Gearing up for greater volume

地区性证券exchanges are preparing for a surge in trading volume thanks to the Regulation National Market System's new order-protection rule mandating best-price execution. A pilot run of the new regime is scheduled to begin on June 29 with 250 stocks; the remainder are to follow on August 31. The Boston Stock Exchange, Chicago Stock Exchange, National Stock Exchange and Philadephia Stock Exchange (PHLX) say they expect an immediate jump in volume of about 10 percent and long-term increases of as much as 100 percent, but they acknowledge that the Securities and Exchange Commission is still working on rule implementation guidelines.

"Regional exchanges will become real execution destinations," predicts Seth Merrin, CEO of buy-side trading platform Liquidnet, who told attendees at a recent technology conference in New York that regionals are likely to concentrate on the less liquid "60 percent of stocks in which fewer than 100,000 shares a day trade."

Meyer (Sandy) Frucher, chairman and CEO of PHLX, says, "Reg NMS gives us an opportunity that did not exist under the old paradigm." His exchange plans to end its people-based equity floor trading once the new rules go into effect and is building a new electronic trading system, making substantial investments in hardware and proprietary software to gear up for the new environment, says William Morgan, chief information officer of PHLX.

The Chicago-based National (formerly Cincinnati) Stock Exchange hopes to test a new system it started building last summer. "Electronic communications networks have done a great job; we're going to be as good as or better than they are in terms of speed and reliability," says CEO and president David Colker.