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SEC OKs new trading rules

The U.S. Securities and Exchange Commission Wednesday adopted a sweeping plan to overhaul stock markets with new rules on trading and prices.
/ Source: Reuters

The U.S. Securities and Exchange Commission Wednesday adopted a sweeping plan to overhaul stock markets with new rules on trading and prices.

In an open meeting, the SEC by a vote of 3-2 approved the Regulation National Market System, a focus of Wall Street discussion for many months, which tries to reconcile new electronic trading technologies with the goal of getting investors the best possible prices for their orders.

Reg NMS will extend a New York Stock Exchange convention known as the trade-through rule to the Nasdaq Stock Market , push the largely floor-based NYSE to expand its electronic trading capacity and impose other major changes.

“Our actions today will, I am certain, irritate a handful of influential interests,” said SEC Chairman William Donaldson, adding that his support for the rule was founded on the objective of protecting American investors.

Reg NMS now faces a possible congressional challenge. At its proposal stage, Louisiana Republican Rep. Richard Baker called Reg NMS among “the worst public policy I have seen proposed for the markets in my years in Congress.”

Baker, chairman of the key House Capital Markets Subcommittee, said he might introduce counter-legislation. Wall Street has lobbied the SEC and Congress heavily over NMS.

The measure will link markets more tightly and focus order handling more keenly on getting investors the best price possible. To do this, it extends the trade-through rule — which bars brokers from bypassing the best price offered for a stock when executing an order — across all markets for quotes on automated execution systems, but not for quotes available only on the slow, human-managed NYSE floor.

In addition, NMS promotes inter-market linkages; caps fees charged for access to some markets’ systems; bans stock quotes at increments of less than a penny for stocks worth $1 or more; and reorders the sharing of market data revenues.

Besides the Big Board and the Nasdaq, electronic trading centers such as ArcaEx and Instinet Group Inc., majority owned by news and information company Reuters Group Plc, will be affected by Reg NMS.