Frank Polich/Reuters
A clerk takes a break outside the lean hog pit of the Chicago Board of Trade shortly after the Federal Open Market Committee's decision to leave short-term interest rates at near zero in Chicago, Illinois January 28, 2009.
The New York Stock Exchange has won approval for plans to introduce a 350-microsecond delay in trading on its market for small-cap companies.The delay will apply to NYSE American, the market previously known at NYSE MKT, and will be similar to the so-called speed bump introduced by IEX, America's newest stock exchange.
The Securities and Exchange Commission filed a notice on Tuesday May 16 approving the proposal.
The NYSE had lobbied aggressively against approval for IEX from the Securities and Exchange Commission, largely as a result of the speed bump.
The New York Stock Exchange said in a filing to the Securities and Exchange Commission that the speed bump was "designed to create a competitive trading model to IEX."
Ironically, when NYSE applied to implement its own speed bump in January, IEX was the one pushing back.
According to IEX, NYSE's proposal "should be either re-filed or disapproved."
Just to revisit how it has all gone down, this bullet point guide might help:
- IEX applied for exchange status with a novel 350-microsecond speed bump feature
- NYSE pushed back aggressively
- IEX won stock exchange approval
- NYSE decided to introduce a speed bump to one of its four markets
- IEX pushed back
- NYSE won approval
We sat down with NYSE president Tom Farley back in January, and asked then about the decision to introduce a speed-bump. Here's the relevant extract (emphasis added):
Turner: You said earlier that as a general principle, NYSE is pro-simplicity, so with that said can you talk me through the thought process behind introducing a speed bump?
Farley: There are more or less four different models out there in the US for trading securities. There is out NYSE hybrid model, floor and electronic, that de-emphasizes speed with the use of floor brokers and DMMs. There is the all-electronic model that is quite prevalent at Nasdaq and BATS and elsewhere. Then we have our NYSE Arca business, which works quite well as a primary listing venue for ETFs and structured products. There is the speed-bump model, and there is the first speed bump that the SEC allowed from IEX, we've seen subsequent speed-bump requests from Chicago, we've had a distant cousin from Nasdaq with the long life order. That's the third model.
The fourth model is what I will call "other." You can almost look across the pond as well. You have a greater reliance of auctions, would be one example of that. Taker-maker, rather than maker-taker. That gives you an idea of the different models out there.
We want to be able to offer choice to our institutional investor customers, so our goal is to have all four of those. NYSE, Arca, the speed-bump model on NYSE American. We think we can improve on the existing speed-bump model, because frankly, we can do it a lot cheaper for customers.
The price out there for customers trading on the speed bump model, this kind of midpoint trading, is very, very high, and so we think we can do it at a much more effective price, and our institutional customers who are working hard to satisfy their fiduciary obligation will appreciate that, that's our view. In addition, we think we can do it better in terms of attracting lit liquidity, because the existing speedbump model is substantially all dark trading.
Finally, the fourth model is the NSX medallion that we've announced. We've not announced exactly what we're going to do, but suffice to say, that's how I'm thinking of it, as that kind of fourth model. That will be our sandbox to try some of those other models in the not-too-distant future.
Turner: You had fought pretty aggressively against the IEX speed-bump model. Can you see why it appears odd that you're now employing the same model?
Farley: Our view is that we need to work together as an industry toward consolidation and simplicity. The way we operate our business is, we are going to do everything we can to have the best listings franchise, and we're going to look at what competitors are doing, and whether they may or may not be competing for our listings business, and respond in a way that enables us to protect that. We're going to be listening to our institutional investors, when they say, "Hey, with respect to the models that are allowed by SEC regulations, congressional laws, we want you to be offering choice."
That doesn't mean that we don't believe in simplification. We absolutely do. We're the first ones to throw our hands up. In fact, we've told the industry for three years that we think that there is a much better way out there. That is, to respect the primary of the public quote - in other words, if someone puts a price on a lit exchange, and someone wants to trade at that price, make them trade with the person that did that first.
Access fees, we'd be willing to agree to a lower access fee cap as part of that. Even just those two things alone would result in a great deal more simplicity and less fragmentation, and frankly, would not be particularly good for two of the four medallions that we own.
More from Matt Turner:
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