In its letter, the NYSE agrees with the SEC that Reg NMS should provide a framework for a market structure in which investors receive the best price on their trades, while at the same time giving them the benefit of competition among the various markets. It should also achieve the stated objectives of promoting the ability of investors to choose among markets and lowering costs for investors and issuers.
However, for one crucial piece of the proposal – the trade-through rule – the SEC has proposed two alternatives:
- The NYSE supports the first alternative, which would protect the best bid and offer in each market. “This proposal will encourage investors to aggressively quote so that they are the best bid or offer in their market of choice by providing them with the assurance that their best quotes will not be traded through. This proposal also will lead to tighter spreads, greater liquidity and equal treatment of all types of investors,” the NYSE’s letter states.
- In contrast, the second alternative would mandate depth-of-book (DOB) order routing and effectively transform our competing markets into a homogenized, government-mandated utility. “Until now, the Commission has successfully maintained the important balance between order competition and market competition that the 1934 Act requires. However, mandatory DOB routing eliminates intermarket competition by requiring that markets route orders to any displayed limit order in any market center,” states the NYSE’s letter. The letter adds that this proposal would create a virtual consolidated limit-order book (CLOB), a concept that the SEC has rejected in the past and should do so again.
