No more sweeps that bypass liquidity on ECNs and exchanges. What's on the top of the book is what you get. Should cap some of those annoying spikes of late, maybe. We'll see.
So all orders will in effect become "smart orders" looking for liquidity wherever it happens to be? If so, does that go for ECN orders too? Example: If I place an order on INET & there's an order on ARCA that could match me, that I'd get an ARCA execution thru INET?
Yep, the BEST price wins. No "trade-throughs". Market-centers are all required to route out to others when their respective books cannot immediately fill certain orders, each market center will be doing whatever they can to ensure that the liquidity levels exist within their book in order to execute your order. There will be a brand new order type introduced called the "Inter Market Sweep Order" (ISO). ISO Order types guarantee the possibility of price improvement, whether you specifiy that objective or not. As a result, there will be a tremendous responsibility for broker-dealers to verify that the conditions are in place ( ie. all market data feeds are performing as necessary ) in order for the broker to assure that an order was allowed to be sent as an ISO order. Bottomline, your broker-dealer will have to be permissioned to send ISO orders, which means that the office itself must be set up to receive ALL market feeds. Can you say bandwidth consumption? Sounds like "remote" traders who are trading on either SSL or VPN platforms will be out in the cold; initially ISO orders won't be accessible. Remote traders will undoubtedly have to wait awhile until their firms install the "ISO-Checker" throughout their firm, before support for ISO orders will be extended to remote traders. Since "remote" traders have different connections to the Internet and use all levels of computers, brokers will have to carry out some sort of "verification" for all remote traders so as to make sure that there are no issues of latency at the exact time an ISO order was created. Hence, the "ISO-Checker" has to be created at the firm for remote traders. For people at Assent, ISO orders will not be supported by Hammer. Only the Anvil trading platform will support ISO orders. The new version of Anvil will also support RASH Directed Orders, too. Hope this helps a bit.
what if I place an order on AMEX away from the NBBO I assume the specialist is not supposed to execute my order unless I become the inside quote ?
No, Regulation NMS does not outlaw trade-throughs. It regulates when a trade-through is permitted and when it is not permitted. They are generally prohibited, but with important exceptions. Short-term traders should learn about Reg NMS by studying the SEC website's section re: spotlight on regulation NMS.
NASDAQ's treatment of Reg NMS How REG NMS is suposed to work on the NYSE. SEC Regulation NMS (National Market System) SEC's Reg NMS To Arrive On Heels Of Market Drop 02 Mar 07 18:23 By Gaston F. Ceron Of DOW JONES NEWSWIRES NEW YORK -(Dow Jones)- Less than a week after being tested by a plunge in stock prices and spikes in trading activity and volatility, U.S. equities markets face a major shift on Monday, when a far-reaching overhaul of trading rules will start to set in. The new rules, part of the Securities and Exchange Commission's Regulation NMS, would essentially require that orders to buy and sell shares be sent to any market that presents the best bid or offer that is electronically accessible. Preparation for the changes has required extensive systems and linkage work on Wall Street, raising questions about how well exchanges and securities firms will fare as the reforms are rolled out. Although the rule changes have been coming for a long time, and they have been delayed before, their timing may not be ideal. Tuesday's stock-market downswing led to a surge in volume and problems such as delays at the New York Stock Exchange and a computer glitch at Dow Jones & Co. (DJ), publisher of this newswire, that sent the Dow Jones Industrial Average in a sudden and steep drop. In the wake of this week's volatility, some market observers wondered if the rules would be put off again. Some brokerage firms sought further delays, according to people familiar with the matter. But the SEC said late Friday that things would proceed as planned, although the agency said it will keep an eye on the performance of Wall Street's systems. On Monday, exchanges and electronic-trading networks will begin complying with the trading phase of the rule package, the SEC said. The trading venues will implement policies and procedures reasonably designed to prevent better-priced quotes from being traded-through, or ignored, the agency said in a statement. Other steps will follow: On July 9, securities firms will comply with the trade- through provisions of Regulation NMS for 250 pilot stocks, the SEC said. The new rules will affect how markets such as the Big Board, a unit of NYSE Group Inc. (NYX), and the Nasdaq Stock Market Inc. (NDAQ) function and compete. While their ultimate effect remains to be seen, market experts have said the new rules could make it easier for smaller trading venues to compete. "The trading phase is designed to provide all industry participants with an opportunity to gain experience with the new trading rules ... prior to Regulation NMS becoming fully effective," said Erik Sirri, director of the SEC's division of market regulation, in the SEC statement. Some on Wall Street are bracing for possible hiccups next week and beyond as the rule changes take hold. "All firms are facing massive IT challenges as the market transitions to Reg. NMS next week. The industry is halfway through rolling out many interconnected systems," said David Cummings, chief executive of BATS Trading Inc., a Kansas City, Mo., firm that runs an electronic-trading system, in an email to market participants and others. He said that some glitches are inevitable and that although BATS is ready, problems that affect it could develop elsewhere. "This may cause BATS to 'go dark' from time to time next week," Cummings said. The SEC is aware of the potential for problems. "A market's rollout of new trading systems inevitably presents challenges for the market and its participants," Sirri said. "In addition, the exceptional trading volume and price volatility of the equity markets over the last few days raise the potential of even greater challenges during the trading phase." The SEC plans to monitor the markets closely to see if systems or other trading problems develop and said that exceptions may be granted if trouble erupts. "Should serious systems problems or difficult market conditions arise, I believe that the first priority should be to enable the equity markets to continue trading and establishing the most efficient prices possible for investors," Sirri said. At Nasdaq, officials told traders that they're ready for Regulation NMS. A spokesman for the NYSE, Richard Adamonis, said the exchange is prepared for the switch. But the NYSE told the SEC that it wouldn't be able to begin routing orders to participants in an alternative display facility that is operated by the National Association of Securities Dealers and used to display quotations and report trades and to International Securities Exchange Holdings Inc. (ISE) until certain software is rolled out. "We believe that rushing the ADF participant/ISE routing rollout, without appropriate testing and quality assurance, puts our trading systems and, thus, the industry and investors at unnecessary risk," the NYSE said in a letter to the SEC on Thursday. Representatives for the NASD and the ISE declined to comment. -By Gaston F. Ceron, Dow Jones Newswires; 201-938-5234; gaston.ceron@ dowjones.com
Oh, and by the way, Regulation NMS is only partially in effect. Additional aspects of Reg NMS will become effective in phases over a period of months. See the SEC's website.