The NASD and the New York Stock Exchange’s regulatory arm will present the Securities and Exchange Commission with a plan to “harmonize” many of their rules, including those that pertain to trading.
The joint effort comes at the same time the two have proposed merging their organizations, offering relief to the few hundred large brokerage houses that are regulated by both entities.
The results of the rule- harmonization work, underway for much of last year, will be presented to the SEC in stages beginning this month, said an NYSE spokesperson.
Harmonization is intended to eliminate discrepancies between like rules written by the two regulators. It “would result in substantially similar rulebooks,” former NASD chairman and chief executive Robert Glauber testified in Congress last year.
The NYSE spokesperson would not specify which trading rules were under review, but brokerage execs offered a few examples.
Harmonization of rules covering short sales and limit orders is likely, according to sources. They note that the NASD and NYSE now have different short-sale and limit-order rules because they cover both listed and non-listed business.
Regarding short sales, Nasdaq securities have a bid test. One must monitor the bid direction and determine when one can and can’t sell short. By contrast, for NYSE securities, there is a tick test. One must watch the last sale instead of watching the bid direction.
“So, now, to the extent that you trade both securities,” said Len Amoruso, chief counsel at Knight Capital Group, “you have to have different types of systems, procedures and surveillance pools to monitor trading in both forms.” He also pointed to another short-sale rule anomaly: In listed securities there is no market maker exemption, while there is market-maker exemption in Nasdaq securities, he said.