Is Electronic Trading Adding to the Carnage?

"If the electronic trading alternative was not there, most likely, in this situation, a specialist would have seen an imbalance in sell orders hitting [Beazer's] stock," says Joseph Saluzzi, co-head of equity trading at Themis Trading, an independent agency broker. He says the specialist "would have either had to step in and commit capital to take the other side of the trade or they would have halted the stock due to the imbalance."

With demand for electronic trading soaring and the advent of Regulation NMS, which seeks to break down barriers between exchanges, "investors need to realize NYSE stocks trade essentially like Nasdaq stocks -- it's essentially one market," Saluzzi says. "All the program traders and shorts were smelling blood and they just crushed Beazer and the rest of sector. You have to wonder what a specialist would have done in the 'old days,' but why step in if there's no profit incentive?"

At NYSE Euronext's (NYX Quote - Cramer on NYX - Stock Picks) analyst day in June, Duncan Neiderauer, president and co-CEO and head of U.S. cash markets, pledged to support rule changes "in places where I think the pendulum has swung too far." He was speaking of the balance of opportunities and risks for NYSE specialists, according to a transcript of the analyst day on the NYSE's Web site.

On Thursday, an NYSE spokesman said there has been no public comment from the Securities and Exchange Commission on such issues. He declined to comment further on regulatory issues or Wednesday's trading in Beazer.

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