US Stock Exchanges To Petition SEC On Subpenny Pricing
25 Gennaio 2010 - 7:52PM
Dow Jones News
U.S. stock exchanges are pushing regulators to allow traders to
quote prices in increments as small as one-tenth of a cent, in a
bid to compete with fast-growing alternative platforms like dark
pools.
The four largest equity trading venues are readying plans to
petition the Securities and Exchange Commission about expanding
subpenny pricing, a move they claim would expand investor choice
and cut trading costs.
"We're all looking at it," said Brian Hyndman, senior vice
president of transaction services for Nasdaq OMX Group Inc. (NDAQ).
"We've had institutions, hedge funds, a broad variety of customers
asking for this."
NYSE Euronext (NYX), BATS Global Markets and Direct Edge ECN LLC
also back the initiative.
U.S.-listed stocks are publicly quoted in one-cent increments,
expanded from eighths of a dollar in 2001. Traders can only quote
subpenny prices on exchanges when a stock's value dips below $1 to
give investors more potential quotes, although stocks can be
delisted if they languish below this mark for too long.
Alternative venues such as dark pools--off-exchange venues
increasingly used to make block deals anonymously--aren't bound by
the same pricing restrictions.
That gives those markets a perceived advantage when it comes to
heavily traded stocks with low trading prices such as Citigroup
Inc. (C).
"A majority of the trading in stocks like Citigroup is done
off-exchange, because market makers can't compete at a finer
increment for the order," said Chris Isaacson, chief operating
officer of BATS.
Exchange officials said expanding subpenny pricing on their
platforms could also make it cheaper for retail investors by
creating tighter price spreads.
The push comes after the SEC earlier this month asked exchanges
to explore the issue as part of a broader look into dark pools and
high-frequency trading firms.
Exchange executives have raised concerns as more stock-trading
activity has moved away from public markets in recent years. They
have cautioned that the public prices of stocks could become less
reliable as more trading migrates to alternative venues.
Rosenblatt Securities estimated that the 16 largest dark pool
platforms--most of them controlled by dealer-brokers--accounted for
a record 9.7% of all U.S. equity volume in November 2009.
The exchanges have yet to reach a consensus on the best
increments for trading if the SEC accedes to a change. NYSE
Euronext and Nasdaq OMX officials favour 0.1-cent increments, while
BATS is leaning toward half pennies, executives said.
Steve Sosnick, equity risk manager at Timber Hill, a
market-making unit of Interactive Brokers Group Inc. (IBKR), said
the push isn't a surprise given recent trends. "Everybody's trying
to come up with advantages, and a lot of incremental advantages are
getting ever smaller."
Some stocks could see pricing increments move the other way.
Bryan Harkins, head of sales and strategy for Direct Edge, said
that while his company supports the idea of subpenny pricing, it
may also be worth considering bigger increments in higher priced,
less-liquid stocks as a way to improve liquidity.
-By Jacob Bunge, Dow Jones Newswires; 312-750-4117;
jacob.bunge@dowjones.com
(Donna Kardos Yesalavich contributed to this article.)
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