Reg NMS is pyrrhic victory for NYSE says Swiss American Securities Inc.

"Regulation NMS provides a short term boost for the NYSE, but it may be a pyrrhic victory," says Robert Leverich, Director of Institutional Sales & Trading at Swiss American Securities Inc. (SASI), a New York based broker dealer and custodian that is wholly owned by the Credit Suisse Group. SASI provides European financial services institutions with access to the US and major international markets.

It has been almost three weeks since the US Securities & Exchange Commission (SEC) voted to pass Regulation NMS and it’s now being billed as the biggest shake-up to the US capital markets in years. The decision to include the ‘trade-through’ rule, which ensures the best bid or offer price for a trade, is seen as good news for the New York Stock Exchange (NYSE) because it carries the best price on its own listed stock 90% of the time.

Leverich believes that the Hybrid Market, which the NYSE proposed in order to preserve the role of its trading floor specialists, will become an anachronism as exchanges become more electronic. "The migration of volume to electronic markets that provide ‘certainty of execution’ will continue unabated," he commented. "Specialists may have received a temporary reprieve with the hybrid proposal, but the market will eventually force even size orders to be managed differently."

He views the recent merger of NYSE and Archipelago, which runs the ArcaEx electronic exchange, as a sign of the potential end to NYSE’s famous ‘open outcry’ system. "While the merger may help the NYSE maintain its competitiveness, the move towards greater automation of the securities trading industry will eventually lead to the end of the exchange's specialist system," said Leverich.

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