New U.S. rules to secure best prices on share trades
July 9, 2007
By Anupreeta Das
NEW YORK (Reuters) - A new regulatory regime that requires brokers to route stock orders to the market displaying the best price among a number of venues will go into effect on Monday.
Regulation NMS will initially be applicable to 250 stocks. The rules will extend to all National Market System securities by Aug. 20.
The new regulations require brokers to sweep through the 13 major regulated exchanges to check price quotes to ensure they are getting the best price for their clients.
They provide investors a level playing field by disallowing "trade-throughs," or the execution of trades at prices inferior to the best displayed price.
The U.S. Securities and Exchange Commission created Reg NMS in 2005 to modernize national markets, but its implementation has been delayed several times because of the huge technological changes required on the part of exchanges and brokers.
For brokers, compliance has meant upgrading their trading systems so they can route orders to all linked markets.
"Brokers also need to keep track of all that data, store it somewhere, be able to analyze it and spit out information depending on requests from regulators," said Sang Lee, managing partner at Aite Group, a financial services research firm.
Lee said the upgrades have been costly and time-consuming, and he warned that with electronic trading volumes growing rapidly, "there will be huge pressure on overall data management capacity."
Brokers will have to upgrade their IT systems continuously, and technology will become the real differentiator among larger brokerage houses, he said.
This may create problems for some of the smaller brokers who operate on the New York Stock Exchange floor, said Colin Clark, a vice president at NYSE Euronext.
But he said brokers who do not have private routing systems can outsource their needs to the exchanges.
"The broker can always send an order to us and we'll route it if they are not ready," he said. |
