October 20, 2003 SEC sounds death-knell for open-outcry trading at NYSE From Abigail Rayner in New York THE US Securities and Exchange Commission (SEC) has bowed to mounting investor pressure and has drawn up proposals to reduce the New York Stock Exchangeâs reliance on open-outcry trading. Americaâs chief financial watchdog is planning to issue a consultation paper to banks, stockbrokers, investors and regulators, inviting them to comment on the present system of open-outcry trading compared to a screen-based system. News of the consultation comes less than a week after Fidelity, the worldâs biggest fund manager, called on the NYSE to overhaul its antiquated trading system. AIG, the insurance group, has also objected to the NYSEâs reliance on open-outcry. Opponents want the system either to be scrapped or altered to allow screen-based traders to win a bigger slice of the pie. If the SEC is successful in introducing the changes, it would be the biggest shake-up in the 211-year history of the exchange. The NYSE is the last big stock market to still use the open-outcry system, a model that can be open to abuse because specialists are allowed, even encouraged, to trade on their own behalf. At present, 82 per cent of the biggest FTSE stocks, such as GE and IBM, trade on the NYSE via open-outcry. The rest are traded through electronic trading platforms such as Instinet, majority owned by Reuters and Archipelago. Initially, the SEC is hoping to create a forum for debate. Implementing new trading rules would require the blessing of the exchangeâs members, most of whom are open-outcry âspecialistsâ. William Donaldson, the chairman of the SEC, giving testimony before Congress on Thursday, hinted that change was on the horizon for US stock markets. He said: âIn the coming months, the commission will be focusing with increased intensity on the structure of the US equities markets, with particular regard to their fairness and efficiency.We must seek to provide a level-playing field in which all markets can compete fairly and aggressively.â However, there will be opposition to change. Michael Bachner, a New York securities lawyer, said: âItâs entrenched. A lot of jobs are at stakeâ Even a partial introduction of technology, as the NYSE is proposing as a way to keep an eye on trading abuses, will not go down well. He added: âItâs an old boys club . . . A lot of them are in their 50s and 60s, they worked hard to get where they are and itâs hard to teach old dogs new tricks. â
SEC has bigger issues....they can't police huge scams like Enron.....what was that a $120billion scam? or odd-lott issues like worldco......
The SEC could farm out specialist compliance to someone like Price Waterhouse. Its basically an auditing task. Of course the NYSE wants to hang onto that job at all costs. They created the specialist rulebook to look good - but they don't actually want to have to conform to the rules. They can't make money following the rules.
Much bigger issues than what happens to day traders. We're small potatoes comparing to the picture at large. And not much different between pennying and two traders fighting with limit orders.
Not gonna happen. They aren't going to render two publicly traded stocks (LAB , VDM) worthless by eliminating Specialists. Not gonna do it.....wouldn't be prudent....at this juncture.