NEW YORK, April 6 -- The Securities and Exchange Commission on Wednesday narrowly approved a new regulation requiring brokers to accept the best quoted price for any transaction, no matter what market it comes from.
By a 3 to 2 vote, with the commission's two Democrats siding with Republican Chairman William H. Donaldson, the agency extended the reach of a regulation requiring brokers to obtain the best possible price for customers even if it means going to another market and takes longer. Stock traders could no longer ignore a better price in favor of sending an order to a preferred market, which might allow faster execution.
The commission tentatively approved the plan, called Regulation National Market System, in December. Donaldson has since defended it before Republican critics in Congress, who have raised the possibility of a legislative challenge to the rule.
"In formulating this proposal, we have kept our eye on one overriding objective, the protection of investors, with particular attention to small investors," Donaldson said. "The proposed trade-through rule would strengthen the confidence of all types of investors in the U.S. equity markets."
Major Wall Street firms, including Fidelity Investments and Charles Schwab & Co., opposed the rule. They said the regulation would deny them the flexibility to have some orders handled by a faster electronic market, rather than a slower market with human traders, when there was a compelling investment reason to do so.
Republican commissioners Paul S. Atkins and Cynthia A. Glassman said the plan was anti-competitive.
The rule, critics say, gives an unfair advantage to the New York Stock Exchange, which offers best price as its strong suit, over all-electronic rivals such as the Nasdaq Stock Market and smaller, newer electronic markets that offer speedier processing of trades.
The NYSE said the rule helps investors and promotes competition.
A spokesman for the Nasdaq said in a prepared statement that it did not think the regulation was necessary, but that its all-electronic market would not be affected by the rule changes.
A trial implementation, involving 100 stocks on the NYSE, 100 from the Nasdaq and 50 from the American Stock Exchange, will begin April 10, 2006. Full implementation of the rule is scheduled for June 12, 2006.
