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March 1, 2004

NYSE Electronic Rules Seen As a Step Forward

By Peter Chapman

Buyside traders are cheering the New York Stock Exchange's proposal to open itself up to more automatic executions. Still, they say more changes are needed.

Last month, the Big Board announced it would liberalize the rules governing its small-order auto-ex platform, Direct+. The exchange eliminated the requirement that limits customers to just one order every 30-seconds as well as the maximum order size of 1,099 shares.

The changes, if approved by the Securities and Exchange Commission, would also allow traders to enter market orders into the system. Currently, Direct+ only accepts limit orders.

"This is a huge step forward," John Wheeler, head trader at mutual fund complex American Century Investments, a longtime proponent of electronic trading, told Traders Magazine. "Direct+, as it currently stands, is absolutely worthless to anybody trading over 1,000 shares at a time."

The move is expected to result in the posting of more limit orders on specialists' order books. Now, "there is no reward for displaying liquidity," Wheeler said. In other words, a trader posting a buy order could lose that trade to a buyer in the crowd who betters his bid by just a penny.

Wheeler and others still want to see more changes in the New York's execution platform. For one thing, traders want to be able to sweep multiple price levels. Direct+ only lets them hit or take the best bid or offer.

"Certainly this is a step in the right direction," says Kevin Cronin, head trader at AIM Advisors. "But, clearly it is just one of many that need to be taken."