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September 22, 2005

At Deadline

By Traders Staff

Parity Vs. Priority

*SIA and STA officials are grilling NYSE officials over what happens when the NYSE switches from a fast to a slow market under the Big Board's latest iteration of its proposed hybrid plan. "That's not clear to us," according to a trading executive who declined to be quoted by name. He said officials of both trading issues committees of the STA and SIA recently posed questions about the plan to NYSE. "We haven't gotten a definitive answer. Our concern is what happens to an order that you place when the market is fast and then the Big Board goes to a slow market and the order is turned over to a specialist," he said. This trading official said the issue hinges on parity vs. priority. An order that has priority in an electronic environment will only have parity once the market goes from fast to slow, the trading executive says he was told by NYSE officials. The Big Board's Fifth Amendment was pending with the SEC as Traders Magazine went to press.

-Gregory Bresiger

No More Free Rides

*The New York Stock Exchange is making the rounds among its members, detailing its new DOT fees, ones that it is billing as "more fair and equitable" than its current pricing schedule.

The revised pricing will adjust a number of caps on transaction fees that the NYSE levies on DOT users. Consequently, that affects the NYSE's ability to raise additional revenue when trading volumes spike. The new pricing is based on usage. Some DOT users will see a decline in their charges, while others will see an increase, said one source. Besides adjusting the fee caps, the new schedule also does away with exemptions that make DOT free. One loser in this new pricing will be the NYSE's nemesis, Nasdaq, which is trying to build a business on routing limit orders to the NYSE via DOT.

"They're closing the loopholes," said one knowledgeable source. "It's like simplifying the tax code." The new pricing is expected to begin Jan. 2006. The NYSE declined to offer specifics on the new pricing, nor would it confirm when it would take effect. The NYSE did confirm, however, that DOT pricing will be "more fair and equitable" and "there won't be any more free rides."

-Michael Scotti

NYSE Losing Share

*Trading in listed shares is migrating to the electronic markets. Nasdaq, Archipelago and INET, the three primary centers of Nasdaq trading, are racking up big gains in the trading of securities listed on the New York Stock Exchange. That's according to data provided by the Consolidated Tape Association. Nasdaq now accounts for roughly 16 percent of all prints in NYSE-listed shares. Archipelago and INET (and its affiliate the National Stock Exchange) together account for about 4 percent. The markets' combined share of 20 percent is up from 15 percent a year ago.

The gain appears to stem from an increase in the number of orders actually matched on the systems of the electronic markets. A year ago, according to CTA data, the electronic markets matched about 2.5 percent of all NYSE share volume. Today, they match 7.5 percent. The spike is partly due to Nasdaq's new "free-DOT" offering, according to Nasdaq officials. Since late March, Nasdaq members have been able to route orders in listed shares to the NYSE at no charge through Nasdaq's Brut system.

The electronic markets' gain is the manual markets' loss. The New York, Chicago, Philadelphia and Boston stock exchanges are all losing business. Combined, they control 80 percent of the listed business, down from 85 percent a year ago.

Peter Chapman