'NYSE Moves to Prevent Abuses in Odd-Lot Trades'

By: Ray Pellecchia

File Under: NYSE

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A couple of news items of interest today:

NYSE Moves to Prevent Abuses in Odd-Lot Trades; Specialist Firms Complained Some Traders Took Advantage of Program for Small Investors (WSJ.com) Excerpt:

The New York Stock Exchange is trying to even the playing field for odd-lot trades, typically trades of fewer than 100 shares, often executed by small investors.

The exchange, operated by NYSE Euronext, has an odd-lot system to ensure that small trades, which are priced separately from larger orders, don't get left behind by the "block" trades sent to the Big Board by institutional investors such as hedge funds and pension funds.

However, amid complaints that professional traders were abusing the system, the NYSE imposed volume limits on certain orders, aimed at stopping the alleged manipulation. Among the loudest critics calling for change: specialist firm LaBranche & Co.

In July, LaBranche wrote a letter to the Securities and Exchange Commission, accusing unknown traders working through a rival trading venue of engineering a series of fraudulent trades designed to earn a profit by exploiting the odd-lot rules.

In general, the odd-lot rules require that orders under 100 shares be executed by the so-called specialist firm that manages trading in each stock, so that the small orders get the price of the next "round-lot" trade, be it 100 shares or 100,000.

Connecting the two pricing systems is aimed at treating small investors fairly.

US Web sites await SEC on real-time stock quotes (Reuters.com) Excerpt:

Internet finance sites run by Google Inc (GOOG.O: Quote, Profile, Research) and Yahoo Inc (YHOO.O: Quote, Profile, Research) have been waiting months for regulatory permission to start offering free, real-time U.S. stock quotes.

But questions over how much the stock exchanges can fairly charge Web sites for trading data has the U.S. Securities and Exchange Commission in the middle of a thorny debate over whether the market for such data is competitive and whether the charges will discriminate against smaller Internet sites.

Katie Stanton, a Google group product manager, said the Google Finance site won approval from two Chinese exchanges in Shanghai and Shenzhen to carry real-time quotes last month and almost immediately saw a leap in demand for that service.

Access to real-time stock quotes is the No. 1 demand of users of the Google finance site, Stanton said, and Google would like to offer a number of related tools to help consumers manage their investments.

"You can get real-time sports scores, weather, news, but you still can't easily get real-time stock market data," she said. "We should have had this ages ago."

As part of the SEC's regulation of U.S. stock exchanges, the agency has the power to approve new products they offer for sale, including market data.

"We're falling behind the rest of the world here," said Ron Jordan, senior vice president of NYSE Euronext's (NYX.N: Quote, Profile, Research) U.S. market data. "The fact that China can introduce real-time prices into the United States before the NYSE can is ridiculous."

A little historical trivia for your Wednesday, courtesy of WSJ.com:

Financial Flashback
Nov. 14, 1978
Builders are concerned whether they can recover their investment in new office buildings, shopping centers, warehouses. Since the first of the year, the prime interest rate on business loans has jumped from 7½% to 11%.