introduction of a controversial securities law that will push trading volumes to levels far higher than those that caused systems to crash during Tuesday's market sell-off.
ADVERTISEMENT
The law, known as Regulation National Market System, or Reg NMS, is aimed at levelling the playing field in the US equity market, meaning trades must be routed to the exchange that offers the best price.
Reg NMS will shake up the trading environment and has forced exchanges to build new electronic trading systems or update existing ones to comply with the rule in time for next Monday's deadline.
It also means brokers must look for the fastest trades at the best price.
A sudden spike in trading volumes at the NYSE during the sell-off earlier this week caused a problem with the exchange's servers, leading to trading delays.
At about the same time servers supporting the calculation of the Dow Jones Industrial Average went down, meaning that the level of the index lagged that of the broader market, causing more confusion.
The US Securities and Exchange Commission on Thursday confirmed that it was working with the NYSE and other market centres to review the events of Tuesday and examine whether enhancements to capacity management were necessary. Jerry Putnam, vice-chairman of NYSE Group, said: "Customers are not going to walk away because of one bad day."
Some fear that the rapid development of electronic trading in the run-up toReg NMS means the systems might not have been sufficiently tested and that the spike in volumes that is widely predicted could ex-pose weak points. In Tuesday's sell-off some volume records were smashed, led by electronic trading, across almost all asset classes.
If equity trading volumes do rise as predicted under Reg NMS, equity options contracts will follow. The Options Industry Council said that on Tuesday, a record 18,281,667 contracts were traded on exchanges in the US. Equity options trading also set a record with 16,397,163 contracts.
Additional reporting by Michael Mackenzie and Saskia Scholtes |
