Catalyst for Change

We all knew the day would come. As WS&T went to press, the SEC approved Reg NMS - a regulation that will transform the markets from a system centered around the NYSE as an auction market to one that is more in-line with the fast pace of technology in the world at large. As a result, the NYSE, which has been developing its hybrid system for a year, will have to be ready to launch its hybrid market with 100 stocks next April.

Roger Burkhardt, CTO of the NYSE, addressing the audience at TradeTech USA on the day Reg NMS was approved, noted that although the exchange's hybrid platform is close to ready, the SEC still hasn't approved the NYSE's hybrid plan. Until then, the NYSE can't complete the hybrid system.

Although the industry expected Reg NMS to pass, it also expected that with it would come upgrades to the Intermarket Trading System that connects the marketplace to the NYSE. There's been debate for years about the adequacy of ITS, many suggesting that it is an antiquated system that needs updating if it is to be at the heart of the NYSE's new fast market. To my surprise, however, Burkhardt noted that ITS will not change. "ITS is adequate," he said, adding several times that he doesn't believe ITS has any shortcomings. This, too, likely will come as a surprise to many in the industry who believed with the launch of the hybrid market also would come an ITS overhaul (see article, page 19).

In his speech, Burkhardt also gave his reasons as to why the NYSE only now is introducing electronic trading. He contended that although the retail market has been clamoring for trading technology since the late '90s and has since adopted e-trading as its preferred method, the institutional market had a different approach. It wasn't until much more recently that market players began to adopt technology for institutional trading and push the NYSE for automatic executions, he asserted. As a result, it was John Thain's mission to address these clients' needs, as institutional order flow comprises 70 percent of the NYSE's volume. Of course, we know there are other reasons, primarily market dynamics and politics, that played a huge role in the timetable and the process behind the market transformation.

Regardless, the approval of Reg NMS is a new beginning for the financial services industry. Its impact will be vast and will prove to be the launching point for many other changes, both technological and structural, in the marketplace.