The SEC has revised its original proposal, issued in February, to give floor-based exchanges like NYSE and the American Stock Exchange an opportunity to provide automated trading capabilities comparable to those available on Nasdaq and other electronic exchanges such as ArcaEx and Instinet.
Under the original proposal, which called for the definition of fast and slow markets, the NYSE would have been classified as a slow market because it's not fully automated. Under the revised proposal, the SEC has replaced "fast and slow markets" with "fast and slow" quotes; in the case of NYSE, orders that could be executed via its DirectPlus automated-exchange facility would be identified as fast quotes, while those requiring intervention from floor traders would be identified as slow quotes.
NYSE says the use of fast and slow quotes will eliminate the need to give investors the choice of opting-out of the trade-through rule, which the SEC had proposed back in February. The trade-through rule, which has been in place for decades, requires that an order cannot bypass, or "trade through," the best price offered on any exchange, which is frequently the NYSE. NYSE's competitors argue that the trade-through rule harms investors because NYSE doesn't guarantee that an order will actually be executed at that price.
The SEC won't issue a final ruling until the end of the year, says analyst Jodi Burns of Celent Communications, after which it will probably allow six to nine months before it takes effect. The NYSE will need that time to make the necessary system modifications, such as adding a field to quotations that distinguishes fast and slow quotes. "It's doable, but it's not just like flipping a switch," Burns says. Nasdaq, where a sizable chunk of NYSE-listed securities are traded, also will need to make changes, she says.