Robert,
Recently, there's been a great deal of media publicity (including a myriad of SI postings) regarding the individual investors' limited ability to access certain proprietary trading systems such as SelectNet and Instinet. And although this may be true in most circumstances, I firmly believe that the new SEC order handling rules, which become effective on January 20, 1997, will significantly level the playing field with respect to providing investors with limit order protection and most importantly, enhancing access to market information. The rules applies to Nasdaq and the exchanges, but they will obviously benefit Nasdaq investors the most. Unfortunately, however, the rule will be phased in with respect securities listed on Nasdaq (only 50 stocks on 1/20). But all stocks listed on the National Market will have been phased in by April or May 1997.
The SEC adopted two primary rules and the one that directly addresses some of your questions and concerns is the ECN (Electronic Communications Network) Display Alternative. Specifically, the rules states that if a market maker places an order in an ECN (for example, SelectNet) that's priced better than the published inside spread, then that market maker must display the order price in the published quote.
For example, let's say that IFMX's inside spread is 1/4 of a point (21 1/4 - 21 1/2) and GSCO has an order on SelectNet or another proprietary system to sell 5,000s IFMX at 21 3/8. Even if you had placed a "market order" (21 1/2) to buy 1,000s of IFMX, your trade would have been executed at 21 3/8 because GSCO's offer would have been reflected in the inside spread.
The other rule would require a market maker who receives a limit order that's priced at or better than the current inside spread, to either immediately execute the order or display it to the entire marketplace. As such, using the above spread, if you had placed an order through MLCO to buy IFMX at a limit price of
21 3/8 and MLCO doesn't execute the order, then your price becomes the best bid and the inside spread now becomes 21 3/8 to 21 1/2.
While there're a few advantages to having access to certain trading systems, I truly believe that the most important thing to an investor is knowing that she/he received the best execution price. The SEC Order handling rules, IMO, should have a substantial impact on not only narrowing the spreads on Nasdaq but ensuring that investors indeed receive the best execution price.
Hope this information was of interest and not redundant.
Alicia |
