NYSE Moves to Prevent Abuses in Odd-Lot Trades; Specialist Firms Complained Some Traders Took Advantage of Program for Small Investors
The New York Stock Exchange is trying to even the playing field for odd-lot trades, typically trades of fewer than 100 shares, often executed by small investors.</br></br>The exchange, operated by NYSE Euronext, has an odd-lot system to ensure that small trades, which are priced separately from larger orders, don't get left behind by the "block" trades sent to the Big Board by institutional investors such as hedge funds and pension funds.</br></br>However, amid complaints that professional traders were abusing the system, the NYSE imposed volume limits on certain orders, aimed at stopping the alleged manipulation. Among the loudest critics calling for change: specialist firm LaBranche & Co.</br></br>In July, LaBranche wrote a letter to the Securities and Exchange Commission, accusing unknown traders working through a rival trading venue of engineering a series of fraudulent trades designed to earn a profit by exploiting the odd-lot rules.</br></br>In general, the odd-lot rules require that orders under 100 shares be executed by the so-called specialist firm that manages trading in each stock, so that the small orders get the price of the next "round- lot" trade, be it 100 shares or 100,000.