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Answer:
Dear
BuyandHolder,
Yes.
You're right. The U.S. Securities and Exchange Commission
(SEC) passed a sweeping regulation to overhaul stock
markets by instituting new rules regarding trading
practices and prices. It's called the Regulation
National Market System. The goal of Reg. NMS is
to get investors the best possible prices when they
place orders.
How
The SEC Voted
The
vote was 3-2. If after reading this column you wish
to do some letter writing, here's how the votes were
cast:
Chairman
William Donaldson (Republican): YES
Harvey Goldschmid (Democrat): YES
Roel Campos (Democrat): YES
Paul
Atkins (Republican): NO
Cynthia Glassman (Republican): NO
What
It Means
The
Regulation will require brokers to accept the best
quoted price for any and all stock transactions --
no matter which market offers the best price. The
term "best" means taking a quote even if it involves
going to another market and therefore taking longer
to complete the transaction.
In
other words, it requires brokers to compare prices
offered on different exchanges and then take the best
one. They will compare prices on electronic exchanges
(where speed is emphasized) and prices on the slower
New York StockExchange (NYSE). The NYSE is basically
a negotiation-based system and one that therefore
often comes up with lower prices.
Note:
Many individual investors are unaware that the same
stocks can frequently be traded through a traditional
market such as the NYSE or through a completely
electronic market such as Instinet Group, Inc.
and ArcaEx.
To
reach its goal of getting investors the best price,
the Regulation will extend what the NYSE already does
through its so-called "trade-through rule."
That rule bars brokers from bypassing the best price
offered for a stock -- usually done to speed up the
process. Now the trade-through rule will apply across
all markets, traditional and electronic.
But
Why?
You
might want to know what led up to the changes. An
SEC study turned up the fact that about 98,000 trades
each day are not conducted through the system and
therefore are not getting the lowest price available
at the time of trade. These 98,000 trades translate
into about 2% of total daily volume.
BottomLine:
Each day, 2% of all investors are not receiving the
best price posted on the various exchanges and markets.
Pros
& Cons
Those
in favor of the Regulation National Market System
point out that it protects the individual investor...that
it will institute a practice of price over speed.
Institutional
investors, such as Fidelity, however, have been against
the change. They say it protects slower markets, like
the NYSE, versus faster computerized systems.
Others
say that 2% is a drop in the bucket and the expense
of instituting the new rules will offset the gain.
In
the meantime, some Republican members of Congress
have publicly stated that they will fight the changes.
When
A
trial implementation will begin in a year -- on April
10, 2006. It will involve 100 NYSE stocks, 100 Nasdaq
stocks and 50 AMEX stocks. Full implementation will
be underway as of April 12, 2006.
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