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Analysis: NYSE stokes Wall St battle for "mom and pop" investors
US markets stay on edge(update)
New Zealand business confidence recovers in Nov

Analysis: NYSE stokes Wall St battle for "mom and pop" investors

Posted: 27 Nov 2011 05:28 PM PST

NEW YORK (Reuters) - The fight for mom and pop's stock orders is getting testy on Wall Street.

The New York Stock Exchange wants to give retail investors fractions of a penny in better prices when they trade securities listed there.

The plan, unveiled last month, would effectively set individuals apart from funds, brokers and other professionals - who would still pay the publicly displayed prices.

It is an effort to induce retail investors back from trading mostly off-exchange at electronic "wholesalers." And it means the Big Board is effectively taking on the handful of these wholesale market makers, such as Knight Capital Group Inc and hedge fund Citadel, that have been able to get a first look at retail orders and the opportunity to use that information to aid their own trading strategies.

If the NYSE wins regulatory approval for the plan, it could change the way many orders circulate, and it could mean slightly cheaper trading for Main Street investors.

But that approval isn't certain given the plan will resurrect a fierce philosophical debate over preferential treatment for some market participants. The U.S. Securities and Exchange Commission has only weeks to decide what to do.

"For the first time in a very broad stroke they could approve the ability of exchanges to discriminate by customer," said Christopher Nagy, managing director of order strategy at TD Ameritrade Holding Corp, the largest U.S. retail brokerage.

In a way, much of the commotion is because mom and pop aren't the savviest of stock traders.

Many casual traders don't even know that their orders rarely end up at the Big Board or Nasdaq. Instead, TD Ameritrade, E*Trade Financial Corp and other online brokers send the orders - up to 12 percent of all U.S. equity trading, according to Rosenblatt Securities -- to the wholesale market makers, who fill the orders and pay the broker a small fee for the privilege.

The wholesalers are willing to pay the small fee because mom and pop orders are seen as uninformed - or "dumb", to use the derogatory industry term. Unlike professional investors with sophisticated short-term strategies and quantitative market analysis, retail investors aren't usually in a position to keep on top of news, rumors or the flow of orders and liquidity, and may sometimes buy or sell based on a hunch.

The diversion of these orders to wholesalers is quite legal, and said to give retail investors about a tenth of a penny in better prices, on average, than they would otherwise get on the exchanges. It is also one of the main reasons more than 30 percent of U.S. equity trading takes place off-exchange in the anonymous "dark", up from about 20 percent in 2007.

The payment-for-order-flow by wholesalers and online brokers has frustrated NYSE Euronext and Nasdaq OMX Group Inc, which have seen their market share dwindle over the past decade. NYSE Euronext now has only 35 percent of trading in NYSE-listed stocks, down from 80 percent in 2005.

The SEC, meanwhile, has been increasingly uncomfortable with the growing share of dark trading as it is more difficult to regulate.

"The vast majority of retail traders don't know that when they're trading NYSE stocks, they're not actually trading at the NYSE," said market structure author and expert Larry Harris, a finance professor at University of Southern California's Marshall School of Business.

"The NYSE's proposal is designed to try to recapture some of that retail order flow."

GAME PLAN

The NYSE plan, which is called the Retail Liquidity Program, was proposed last month after consultation with the SEC. It is the latest in a long line of attempts by U.S. exchanges to win back retail investors.

If exchanges can attract more "dumb" orders to their market, they'll also attract more institutions and high-frequency trading firms eager to trade against those orders - which is potentially lucrative trading volume.

But getting the green light will take work.

There is some tough opposition to NYSE's plan, interviews with wholesale groups and other industry players shows. Overall, though, there is an expectation the SEC will approve an adjusted version of the plan that would give retail investors some sort of exemption for better exchange pricing.

Nasdaq as well as Direct Edge, a private exchange operator that handles 10 percent of U.S. equity trading, are expected to propose similar retail-pricing proposals, according to industry sources familiar with the plans. BATS, another private exchange, is expected to criticize parts of NYSE's plan, said the sources, who requested anonymity.

The three exchanges declined to comment. The SEC declined an interview, citing the ongoing public comment period.

A raft of letters reacting to the NYSE is expected from brokerages, exchanges and others before the November 30 public comment deadline. The SEC, under Chairman Mary Schapiro, then has until December 16 to decide whether to back the plan or take more time to mull it over, based on the comments.

"I would be quite surprised if the SEC were to approve this as is," said Jamie Selway, managing director and head of liquidity management at Investment Technology Group Inc. "People have played footsie with this issue of price discrimination ... but this would be a big step for the SEC."

In detail, here is what the NYSE wants to do:

For a one-year pilot, NYSE would create two new classes of market participants: companies such as E*Trade, Charles Schwab Corp or even wholesale firms that are qualified to send bona fide retail orders to the exchange; the second is market makers that are required to provide "potential price improvement" to the orders in an anonymous, or dark, fashion.

Retail investors would get at least a tenth of a penny in better prices than the best displayed bid or offer at that moment. The NYSE has not yet said how much it will rebate brokers that send the orders, nor how much it will charge firms that provide the liquidity.

It all adds up to a challenge to Knight, Citadel, UBS AG, Citigroup Inc and E*Trade's market making arm, which are the dominant U.S. retail wholesalers. It could also hurt "dark pool" venues, some run by banks such as Credit Suisse Group AG, where stocks are traded anonymously.

TOUGH OPPOSITION

The NYSE proposal effectively gives some people in the market preferential treatment over others. This is not allowed at exchanges, though some argue that wholesalers and those running dark pools already offer it.

Exchange rules are "not designed to permit unfair discrimination between customers, issuers, brokers, or dealers..." the U.S. Securities Exchange Act says.

"My broader concern," said one brokerage official, "is that the fair access provisions that the exchanges have to abide by are significantly weakened by this."

Joseph Mecane, NYSE Euronext's co-head of U.S. listings and cash execution, acknowledged he is challenging fair access provisions, but only to an extent. "What we're essentially arguing is, by making this program only available to retail customers, we're not unreasonably discriminating against any class," he said.

The SEC would also have to grant the NYSE an exemption to a rule that limits the pricing of stocks to no finer than penny increments -- that is, General Electric Co's shares can only trade hands at $15.08, not $15.085 or $15.0852.

In the end, the regulator will have to decide whether NYSE's plan will bring enough benefit to individual traders and to the public markets to outweigh all the concerns over fairness, and the complaints that it will only complicate an already complicated marketplace.

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US markets stay on edge(update)

Posted: 27 Nov 2011 05:27 PM PST

NEW YORK: US investors came to the Thanksgiving holiday table on Thursday mostly thankful that the week was a short one, or losses could have been larger.

As another round of news and bond auctions from Europe begins this week, traders will watch closely sovereign bond yields that have kept markets on edge.

Yields rose in almost every eurozone country last week, and Germany failed to find enough bids for a 10-year auction.

The S&P 500 reacted by posting a second straight week of declines and its worst week in two months.

Politicians are scrambling to find a way out of a two-year-old sovereign debt crisis in the eurozone and a visit to Washington from top European Union officials, as well as a meeting of eurozone finance ministers, will provide the market with headlines and possibly add to uncertainty.

With the spectre of rising yields, France, Britain, Italy, Belgium and Spain are holding debt sales this week. The direction of bond yields will determine the direction of equity markets.

"Politicians are trying to buy themselves time so austerity measures kick in and impact budgets and deficits, and markets become more forgiving and rates come down," said Wasif Latif, vice-president of equity investments at the San Antonio, Texas-based USAA Investment Management, which manages about US$45bil.

"The credit market and fixed income are a little bit more in the eye of storm; that's where the issue is rising, so equities are more reactionary," he said. "You may continue to see more of the same."

Investors have worried about rising borrowing costs in many eurozone nations, but Italy, the third largest eurozone economy, has grabbed most of the focus. On Friday, Rome paid a record 6.5% to borrow for six months and almost 8% to issue two-year zero coupon bonds.

Many market participants have said that the sharply differentiated risk on and off trades that the eurozone crisis has generated has seen equities being sold as an asset class, with little or no difference between strong and week balance sheets and earnings reports. But a wedge has opened at least from a global perspective, as data show stocks of companies with more exposure to Europe are underperforming.

US President Barack Obama will meet today with European Council president Herman van Rompuy and European Commission president Jose Manuel Barroso, and Europe's response to the two-year sovereign debt crisis is expected to top the agenda.

"The only thing that will come out of that is speculation," said Todd Salamone, vice-president of research at Schaeffer's Investment Research in Cincinnati, referring to the meeting in Washington. "It will come down to the US trying to convince European leaders to get something in place to solve this crisis."

Not many hopes are set either on tomorrow's meeting where eurozone finance ministers are expected to agree on how to further strengthen the region's bailout fund.

On Thursday, European Central Bank president Mario Draghi presents the bank's annual report to the European parliament.

As the latest reminder from markets to politicians that they are running out of time, Belgium's credit rating was downgraded by Standard & Poor's.

Some of the most important US economic monthly data will be released this week, but will they be enough to unlink the stock market's behaviour and European yields?

New home sales and the S&P/CaseShiller home prices index will start the week showing if the housing market continues on life support. Data on confidence among consumers, who flooded US stores on Friday as the holiday shopping season started, will be released tomorrow.

The Institute for Supply Management's manufacturing report is due, with investors not only looking at the US number on Wednesday but also factory readings from Europe and China on Thursday.

By midweek labour data will take over with the private sector employment report from ADP and Challenger's job cuts report, followed on Thursday by the weekly jobless claims numbers and topped by Friday's monthly nonfarm payrolls report. - Reuters

Asian shares, euro firm on Europe fund hopes

On Monday Reuters reported from Tokyo that Asian shares rose and the euro firmed on Monday on hopes Europe will come up with some concrete steps this week towards activating a euro zone bailout fund that is crucial to relieving funding stresses on the region's troubled economies.

MSCI's broadest index of Asia Pacific shares outside Japan rose 1.1 percent, after slumping to its lowest level since early October on Friday to mark a fourth consecutive week of declines.

Japan's Nikkei opened up 1.4 percent on Monday after hitting its lowest in two and a half years on Friday.

With a European Union summit looming on Dec. 9, officials said at the weekend that Germany and France were exploring radical proposals for more rapid fiscal integration, possibly with fewer than the 17 countries that make up the euro zone.

The move would help fend off fierce market attacks on highly indebted countries and give more leeway for the European Central Bank to buy sovereign bonds.

Euro zone finance ministers will meet on Tuesday, and detailed operational rules for the region's bailout fund, the European Financial Stability Facility (EFSF), are ready for approval.

This would pave the way for the 440 billion euro facility to draw cash from investors.

Traders said media reports suggesting the International Monetary Fund (IMF) was preparing a rescue plan worth up to 600 billion euros for Italy was also bolstering sentiment.

"Talk about radical fiscal integration with fewer countries is slightly positive as it sounds like a pragmatic approach," said Yuji Saito, director of the foreign exchange division at Credit Agricole Bank in Tokyo.

The euro was swept higher in thin trade on Monday by a wave of shortcovering when traders buy back a currency to realise gains on an earlier bet it would fall rising as high as $1.3342 from $1.3230 late in New York on Friday.

Some market players, however, were sceptical that the gains for the euro would last long.

"Unless we see a confirmation the IMF is working on such a programme, I suspect the market is going to want to sell into any further strength," said Robert Rennie, chief currency strategist at Westpac Bank in Sydney.

Traders said it was premature to expect investors to resume risktaking ahead of key events this week, including Italy's 8 billion euro debt auction and German CPI and consumer confidence data, both due later on Monday.

On Friday, Italy paid a euro lifetime high yield of 6.5 percent to sell new sixmonth paper, while yields on 10year government bonds ending last week at more than 7.3 percent, in the territory that forced Greece, Ireland and Portugal to seek international bailouts.

Funding stresses for European banks escalated further, with the cost of swapping euros into dollars in the currency swap market reaching new threeyear highs of 166 basis points on Friday, levels analysts said may make the European Central Bank tender more attractive for dollarfunding.

Bearish sentiment still prevailed in Asian credit markets, with spreads on the iTraxx Asia exJapan investment grade index widening slightly early on Monday

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New Zealand business confidence recovers in Nov

Posted: 27 Nov 2011 05:10 PM PST

Published: Monday November 28, 2011 MYT 9:10:00 AM

WELLINGTON, Nov 28 (Reuters) New Zealand's business confidence rose for the first time in four months in November, and firms were also more optimistic about their own prospects going into next year, a survey showed on Monday.

The National Bank of NZ's monthly business outlook showed a net 28.8 percent of companies expect their own business to grow in the next 12 months, compared with a 26.1 percent optimism level last month and 35.4 percent in September.

The survey's headline measure of sentiment showed a net 18.3 percent of respondents expecting the economy to improve over the next 12 months, compared with a net 13.2 percent optimism level in the previous month.

Inflation expectations for the year ahead eased a touch to 3.10 percent from 3.12 percent in October.

The central bank is expected to leave its benchmark rate steady at a record low 2.5 percent next month because of global market volatility and outlook.

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Ahad, 27 November 2011