SEC Seeking Comment on Market Plans
The Securities and Exchange Commission sought public comment Wednesday on preliminary proposals aimed at reducing fragmentation in U.S. stock markets, including the formation of a central market for customer orders.
The so-called “concept release” seeks input on six alternative plans aimed at breaking down competitive barriers and improving investor access to the best possible prices.
“If the U.S. markets fail to meet investor needs by offering the fairest and most efficient trading mechanisms possible, an increasingly competitive international environment will be sure to offer alternatives for investors,” the SEC said.
The SEC’s release expressed concern that trading may have become increasingly fragmented among the three national stock markets, the nine electronic trading networks, the six regional stock exchanges and the dozens of brokerages that internally match their orders.
It specifically questioned whether brokerages may be stifling price competition by internally matching orders from their inventory. The SEC also voiced skepticism about the practice of “payment for order flow,” in which wholesale dealers pay retail brokerages for their customer orders.
The least controversial of the SEC’s six alternatives would require exchanges, brokerages and trading networks to disclose how they route their customer orders, including those internally matched by brokerages.
The most controversial plan calls for formation of a central market that links trading among all these market participants. It would protect the investor or dealer who first enters the best available quote by requiring that his order gets filled before any others--a concept known as “time-price priority.”
The SEC also issued a New York Stock Exchange proposal that would scrap a rule that prohibits its brokerage members from trading many large stocks off the floor of an exchange. SEC Chairman Arthur Levitt has said NYSE Rule 390 is “anti-competitive” because it makes it difficult for brokerages to match orders internally and on electronic trading networks such as Instinet.
The SEC is giving the public 60 days to comment on the concept release, which can lead to a more specific rule proposal and ultimately new federal standards. The agency is providing 21 days for public comment on the NYSE rule proposal.
More information can found at the SEC’s Web site, https://www.sec.gov.
