Competitors to the New York Stock Exchange have stepped up calls for reform of rules governing trading of U.S. stocks as they seek to exploit the turmoil at the bourse.
The heads of Instinet and the Archipelago Exchange — two fast-growing electronic marketplaces that offer trading in NYSE-listed stocks — have urged regulators to review the so-called “trade-through rule”.
This rule, sanctioned by the Securities and Exchange Commission, prevents investors from taking their business elsewhere if there is a theoretical better price available on the NYSE.
Critics say it protects the NYSE’s dominant market position. The Big Board’s market share has hovered around 80 percent for several years, while the Nasdaq stock market, which has no such rule, has seen its market share erode steadily since electronic exchanges took off in the mid-1990s.
Ed Nicoll, chief executive of Instinet, the electronic exchange part-owned by UK-based Reuters, said his marketplace wanted to compete more directly with the New York Stock Exchange.
“We think we have a better mouse-trap and we want a chance to serve customers. We cannot do that with the current regulatory structure,” he told the FT.
Jerry Putnam, head of Archipelago, told Congress last week that the trade-through rule “limits customer choice to the lowest common denominator of the slowest markets, which often consists of conflicted specialists who use ‘trade-through’ to their profitable advantage.”
An NYSE spokeswoman said: “The NYSE is the lowest priced exchange. We have the lowest all-in trading costs of any U.S. market.”
Robert Britz, NYSE president and co-chief operating officer, defended the NYSE’s dominant market position last August by saying the exchange establishes and posts the best prices 94 percent of the time.
He wrote in a newsletter that in the 100 most actively traded stocks, the NYSE’s posts priced 12 cents per share better than rivals, and the price advantage becomes even greater in more thinly traded stocks.
Critics have described the trade-through rule as the equivalent of forcing customers to the supermarket 10 miles away when the product they want is available in their corner shop.
They argue that specialists trade for their own account at the expense of investors — but supporters argue that they provide invaluable liquidity to facilitate trading, especially in thinly-traded stocks.
Mr. Nicoll claimed that fund management traders had stayed silent because they were worried about retaliation on the floor of the NYSE, a claim the exchange dismissed.