NYSE withdraws proposal to determine deviation in trading exchange traded funds

The U.S. Securities and Exchange Commission confirmed the week of Feb. 15 that the New York Stock Exchange dropped its proposed rule of determining "aberrant" pricing of exchange traded funds. The proposal would have allowed NYSE to warn traders and market data firms from following the lead of pricing of exchange-traded funds deviating from market standards.

Late last year, NYSE proposed a policy that will distinguish aberrant trades amid issues surrounding the exchange traded funds, The Wall Street Journal reported. The SEC criticized the market after a session on Aug. 24, 2015, had several products traded at very high discounts to their underlying holdings.

"The Exchange believes that the derivatively priced nature of exchange-traded products necessitates the use of a different, and generally broader, set of circumstances to determine that trades are 'aberrant,'" NYSE stated in its proposal to the SEC, filed on Oct. 28.           

NYSE said that making sure that the trade doesn't reflect "the prevailing market" for an exchange traded product if it is 50 cents away from a previous trade or a reference price if the price is $100 or below, and 50 basis points away if the trade or reference price is more than $100. The proposed rule would also take into account factors including changes to the index the products are tracking and changes in the creation or redemption of shares mechanism.

However, the NYSE last week dropped this proposal per filing at the SEC, Reuters wrote. The NYSE's Arca exchange, a top trading venue for the $3 trillion ETF market, was at the heart of the proposed rule, which pushes for a "different, and generally broader, set of circumstances" to determine aberrant trades.

The push for changes may have something to do with improvements amid rising competition for NYSE. Bloomberg News reported last month that 23 ETFs transferred from NYSE ARca exchange to other market venues.

BlackRock, for instance, said it moved 11 iShares ETFs from Arca to another venue. The newswire noted that Arca rival Bats Global Markets listed 10 funds compared to Arca and Nasdaq, which listed one so far this year.

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Securities and Exchange Commission, SEC, New York Stock Exchange, NYSE, exchange-traded funds, ETF, aberrant pricing, stock trading, stock market

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