Reg NMS won’t damage NYSE competitiveness, says boss

NYSE chief defends Reg NMS

NEW YORK - The chief executive of the New York Stock Exchange (NYSE) has gone on the defensive against claims that the forthcoming Regulation National Market System (Reg NMS) directive will damage the exchange’s market share, and benefit competitors.

In an interview with the Financial Times, John Thain denied that Reg NMS, which will prioritise securing the best price available from all available markets as the key factor in the best execution of a trade, will disadvantage the NYSE over the NASDAQ.

“I don’t think Reg NMS poses any competitive issues for us, because it says you have to send orders to the market at the best price, and we have the best price 80% of the time,” said Thain.

His comments come in the wake of statements last week by Goldman Sachs analyst Joshua Carter, who changed his rating of NYSE stock from ‘neutral’ to ‘sell’, and shifted his NASDAQ recommendation from ‘neutral’ to ‘buy’. Carter claimed he based his decision on the superiority of the NASDAQ’s electronic execution platforms, and his belief that such technology will prove invaluable under the Reg NMS regime.

NYSE, on the other hand, is widely regarded as having dragged its feet over the issue of technology, and has been thought of as playing catch-up with the all-electronic NASDAQ for some time, although Thain claims the new Arca trading platform employed by the NYSE provides the highest available execution speed for those who need it.

Reg NMS came into effect in the US in March, one month later than planned, due to technical difficulties with trade executions at the NYSE. Broker-dealers are not obliged to fully comply with best execution requirements until July.

Carter’s comments had immediate effects – within 24 hours NYSE prices had slipped 5.5%, while NASDAQ shares climbed 3.2%, after he stated that the faster technology offered by the younger exchange would make it more attractive to brokers under the new regime.

Some investment banks and brokers have expressed hopes that Reg NMS will present an opportunity to end the dominance of the two exchanges in the US equities markets, while others have questioned whether it represents a further unnecessary burden to traders already beleaguered by regulation.