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Brijesh Malkan
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Solving the Last Mile Problem in Investment Research

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August 9, 2006

Specialists' Rule May Be Eased

By Peter Chapman

The New York Stock Exchange, as it pushes toward more electronic trading, continues to loosen specialists' rules. The Big Board's latest move would allow specialists to make so-called "destabilizing" trades without the OK of an exchange official. If approved by the SEC, a change to Rule 104 would allow specialists to trade along with pricing trends, not just against them. Currently, specialists may only trade for their own accounts if they act to "stabilize" prices. In other words, they may buy when stocks are falling or sell when they are rising. If they want to buy on upticks or sell on downticks, they must ask for permission. The change to Rule 104 would allow specialists to trade for their own accounts under any circumstances.

The move is one initiative the Big Board is undertaking to open up new revenue opportunities for the specialist. The moves come as specialists fret about more electronic trading. The exchange is also trying to amend its Rule 108 to allow specialists to trade for their accounts on parity with public orders when building a position. Currently, specialists can only do so with permission from floor brokers. They may also trade on parity with the public when liquidating a position.