- The Washington Times - Sunday, March 4, 2007

NEW YORK (AP) — U.S. stock markets and the electronic trading platforms that compete with them enter a new era today as regulations take effect to level the playing field for all types of exchanges.

The regulations known as Reg NMS were implemented by the Securities and Exchange Commission to ensure that automated trades are routed to the exchange that offers an investor the best price. They are expected to trigger a surge in volume, and give more business to small, regional players across the country.

Reg NMS forces markets to be more competitive and speedier. It goes into effect as the Nasdaq Stock Market Inc., which has been using electronic trading since its infancy in the 1970s, has been taking market share away from the New York Stock Exchange (NYSE) because of its ability to route trades quicker.

To comply with Reg NMS, and to make itself more competitive, the NYSE has created a hybrid trading system, which uses electronic trading as well as human interaction, to complete transactions.

“We have effectively been operating in a Reg NMS environment for several weeks,” NYSE spokesman Rich Adamonis said Friday.

Despite Reg NMS, the markets found last week that they can still run into trouble during periods of ultra-high volatility. On Tuesday, when heavy volume caused trades to be bottlenecked as the stock market had its worst day in years, there were some concerns that the NYSE wasn’t ready for the high level of activity expected once Reg NMS goes into effect.

Traders had problems with transactions because the crushing volume overloaded the NYSE’s messaging system, used to get quotes and data. It is separate from the electronic trading system.

The problem was fixed, but not before raising the chance for an investigation by the SEC into what went wrong and if more capacity is needed.

The new regulation gives smaller players more of an opportunity. Systems like BATS Trading, an electronic system, is expected to be one beneficiary as it offers fast trades at prices that undercut its competitors.

Meanwhile, regional exchanges also stand to benefit. Previously, markets like the Philadelphia Stock Exchange did not have enough trading volume to make sure there was a buyer for every seller. An increase in volume will help reverse this.

The new competitive landscape still leaves the NYSE and Nasdaq as the biggest competitors in the field. Although the Nasdaq has speedier technology, NYSE is still the market leader because of the huge amount of liquidity in its market, and its expansion into Europe and Asia.

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