The SEC today approved Regulation NMS, marking the biggest changes to U.S. market structure since the 1970s and extending the contentious trade-through rule to the Nasdaq stock market. Commissioners voted 3-2 in favor of the regulation, with Chairman William Donaldson favoring it, along with commissioners Harvey Goldschmid and Roel Campos; commissioners Cynthia Glassman and Paul Atkins opposed the rule and said they would file written dissents.
The trade-through rule will require brokers to execute orders at the best displayed price, regardless of the market or trading venue, as long as the order is displayed on an automated execution system. Manually displayed prices, like most currently on the Big Board, would not be protected.
The new rule will be phased in beginning April 10, 2006, and cover 100 NYSE-listed stocks, 100 Nasdaq stocks and 50 American Stock Exchange stocks. The initial phase-in period would end June 9, and full implementation would begin June 12.
"Our actions today will, I am certain, irritate a handful of influential interests who are able enough to couch their arguments in broad principles … the desire to avoid excessive government regulation; the desire to provide investors with choice; the desire to avoid unintended consequences," Mr. Donaldson said in prepared opening remarks at today's meeting. "But beyond this high-minded rhetoric lies a core value of the Securities and Exchange Commission: protecting the interests of America's investors. It is these interests that are reflected in the commission's rule making today."
Ms. Glassman called the expected savings to investors, estimated by SEC staff to be $321 million a year, "only a rounding error."
"As a percent of the total dollar value of trading, the $321 million benefit is less than 1/100th of 1%," she said, noting that in 2003, the total dollar volume of trading on the NYSE and Nasdaq was $18.7 trillion.
John C. Giesea, president and CEO of the Security Traders Association, said in a telephone interview that he was disappointed the commission was so divided.
"I've never seen anything like this," he said. "I find it rather disappointing that such an important rule comes out in such a manner, with such divisiveness."
Regulation NMS was first proposed more than a year ago and was proposed again last December after the commission received thousands of comment letters from institutional and individual investors, brokerage firms, academics and exchanges.