NYSE Aims At E-TradingNYSE Aims At E-Trading

The New York Stock Exchange last week revealed plans to upgrade its Direct Plus electronic-trading system in an attempt to balance its dependence on floor traders with growing online trading volume. Currently, only about 10% of NYSE trades are processed using Direct Plus.

"If we didn't do it, volume would continue to leave the floor," CEO John Thain said in a news conference about the effort. The upgrade plan, which is subject to the approval of the Securities and Exchange Commission, will entail a "significant" investment in software, including new applications for floor traders, with the cost to be absorbed by the NYSE's IT budget. The system will feature "sweeping," a process for filling buy and sell orders at prices that deviate from the best price by a margin of between 5 and 9 cents. Once that margin is exceeded, the order will be removed from Direct Plus. What happens then isn't clear. "Does it get exposed to the floor [brokers], or does it automatically get canceled?" asks Bill Cline, managing partner for global capital markets at Accenture.

The move is a compromise to preserve the trade-through rule, which prohibits an exchange from bypassing the best price offered on another exchange, usually the NYSE. The SEC's ruling on defining a national market structure, including whether to preserve the trade-through rule, isn't expected until year's end.