SEC Approves NYSE's Proposal to Make NMM and SLP Pilots Permanent (with Lofchie Comment)

The SEC approved a proposal by the NYSE that makes permanent the new market model pilot ("NMM") and the supplemental liquidity providers pilot ("SLP"). The SEC's approval of the proposal was published in the Federal Register.

The SEC proposed the NMM "in response to the increased prevalence of electronic trading and the aforementioned shift in informational advantages among the Exchange's market participants." The NMM has, among other things: (1) eliminated the function of NYSE's specialists and created a new category of market participant - Designated Market Makers ("DMMs") - under NYSE Rule 104, (2) implemented the DMM Capital Commitment Schedule ("CCS") under NYSE Rule 1000 and (3) modified the NYSE's priority rules under NYSE Rule 72.10. In a subsequent filing and in connection with the NMM Pilot 11, the NYSE created an additional category of market participant - SLPs - under NYSE Rule 107B.

Lofchie Comment: The SEC's approval of a "pilot" program becoming "permanent" effectively recognizes that the NYSE is an electronic exchange, not a floor-based exchange with human traders. The most remarkable aspect of the rule change is what a non-event it is. At this point, who would imagine that a major securities exchange is anything but electronic? However, a look at ancient history will reveal that for many years, the SEC asserted - arguably inappropriately - the superiority of floor-based trading on the NYSE to electronic trading, and supported the NYSE by approving various rules that allowed the NYSE to disadvantage electronic exchange competitors. Eventually, the SEC's support became insufficient to delay the advance of technology and the NYSE itself went electronic - first in a pilot program and then, as per this release, permanently.Regulators' efforts to stop high-speed trading likely will prove as fruitless as the SEC's previous efforts to maintain the NYSE as a floor-based exchange. It is hard to stop technology that tends to do things better, even if its improved performance is interrupted by the occasional big glitch.

See: 80 FR 47008.See also: 73 FR 64379.Related news:NYSE - Proposed Rule Change Extending the Operation of Its New Market Model Pilot -- Effective Immediately (Pre Fed. Reg. Version) (July 26, 2012).