Jul 06, 2012
NYSE Euronext to launch US retail market from August
NYSE Euronext has received
long-awaited regulatory approval for its new Retail Liquidity Program (RLP),
which it hopes will bring more OTC equity trading onto regulated markets.
Although the Securities and
Exchange Commission (SEC) had previously said NYSE’s RLP plan raised
“novel market structure issues”, it has now given its blessing to the scheme.
According to NYSE, the new
initiative – which will launch 1 August – is complementary to existing
offerings and is intended for firms that service retail order flow.
Under the RLP, retail brokers
connect directly to the exchange and receive rebates for sending orders to the
bourse and match flows against designated market making firms that benefit from
trading fee discounts for providing liquidity. Retail brokers will have to
submit orders that offer a price improvement that is a minimum increment over
the protected best bid and offer.
Under current common practice,
US retail brokers typically have direct relationships with market making firms such
as Knight Capital and Citadel, which pay brokers for receiving their order
flow. The market maker will then seek to internalise the order flow, letting them save on exchange trading fees, and will only trade on public markets as
a last resort.
“The concern for us is that
exchanges currently get the dregs of flow that have already been viewed by many
other market participants, thereby increasing its toxicity,” Joseph Mecane,
executive vice president, NYSE Euronext, told theTRADEnews.com. “This is more about trying to help promote the display and participation
of a certain type of flow in public markets, rather than trying to fix the
retail market.”
Among other issues, the SEC
raised concerns over a proposal in the RLP to offer trading in sub-penny
increments for stocks above US$1. While stocks priced over US$1 have a minimum
tick of US$0.01, the same is not true of off-exchange trades, which NYSE has
said added to the proportion of trading done off-exchange.
NYSE’s RLP approval comes days
after the US exchange group’s CEO Duncan Niederauer attacked the growth of dark
pools in an article published in the Financial Times.
“More high-frequency and institutional traders are
moving to these [dark] venues, where they can trade with less regulatory
scrutiny,” he said. “Retail investors are put at a disadvantage as more and
more information is outside the public view and excluded from the price
discovery process. There is no need to sacrifice transparency in order to
promote competition in financial markets.”
Anish Puaar
+44 (0)20 7397 3817
anish.puaar@thetrade.ltd.uk