The Information Superhighway
Traders Magazine, February 2004
How fast is fast? Ten seconds? One second? A millisecond? In the modern world there is probably no acceptable definition of superfast, or even realtime, because in the modern world it is, surely, technologically possible to move a split second faster? Confused? Then wait until you start reading the Securities and Exchange Commission's latest reform proposals on market structure. These are, of course, the infamous proposals on trade through, access fees, market data and sub-penny pricing. The most far-reaching is the trade through plan. Under this proposal, a so-called fast market with a stock order could bypass a slow market when the slow market is posting a superior price for that stock. That's as long as the fast market is within one to five cents of the best price. The speed at which fast markets can accept and execute an order today - and respond to various standards of best execution - is at the heart of the latest gut-wrenching debate on market structure. Superfast ECNs, as you know, bitterly complain that orders for listed stocks constantly get sidelined at the NYSE, which frequently posts better prices than most of its competitors. The orders are sidelined because the NYSE usually can hold up executions for some 30 seconds - sometimes longer. By then, a market could have moved against an ECN investor's order, potentially leaving it unfilled. On the surface, it sounds unfair to an ECN order. Unsurprisingly, the SEC has stepped in to level - or unlevel - the playing field again.