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REG NMS Cheat Sheet

A synopsis of the 371-page SEC document outlining the Regulation National Market System proposal

Access Rule

Essence of the Rule:

In tandem with the Trade-Through Rule, The Access Rule has been proposed to prevent market centers from executing orders at a price that is inferior to one displayed by another marketplace. The goal is to create an environment in which there is fair and efficient access to quotes throughout the National Market System (NMS). The Access Rule would create such an environment by:

(1) Requiring the use of private linkages, rather than mandating a collective linkage facility, such as the Intermarket Trading System (ITS), to facilitate access to quotes. Market participants would obtain access to quotes displayed at a trading center through the members, subscribers or customers of that trading center;

(2) Setting a limit on the access fees charged by trading centers when incoming orders execute against their quotes. Specifically, the reproposed Access Rule would cap the fees that any trading center could charge for accessing its quotes, or taking liquidity, at $0.003 (three mil) per share (or 30 cents per 100-share order). The initial Access Rule proposed early last year would have limited the fees charged to market participants to $0.001 per share with an accumulated cap of $0.002 per share, per transaction (The fee could accumulate if an ECN was quoting within Nasdaq and both charged a $0.001 access fee.); and 3) Requiring self-regulatory organizations (SROs) to establish and enforce rules that prohibit their members from displaying quotes that intentionally lock or cross the automated quotes of other trading centers. A locked market occurs when the price to buy a stock is the same as the price to sell a stock. A crossed market occurs when the price to buy a stock is higher than the price to sell a stock.

The Access Rule also would lower the volume threshold at which an ATS would be required to display its prices. Currently, the threshold is 20 percent of the average daily volume in a security, but the threshold would be lowered to 5 percent.


Sell Side:

Most of the major broker-dealers already have private linkages. Those that do not will likely outsource to third-party providers, such as NYFIX, Radianz, SAVVIS and TNS, among others, rather than independently establish and maintain the connections.

Buy Side:

Traditional buy-side firms are oblivious to access fees. They pay commissions to brokers and expect the brokers to absorb all underlying costs. Hedge funds, however, have an interest in capping access fees and rebates.

ECNs and Exchanges:

ECNs and Nasdaq have already addressed access fees. Most already charge less than three-tenths of a cent to access their quotes.

Regarding linkages, ECNs and Nasdaq are already connected via private linkages. The NYSE has used ITS, but the network was built in the '70s and needs to be modernized to cope with automated executions - currently, ITS gives manual markets 30 seconds to respond to incoming orders.

Trade-Through Rule
Access Rule
Sub-Penny Pricing
Market Data Rules and Plans

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