(May 3) – “The NASDAQ Stock Market is considering new rules on how dealers trade before the market’s regular opening, responding to concerns that such trading may sometimes hurt investors,” writes Greg IP in today’s Wall Street Journal.
“The rules under consideration would require NASDAQ dealers to give customers the benefit of any prices that the dealers obtain by trading before the regular 9:30 a.m. EDT opening. Currently, that obligation doesn’t ordinarily exist.
“The proposed rules, outlined in a memo from NASDAQ to its Quality of Markets Committee, appear to reflect a concern that dealers, by trading before the opening, may be taking advantage of their knowledge of investors’ trading intentions, sometimes at investors’ expense. For example, a dealer with many buy orders of a stock might snap up shares before the opening, then sell them at a higher price to investors at the opening.
“‘NASDAQ staff have recently become aware of certain practices in the pre-market that it believes adversely impact public customers,’ says the memo to the committee, which is NASDAQ’s top advisory committee on market-structure issues and is made up of brokerage and institutional traders.
“Some brokerage firms are using information about orders their customers want executed at the 9:30 opening to trade before the opening, then fill those “queued customer orders at the open, at prices significantly above the firm’s pre-market purchase cost,” the memo states.