US markets gear up for e-trading surge with launch of Reg NMS regulations

US markets gear up for e-trading surge with launch of Reg NMS regulations

As US exchanges and ECNs gear up for a spike in electronic trading following the introduction of the Regulation NMS trading rules today, the New York Stock Exchange (Nyse) - the world's largest market - is still not ready and has asked the Securities and Exchange Commission (SEC) for relief from compliance with some of the rules.

The trading phase of Regulation NMS, aimed at increasing the efficiency and transparency of the US stock markets, will go live today.

The rules require exchanges and ECNs to implement policies and procedures designed to prevent so-called "trade-throughs" - where a trade is executed at a price lower than a protected quote displayed by another market. The system is designed to guarantee investors the best price and will require traders to access all markets in search of the best quote.

In a statement Erik Sirri, director of the SEC's division of market regulation, acknowledges that the rollout of new trading systems "inevitably presents challenges for the market and its participants".

Sirri also states that the "exceptional trading volume and price volatility of the equity markets over the last few days raise the potential of even greater challenges".

A surge in e-trading volumes led to server failures at both Nyse and Dow jones last week. At one point on Tuesday Dow Jones's switch to a back-up server in mid-afternoon caused an immediate 200-point drop in the index.

But the SEC says it will closely monitor the operation of the equity markets to assess whether any systems or other trading problems develop following the introduction of Reg NMS and says "exceptions may be granted if trouble erupts". This may include a market-wide suspension of the rules should serious disruptions or system malfunctions occur.

"Should serious systems problems or difficult market conditions arise, I believe that the first priority should be to enable the equity markets to continue trading and establishing the most efficient prices possible for investors," says Sirri.

Last month Nyse asked the SEC to postpone the implementation date of Regulation NMS from February to March to conincide with the roll-out of its trading system upgrades. That extension was granted, but the Nyse still doesn't appear to be ready for all of the new rules and has requested a further delay of one month in adopting part of the regulations.

Although Nyse is thought to be ready for the official adoption of RegNMS, the exchange has requested more time to be able to link to platforms operated by the International Securities Exchange (ISE) and other alternative trading systems.

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