The New York Stock Exchange (NYSE) is expected to unveil a plan to allow large investors to trade large blocks of shares electronically on the floor of the exchange, according to a report by the New York Times.
The paper says the new plan, which is expected to be announced by NYSE chief executive John Thain on Monday, is an expanded version of a proposal put forward in February and represents the biggest challenge yet to the open outcry model of trading.
In February, Thain put forward a series of initiatives to widen access to the exchange's Direct+ trading platform in order to allow institutional investors to get large orders executed automatically and faster.
But the new expanded plan features a "sweep" function that lets investors trade larger blocks of shares electronically at different prices - with an upper limit - via the NYSE's electronic network, thereby skipping the price improvement process on the floor.
According to the report, large investors have complained that they would not be able to complete orders made electronically, as they would be denied access to additional blocks of stock that were available at higher or lower prices.
Floor traders have likewise complained that the expanded function would increase volatility in certain stocks as institutional traders sweep up large blocks of stock electronically, running share prices up and down without allowing specialists to intervene with their own capital to keep trading stable.
In order to prevent price swings, Thain is expected to impose price limits to prevent large investors from sweeping up too much stock electronically, but the size of the limits remains unresolved.
Brokers have also protested that they do not have the necessary technology to compete with electronic traders.
Thains will officially file the plan with the Securities and Exchange Commission (SEC) on Monday. Copies have been sent to exchange members as well as to institutional investors.
The paper says only 10% of the volume on the exchange is currently traded electronically, but that figure is expected to increase as the plan becomes operational.