New NYSE rule lets floor brokers access other markets : US Business

By Anupreeta Das

NEW YORK (Reuters) - A rule change at the New York Stock Exchange will allow brokers on its trading floor to handle non-NYSE listed stocks, in a move meant to stem trading share losses to newer competitors.

The rule levels the playing field for floor brokers, who could not previously access liquidity in other venues, including the Nasdaq Stock Market , when executing trades. The proposal was filed with the U.S. Securities and Exchange Commission last week and approved on Monday.

The rule, which came about in response to brokers' demands for more flexibility in executing trades, offers them greater parity with traders in off-the-floor venues, whether at NYSE's "upstairs" desks where such trades are permitted, or anywhere else, such as an electronic exchange or a broker's office, the NYSE's parent company NYSE Euronext said on Monday.

The impetus for the rule change came due to "competition from other market centers and growth of alternative trading systems coupled with increased internalization by broker-dealers," NYSE Euronext said in its SEC filing.

Floor broker share of total NYSE trading volume has dropped 49 percent between the first quarter of 2006 and the first quarter of 2007, the company said in its filing.

The NYSE trading floor consists of specialists, who match buyers and sellers of specific stocks, and brokers, who execute the trades.

The new rule allows brokers to transmit orders received on the floor to markets in other venues for execution directly from their booths, which line the trading floor.

Earlier, these orders would have to be routed through the upstairs offices of brokers, causing delays.

The older rules were established to prevent brokers from misusing information learned on the floor to carry out over-the-counter trades.

"This is a long-overdue change that thrusts the NYSE into the 21st century," said veteran trader Kenneth Polcari.

The regulation change will allow floor brokers to interact with the "multitude of other sources of liquidity that now exist," including Nasdaq, so-called dark pools, or anonymous block-trading firms like Liquidnet, Polcari said. Dark pools are alternative trading systems that anonymously match buy and sell orders.

He said the NYSE's antiquated rules -- written when cutting-edge technology, millisecond trading and alternative trading venues did not exist -- have led to an exodus of specialists and brokers from the floor, including his own departure nine months ago.

"This is a positive outcome for the NYSE and the men and women who make a living on the floor," said Polcari, who is also a managing director at ICAP Equities, a division of interdealer broker ICAP Corporates LLC.

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