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July 5, 2006

Expect Delays for the NYSE's Hybrid Rollout

By Gregory Bresiger

The New York Stock Exchange hybrid market plan, like the city's subways, is behind schedule and is expected to be so for a while.

Phase I of the plan-which allowed floor brokers and specialists to use reserve orders such as sQuotes and e-Quotes-went off on time on April 5th. But the final three phases are likely to be delayed.

Phase II includes the most controversial part of the NYSE's hybrid market plan-the specialist API-and was supposed to have taken place at the end of April.

(The rollout of the specialist API, is the subject of litigation by a floor broker group. See Washington Watch.) But, by late May, the much criticized API had yet to go live.

At presstime, broker sources said they now expect that the specialist algo will not become effective until late this month or in July at the earliest.

"That's a very good thing," one floor broker, who declined to be identified, told Traders Magazine. "Now maybe they'll take the time to ensure that we have the proper tools."

Brokers have been agitating for so-called discretionary order tools to enable them to compete with specialists and their algorithms.

Phase III, which NYSE officials have said would be implemented this summer, now appears more likely to start early this fall, sources said. This is the part that is scheduled to contain discretionary e-quoting and pegging capabilities for floor brokers as well as the elimination of Direct+ restrictions.

Phase IV includes the Big Board's full compliance with the requirements of Reg NMS. That includes the ability to handle the inter-market sweep, which NYSE officials expected would go into effect by the end of the year.

But, here again, the NYSE hybrid plan train is not expected to run on time. SEC officials recently said that Reg NMS's new controversial trade-through rule now won't be ready until 2007.

The delay of parts of Reg NMS also affects the ability of the NYSE to go ahead with hybrid implementation. That's because various trading protocols and rules can't be written until the regulators move.

NYSE officials, at presstime, didn't return phone calls.