Belligerati

NYSE has automated trading matching systems too, and one, direct plus will execute in one to two seconds, just about as fast as NASDAQ gets. Also, there are 75 NASDAQ listed members of the S&P 500 versus the NYSE's 421. There may be selection bias at work. The 71 NASDAQ listed stocks are tech heavy, and have taken a bath since the bubble burst. Since there are regulatory reasons why stocks tend to have spreads as a percent of price, their lower stock prices may explain the tight spreads

Securities and Exchange Commission Chairman William Donaldson (Republican) is likely to vote (along with the two Democratic commissioners) on altering the NASDAQ to follow the same trade through rule as the NYSE. The two other Republicans will vote no. Why might he do this? Besides grandstanding about the little guy that is. Well remember those lower average spreads? They aren't distributed fairly. People moving big blocks, uniform blocks get the fast execution and the best prices on the NASDAQ. On the NYSE, everyone is treated the same.

Now it may be that the small time fundamentals investor is as extinct as the yeoman farmer, but the financial regulatory system is still built around them. Reports like the 10-k, Def 14-a and the 8-k are aimed at conveying to investors company information. Annual reports are sent to millions of shareholders every year, be very few of them read much of it. Insider trading and full disclosure laws protect those not in the know, at the cost of market efficiency. Likewise, the small time investor, who has holds for the long term, has little use for fast execution. Lower transaction costs in the form of tighter spreads translates directly into higher returns for them.

Even though I've long thought that regulatory focus on the small investor was stupid, I think that this rule change is consistant with the current regulatory philosophy. Provide the information and fair markets to serious small investors so that they can participate in the markets in the same manner that the big banks, endowments. funds and insurance companies do. In the absence of real reform aimed and making the markets a place where professionals operate and focusing the regulation and disclosure of the funds in which consumers should be investing, constancy of regulation has value. Hopefully, once the markets operate in the same manner, it will create constituency for real reform, making them clearly articulate before the public why the entire regulatory philosophy should be different.