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August 9, 2006

SIA Reg NMS Group Gets Active

By Editorial Staff

From ITS to Reg NMS Worries

Going from the Intermarket Trading System (ITS), which links the national market system, to a newer one could cause potential trading mishaps. So a trading issues committee is asking regulators for a clarification of what happens during the transition period from ITS to Reg NMS. They are unsure of what will happen during the implementation and testing period of Reg NMS.

"Once the listed securities start quoting with automated quotes, we don't want to be subject to two different sets of rules. One for the Order Protection Rule and the other for ITS," according to Matthew Lavicka, chairman of the SIA Reg NMS group.

He said the trading industry would prefer the ITS to expire and then let Reg NMS take over. Still, he said there might need to be a transition period. Indeed, if the ITS expires before Reg NMS's new order protection rule is functional, then the market could be without a trade-through rule for a short period.

NBBO Exception on the Table

Some unusual trades should receive special treatment, trading industry executives say. So an SIA trading committee is asking the Securities and Exchange Commission for a contingent trading exception.

This exception would cover certain types of trades whose price is not linked to the underlying shares, those that are derivatively priced because their value is based on a future or an option or a convertible, according to Matthew Lavicka, chairman of the SIA's Reg NMS group.

In this case, the NBBO should not apply because the security's price is not based on it, Lavicka told Traders Magazine. He says the SEC is considering this exception.

An SEC spokesman said the Division of Market Regulation is reviewing Reg NMS issues with the SIA group and was planning conference calls.