Commentary

John Turney
Traders Magazine Online News

Foreign Exchange Infrastructure: Yesterday, Today and Tomorrow

In this exclusive to Traders Magazine, John Turney, Global Head of Outsourced FX at Northern Trust, discusses the evolution of the fx infrastructure and what is to come.

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June 4, 2007

SEC Mulls Exceptions

By Peter Chapman

The Securities and Exchange Commission may grant an exception to Reg NMS' Order Protection Rule to allow broker-dealers to placate customers who complain that their orders were traded through.

As Traders Magazine went to press, the SEC was mulling the problem some brokers are likely to face under the new trade-through rule of Regulation NMS.

The new rule protects certain quotes at the top of market centers' limit order books from being traded through. It does not protect those quotes not at the top of the book. An order below top-of-book can still be traded through.

A customer bidding 19 cents when the best bid is 20 cents would be traded through if a print occurred at 18 cents. Yet only the 20-cent bid is eligible for a fill under the new rule as it is top-of-book.

The concern is that customers whose orders are traded through will ask their brokers for redress. In providing that redress, however, the broker may have to trade through the protected top-of-book quotes. They want the SEC to grant them an exception to do so.

"It is a case where the rule gets in the way of a broker-dealer doing a customer a favor," said a trading executive. "We need to clear that obstacle out of the way."