Big Board's New Dark-Pool Ammo: Sub-Penny Quotes
WASHINGTONâThe Securities and Exchange Commission on Thursday approved a New York Stock Exchange initiative designed to help it compete better with the so-called dark pools that have taken business away from public exchanges.
The proposal, which aims to lure retail, or individual, investors with more-favorable prices, required the SEC to OK an exemption to market-regulation rules put in place during the past decade. The initiative is expected to be mimicked by other exchanges that have been waiting to see how regulators reacted to the Big Board parent NYSE Euronext's NYX -1.97% plan.
Under the 12-month pilot initiative, NYSE will become the first U.S. stock exchange allowed to offer retail investors stock quotes in increments of less than one penny. The change puts the exchange on competitive footing with a handful of banks and electronic-trading firms that already pay fees to retail brokers for the chance to fill their clients' stock orders.
In some cases, those firms execute trades at prices that beat the going market rate by fractions of a cent, something exchanges had been barred from doing since 2005. The ban was designed partly to eliminate potential confusion if the price "flickered," or moved too quickly to determine an appropriate price.
The program, which NYSE plans to launch in August, works along the same lines as dark pools that trade large blocks of shares for institutions. Dark pools are private platforms set up for anonymous stock trading.
NYSE contends that its program provides significantly more transparency than dark pools. Though it won't include the price or size of an order, each transaction will be signaled publicly. The exchange also will indicate which stock is involved in the trade and whether the transaction is a buy or sell order.
Joseph Mecane, NYSE Euronext executive vice president, said the program is an "attractive trade-execution alternative for individual investors."
"Providing price improvement for retail orders within an exchange environment affords individual investors new economic incentives and ensures greater transparency, liquidity and competition," he said.
Not everyone was pleased with the SEC's decision.
The SEC's decision is a "big step in the wrong direction," said Dennis Dick, a trader at Bright Trading LLC. "The whole market is going dark and there's no incentive to display liquidity."
Mr. Dick said his firm's traders have been shying away from posting orders on stock exchanges in the past few years because it has become harder to get the best execution on the exchanges, which he says are dominated by sophisticated computer-driven trading outfits. The NYSE's Retail Liquidity Program will make the situation worse, he says, because it will encourage retail investors to send their orders to the new trading pool in the hope of getting a better price.
âJenny Strasburg and Scott Patterson contributed to this article.
http://online.wsj.com/article/SB10001424052702303684004577509110455072208.html?mod=googlenews_wsj
WASHINGTONâThe Securities and Exchange Commission on Thursday approved a New York Stock Exchange initiative designed to help it compete better with the so-called dark pools that have taken business away from public exchanges.
The proposal, which aims to lure retail, or individual, investors with more-favorable prices, required the SEC to OK an exemption to market-regulation rules put in place during the past decade. The initiative is expected to be mimicked by other exchanges that have been waiting to see how regulators reacted to the Big Board parent NYSE Euronext's NYX -1.97% plan.
Under the 12-month pilot initiative, NYSE will become the first U.S. stock exchange allowed to offer retail investors stock quotes in increments of less than one penny. The change puts the exchange on competitive footing with a handful of banks and electronic-trading firms that already pay fees to retail brokers for the chance to fill their clients' stock orders.
In some cases, those firms execute trades at prices that beat the going market rate by fractions of a cent, something exchanges had been barred from doing since 2005. The ban was designed partly to eliminate potential confusion if the price "flickered," or moved too quickly to determine an appropriate price.
The program, which NYSE plans to launch in August, works along the same lines as dark pools that trade large blocks of shares for institutions. Dark pools are private platforms set up for anonymous stock trading.
NYSE contends that its program provides significantly more transparency than dark pools. Though it won't include the price or size of an order, each transaction will be signaled publicly. The exchange also will indicate which stock is involved in the trade and whether the transaction is a buy or sell order.
Joseph Mecane, NYSE Euronext executive vice president, said the program is an "attractive trade-execution alternative for individual investors."
"Providing price improvement for retail orders within an exchange environment affords individual investors new economic incentives and ensures greater transparency, liquidity and competition," he said.
Not everyone was pleased with the SEC's decision.
The SEC's decision is a "big step in the wrong direction," said Dennis Dick, a trader at Bright Trading LLC. "The whole market is going dark and there's no incentive to display liquidity."
Mr. Dick said his firm's traders have been shying away from posting orders on stock exchanges in the past few years because it has become harder to get the best execution on the exchanges, which he says are dominated by sophisticated computer-driven trading outfits. The NYSE's Retail Liquidity Program will make the situation worse, he says, because it will encourage retail investors to send their orders to the new trading pool in the hope of getting a better price.
âJenny Strasburg and Scott Patterson contributed to this article.
http://online.wsj.com/article/SB10001424052702303684004577509110455072208.html?mod=googlenews_wsj
