To opt out or not to opt out — that is one of the main questions facing the Securities and Exchange Commission as it seeks to balance the interests of institutional investors, brokerage firms, stock exchanges, electronic trading networks and retail investors.
SEC Chairman William Donaldson has said he hopes to have a final version of Regulation NMS — which seeks to update the trade-through rule, revise existing market access fee structures and prohibit subpenny pricing of stocks — by the end of the year. One of the most contentious pieces of Reg NMS is the opt-out provision of a revised trade-through rule.
Under the provision, investors would be able to "opt out" of going to the marketplace with the best price for a stock and instead trade at a worse price, but do it faster.
Among the institutional investors that have been the most vocal about the proposal are public pension funds, nearly all of which have come down in favor of the so-called opt-out rule.
On the opposite side of the argument, in the form of the Committee on Investment of Employee Assets, are plans governed by the Employee Retirement Income Security Act. CIEBA members have a total of $600 billion in defined benefit plan assets and more than $350 billion in defined contribution plan assets.
"We're concerned that if there's an opt-out rule, eventually it will wind up being abused," said Gary Glynn, chairman of CIEBA and president of the $7 billion U.S. Steel & Carnegie Pension Fund, New York. "Part of our feeling is not so much that we're going to get hurt by this, although we might, if it wound up being abused. But when other people get hurt, we tend to get regulated."
He added: "By allowing people to opt out of best price, what does that do to trades where you benefit from price improvement?"
But leaders of major public pension funds have argued the proposed opt-out provision protects the "fundamental" principle of best price.