Baptism of fire for Reg NMS

The market wobble couldn’t have come at a worse time for US stockmarket regulators, who this morning will oversee the introduction of the Trading Phase of Regulation NMS, the new rules governing transparency and best price execution in equity market trading. The Trading Phase was designed to identify and work out any problems before the full implementation of the rule changes later in the year.

In recent months, many of the exchanges and ADF participants have developed new automated trading systems or significantly modified their existing automated trading systems in anticipation of Reg NMS. 

Sensing the anxiety on the Street, the SEC issued a statement late Friday explaining provisions for a market-wide suspension of the trade-through rules should systems problems or malfunctions arise. 

Fair enough. But given the problems experienced last week – where capacity constraints overwhelmed order-routing systems at the Nyse and knocked out the Dow Jones index calculators - a more prudent course of action would have been to simply set back the timetable for the roll-out of the new rules until after the markets had ridden through the current turbulence.