Commentary

Anne Plested
Traders Magazine Online News

Bottlenecks Ahead

Anne Plested, head of Fidessa's EU Regulation Change programme, has written a short blog arguing that although we should be thankful that ESMA have taken a pragmatic approach to moving things along, more bottlenecks could appear in the future.

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November 8, 2005

Wall St. Execs Plead for Reg NMS Delay; Questions on Trade Throughs & Fast Markets

By Gregory Bresiger

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  • Wall St. Execs Plead for Reg NMS Delay; Questions on Trade Throughs & Fast Markets

Trading officials are putting pressure on the Securities and Exchange Commission to delay implementation of the trade-through rule. The new rule, part of Reg NMS, is scheduled to go into effect next June, but some market participants want more time. They say its complexity has stymied them.

What is a fast or slow quote? How does one find the best exchange? How long can one wait for an automatic execution?

Trading officials are putting pressure on the Securities and Exchange Commission to delay implementation of the trade-through rule. The new rule, part of Reg NMS, is scheduled to go into effect next June, but some market participants want more time. They say its complexity has stymied them.

What is a fast or slow quote? How does one find the best exchange? How long can one wait for an automatic execution?

These issues were raised by several officials on both the buyside and sellside. Next year's new trade-through rule is confusing many, and they want answers from the regulators.

Some of them are confused about where and how to find the fast market and the best quote, they told Traders Magazine.

"There must be more guidance from the SEC before this goes into effect," said Leonard Amoruso, co-general counsel and chief compliance officer with Knight Capital Group. The rule is due to begin testing in April and become effective on June 12, 2006.

The SEC's trade-through rule puts the burden of compliance on market centers, but many brokers have decided that compliance is their duty. They view order protection as part of their best execution obligations as well as a competitive opportunity.

But the new trade-through rule could overtax many technology systems, especially the routers, Amoruso added. He said that firms are only now understanding the difficulties of the new trade-through rule. The SEC is dismissive of a pushback at this stage.

Bob Colby, associate director in the SEC's Market Regulation Division, said, "it's silly to ask for a delay in the implementation of the rule when there's still six months to go." Colby's comments were echoed by Bob Greifeld, chairman of Nasdaq.

"We're ready to go ahead with it," Greifeld said. His organization fought to stop the extension of the rule to electronic markets, but he now says he is committed to it. NYSE Chairman John Thain, at an ICI conference, said, "let's go ahead with it."

Many trading officials are unsure how the trade-through rule will function and how to route orders to the best market center when transitioning from fast to slow markets. That's because the language of the rule is cloudy in some parts, said an industry observer whose firm has been studying the rule.

"How fast is fast?" asked Harrell Smith, manager of the securities and investments practice for Celent Communications. There's different opinions about the nature of markets under the rule. Such as when a slow market becomes a fast market."

The trade-through rule, and the rest of NMS, "are just too complicated," according to Robert Rosenblum, an attorney in Washington with the firm of Kirkpatrick & Lockhart Nicholson Graham. Rosenblum's firm represents numerous brokerages and trade industry associations.