In an effort to further its competitive edge, the American Stock Exchange has announced plans to give priority to orders routed electronically. The pilot program, dubbed eQPriority, is initially a rule change that will give retail and institutional investors priority and guarantee best execution for electronic orders routed to the floor. A spokesman for the exchange says the plan is in the final drafting stages and should be sent to the Securities and Exchange Commission for approval within a week.
"It's a competitive issue for exchanges these days," says the spokesman. "If we're going to have a reputation as a market that provides best execution and price improvement and does everything possible to make sure that the technology works in the investors favor, I think we have to do this."
The eQPriority pilot program will require a specialist on the floor to stop the order book when an electronic order comes onto the screen and "identify it to the crowd of brokers and traders in the cluster as having priority over other offers and bids." The order will then be executed at the Amex Published Quote or a better price from the moment the specialist announces the order.
"Does it reduce the number of opportunities for a floor broker?" asks the spokesman. "Possibly. It gives priority to the investor, to the incoming order and that's where you want to be. It would not be a good deal for the investor if they got the convenience of electronic delivery but didn't get the benefits of the best market."
Amex will eventually consider developing an automated screen-based mechanism to immediately give priority to electronic orders, says the spokesman, but initially eQPriority orders will be handled manually, as specialist driven floor procedures. The program will be implemented for six months and then evaluated to determine whether it is serving its purpose and then Amex will evaluate the next course of action.