Long-waited and once controversial regulations took effect in the US on Thursday with the coming into effect of Reg NMS.
The new regime is predicted to spur a fundamental shake-up of US equity markets.
The Securities and Exchange Commission (SEC) introduced Reg NMS to ensure that automated trades are routed to the exchange that offers investors the best price. They are widely predicted to precipitate a surge in trading volume and benefit smaller, faster markets.
Analysts say the opportunities given to smaller players by Reg NMS could bring to an end the dominance of the New York Stock Exchange and the Nasdaq stock market. The rules offer the chance for a new entrant that can demonstrate its speed to take market share from the two market leaders. BATS Trading, for example, is expected to be one beneficiary, as it offers fast trades at prices that undercut its competitors.
Regional exchanges are also set to benefit due to the expected increase in trading volume. Markets such as the Philadelphia Stock Exchange should no longer suffer from having fewer buyers than sellers.
Many traders are worried about the ability of the connections between exchanges to cope with the predicted rise in electronic trading. Last week’s market turmoil saw record volumes traded on US exchanges, and resulted in an overload on the NYSE server and subsequent trading delays.
“The bottlenecks in the system are the technological links between venues,” one equity trader says. “If one system fails, we just don’t know how it is going to affect the wider market, so it is going to be interesting to see how everything works as the new systems get up and running.”