Here is an excerpt from today's WSJ on the topic. It looks like the specialists are going to throw the floor brokers overboard in order to save their skins.
IMHO, anything short of eliminating the trade delay rule is a sell-out.
The interesting part about any rule change is this - "A vote of exchange members, a group of 1,366 both current and retired brokers and specialists who own seats on the Big Board, wouldn't be required."
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'A Little Scary':
NYSE's Chief Seeks to Sell
Electronic Trading to the Floor
By KATE KELLY
Staff Reporter of THE WALL STREET JOURNAL
A proposal to allow more electronic trading at the New York Stock Exchange is creating a rift between two groups of people who have worked together for two centuries to trade America's blue-chip stocks.
The lines have been drawn in recent weeks, as newly-installed NYSE chief executive John Thain considers a plan that would represent a shift at the 211-year-old Big Board, the last major stock exchange to rely so much on humans to handle stock trades. (See related article.)
The move could pare the importance of the floor broker, the agent whose role is to ferry investor orders to a specialist firm, or stock-trading referee, for matching and execution. "It's a little scary," says Karen Nelson Hackett, a broker for JNK Securities. "We bring the orders to trade in the crowd, and if they're going to take that away from us, what are we going to do?"
Many specialists are embracing the proposal, saying the change is necessary to appease big investors like mutual-fund giant Fidelity Investments, who have been calling for quicker executions and more automated trading in recent years. Specialists also say more electronic trading may slow efforts to change regulatory guidelines that competing markets believe give the Big Board an advantage.
The plan under consideration would hurt floor brokers more than specialists because it would allow NYSE stock investors to get automatic executions for buy and sell orders that represent the best prices in a given stock at a given time. That price, known as the "inside quote," is the cheapest buy-and-sell match at which a stock can change hands at a particular moment.
In the majority of NYSE floor trades, inside-quote orders are now matched by brokers representing their customers in a human crowd, and are reported to the public ticker tape by specialists. The automatic execution plan would address complaints by investors who say human auctions cause the inside quote to change so frequently that investors often can't get the advertised price.
A related plan that Mr. Thain is considering would modify the rules associated with the floor's current automatic-execution system, which handles only small trades. If the inside-quote trading plan goes forward, the current 30-second waiting period imposed on investors who use the automatic execution system could be altered or eliminated in some way, according to people familiar with the plan. An NYSE spokesman had no comment on the proposed changes.
The ideas under consideration indicate the NYSE's desire "to offer a menu of execution options to its customers that's as broad as possible," said Robert Fagenson, vice chairman of Van Der Moolen Specialists USA, a unit of Van Der Moolen Holding NV, in an interview late last week.
Such changes are still in their conceptual stages, said Mr. Fagenson and others familiar with their details, and no firm decisions have been made. But if Mr. Thain moves ahead with the plan, it will be a bold step toward modernizing the NYSE.
The plan to automate inside-quote trading could be presented to NYSE directors as early as Thursday, when Mr. Thain will meet with the exchange's board for his first regular meeting as CEO. If the board approves the idea, it could then be presented to the Securities and Exchange Commission, which approves all rule changes at the NYSE. A vote of exchange members, a group of 1,366 both current and retired brokers and specialists who own seats on the Big Board, wouldn't be required.
But given what Ms. Hackett describes as the "raucous" reaction that some brokers have had to the proposal in recent days, Mr. Thain is likely to get an earful of complaints at a membership meeting he will host this afternoon.
Specialists who are backing the plan said it could also dissuade the SEC from adopting changes to a regulatory guideline that has traditionally given the Big Board an advantage. The requirement, known as the "trade-through rule," dictates that markets not ignore superior prices that are available on competing markets. (When a market ignores a superior buy or sell order available on a competing market, it is "trading through" a price that would be preferable for investors.)
The NYSE, by considering the plan, is acknowledging a key attraction of its electronic competitors, the Nasdaq Stock Market and a handful of electronic communications networks, or ECNs: an immediate, electronic trade execution for buyers and sellers whose orders match.
Nasdaq and ECNs have been lobbying for a repeal of the trade-through rule, saying that because the NYSE sometimes has superior stock prices, electronic markets like Nasdaq's, which pride themselves on fast trade executions, are unable to operate speedily because they must wait too long to match with Big Board stock orders.
