Tagged: NYSE Arca

Reality or Fantasy

Don’t forget to write your letters, folks!

Which letters? See last week’s Market Structure Map on prompting the NYSE or the NASDAQ to file a rule for better data.

Speaking of rule-filings, here’s an example. Last week ahead of an SEC review deadline, NYSE Arca, an automated facility focused on ETFs and global derivatives-trading, withdrew a proposal permitting ETF sponsors to pay market-makers to trade ETFs.

Filed in April last year, the proposal is similar to one from the NASDAQ on which we commented. We opposed it because these plans distort prices and true supply and demand. If you were paying brokers to buy and sell your shares, would your share-price reflect the views of investors or the market-incentive offered by payments to brokers?

At best, it would be hard to tell. Plus, if a party with a financial incentive to create demand for its product can manipulate outcomes for its own gain, it’s sometimes called racketeering when prosecuted criminally. Why would we permit something that in one place is considered criminal to in another one serve as a barometer for market demand?

Despite this logical conundrum, word is that NYSE Arca will reformulate and re-file the proposal. The NASDAQ’s proposal supporting sponsor payments for ETF traders is still matriculating, and the SEC must decide on it by March 8, according to Traders Magazine. (more…)