Commentary

Tim Quast
Traders Magazine Online News

We're All HFTs Now

In this guest commentary, author Tim Quast looks back at the history of HFT and how the market has evolved to where many firms now fit the definition of high-frequency trader.

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December 18, 2007

2007 Review: A Rocky Regulatory Marriage

The Year in Trading

By Gregory Bresiger

It can be easy to merge. But it is not so easy to make it work. This was the year the promised cost-saving merger between the NASD and NYSE Regulation finally happened. But now regulators, who are normally sensitive about protecting turf, must agree on different trading rules if the merger is to be a success.

Part of the goal of the much-ballyhooed regulatory merger is to provide the trading industry with one standard for how customer orders are treated. Indeed, the trading industry, says Richard Ketchum, NYSE Regulation CEO, "deserves to have a single approach." But there will be plenty of grunt work before that happens.

Case in point: Can NYSE regulators find a way to meld the Financial Industry Regulatory Authority's Manning rule, also known as Rule 2110, with NYSE Rule 92? Manning applies to NMS and over-the-counter securities; FINRA eased its rules in the latter area this year (see following item). NYSE Rule 92 covers listed securities. The rules specify how customer limit orders are treated. The rules also contain exceptions. But the rules also have different disclosure and compliance obligations.

Ketchum says some harmonization work has been done. Manning and Rule 92 regulations are now much closer. Take NYSE's recent adoption of provisions allowing riskless principal trades entered off the floorthat provision made Manning and Rule 92 more similar. Nevertheless, some differences remain, Ketchum adds, and they are of critical importance to NYSE members.

Inevitably, compromise is going to be necessary on the part of NYSE Regulation and FINRA. For instance, Manning and Rule 92 cover market center activities. But those rules, which provide oversight of NYSE member firms, are not part of FINRA's consolidation efforts. And, merger or not, NYSE Regulation says it remains the regulator of its member firms.

"Trading rules still remain the responsibility of NYSE," Ketchum says. "It didn't give up its oversight of its trading rules."