Institutional investors are closer than ever to getting what they've wanted for a long time — the ability to choose where they trade stocks.
On Feb. 24, commissioners at the Securities and Exchange Commission proposed a series of changes to the trade-through rule that would let investors choose speed over price — a choice many institutional investors have been seeking, some vocally, since the New York Stock Exchange was besieged with scandals over alleged trading abuses by its specialist firms and the outsized pay package granted to former Chairman Richard Grasso.
The new opt-out rules would allow investors to trade through the market with the best price to a market with an inferior price – within 5 cents – but quicker execution. Investors would not be allowed to trade through to other markets with comparable execution speeds. The rules are out for a 75-day public comment period, to be followed by the commissioners' vote on a final set of changes.
SEC Chairman William Donaldson called trade-through reform an effort to forge a nationwide system of price discovery, to find "through all the bids and offers, exactly what price buyers and sellers can meet at," he said at the Feb. 24 meeting.
"We do like the SEC's proposal allowing trade-through and the opt-out for investors to avoid the trade-through rule altogether," said Michele Kowalik, senior market research analyst at the $59 billion Ohio Public Employees Retirement System, Columbus. "The proposal addresses the flexibility that we were requesting."