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NYSE Considers Expanding Its Use Of Electronic Trading Systems

By eliminating restrictions, the stock exchange could compete more effectively against electronic competitors.
The New York Stock Exchange is mulling rule changes that would allow more orders to be processed electronically, bypassing the traditional open-outcry system. NYSE's new CEO, John Thain, is seeking to shore up its position in the face of inroads by competitors such as Nasdaq and Archipelago, which together handle about 20% of volume in Big Board-listed stocks.

In a statement, NYSE says it's seeking to broaden its order-delivery and -execution platform in ways "consistent with delivering high levels of customer service and the best price."

NYSE has an electronic trading system called Direct Plus; it's restricted to orders of 1,099 shares or fewer and customers aren't allowed to use it more than once every 30 seconds for a given stock. By doing away with these restrictions, NYSE could compete more effectively against electronic competitors, says Larry Tabb, CEO of The Tabb Group, which provides research on trading systems.

Specialist firms, which provide liquidity to the market by buying and selling shares and make up a big part of NYSE's ownership, are likely to go along with the rule changes, which would allow most orders to be handled electronically while preserving their role as arbiters in larger, more complex orders.

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