(February 23 – 17:10) – The Securities and Exchange Commission is seeking comment on a proposal to end the New York Stock Exchange’s grip.
At the SEC’s command, the NYSE is proposing to rescind Rule 390, the rule that keeps NYSE issues from trading on alternative trading systems. In its place the NYSE is asking the SEC to adopt a new rule that would limit the amount broker-dealers could trade NYSE stocks internally, without sending them to the NYSE floor.
The SEC also wants industry comment on market fragmentation: including the effect of orders trading in multiple locations without interaction, internalization practices, and payment for order flow. The SEC says it is not looking to choose between market competition or order interaction; it is looking for the optimal way to maximize both conditions.
The SEC suggests six possible options for dealing with fragmentation:
o Require more public disclosure by markets (i.e. exchanges and ATS) and brokers.
o Restrict broker-dealer internalization and payment for order flow.
o Require exposure of investor market orders to legitimate price competition.
o Adopt an intermarket prohibition against market makers trading ahead of previously displayed investor limit orders held by another market.
o Provide intermarket time priority for investor limit orders or dealer quotations that are the first to improve the national best bid or offer for a security.
o Establish nationwide price/time priority for all displayed trading interest.
Canadian regulators have been struggling with similar issues in anticipation of the introduction of ATS in Canada, expected in coming months.
Comments on the NYSE’s proposed rescission of Rule 390 are due in 21 days. Comments on the market fragmentation issue are due in 60 days.
-IE Staff