New York Stock Exchange plans to withdraw from a system that has linked the major U.S. stock exchanges for the past 24 years, in a move that could raise execution prices for rivals, according to a published report.
The NYSE wants to exit the system, otherwise known as the Intermarket Trading System, or ITS, to stem growing competition for NYSE volume from electronic trading networks like
Exchanges linked by the ITS have to reroute orders if prices are better on other participating exchanges. But electronic trading exchanges like Instinet, which aren't governed by the ITS, don't have to reroute trades of listed stocks, and they're stealing away NYSE trading volume in a tough market.
Nasdaq, the regional exchanges and others handled about 18% of NYSE volume in the fourth quarter of last year, according to a Salomon Smith Barney report, with Instinet in the lead at 3.5%.
The ITS only applies to stocks listed on the NYSE, the American Stock Exchange and regional exchanges, as Nasdaq dealers already post competing offers for Nasdaq stocks electronically. Nasdaq brokers have to follow the intermarket rules when they trade NYSE stocks.
Intermarket system members include the American Stock Exchange, the Chicago Stock Exchange, the Cincinnati Stock Exchange, the Philadelphia Stock Exchange, the Boston Stock Exchange and the Pacific Stock Exchange.
The NYSE's departure from the system would probably have to be approved by the
Securities and Exchange Commission
. The ITS exchange link was mandated by Congress in 1978 to ensure that investors get the best available prices, and the SEC ruled in 1999 that any alternative trading system that handles more than 5% of the daily volume in a listed security must link up with the other listed markets. Representatives for the NYSE and the SEC declined to comment.