The New York Stock Exchange (NYSE) on Monday complied with an SEC requirement that it partly decommission volatility-dampening liquidity refreshment points (LRPs) after claiming their removal threatened to force markets into a single mould.
The SEC requirement – part of the limit up-limit down (LULD) system that prevents equities trading outside set price limits - will cover more than 1,400 "tier one" equities in phase one, which begins this week.
In a submission to the SEC last week, the NYSE said it "respectfully but strenuously" objected to the regulator's decision to eliminate LRPs. It said LRPs been a "key selling point" to investors and companies that had also enabled the bourse to communicate in an orderly way with issuers during periods of market stress.
Critics of LULD, which replaces single-stock circuit breakers introduced after the May 2010 'flash-crash', have pointed to vulnerabilities in LULD that LRPs could help mitigate.
US agency brokerage Rosenblatt Securities pointed out that the 28 stocks covered in week one of LULD implementation would be at greater risk during the 45 minutes of the trading day not covered until phase two in August, when LULD extends to the outstanding equities.
The NYSE – whose preferred option would be to operate both systems simultaneously - has pointed to a lack of evidence of systemic problems as a result of coexistence.
Responding to SEC claims coexistence could generate unnecessary complexity, NYSE said there was "nothing particularly complex" about continuing a system that had proven effectiveness in minimising rapid price movements driven by erroneous orders.
In contrast, it said, replacement could create "unintended consequences to the detriment of investors and the marketplace as a whole".
NYSE said its LRPs would remain in place for any securities not covered by LULD. It did not rule out refilling to reincorporate the LRPs at the end of the first phase.