NYSE to kill sub-penny rule, relist stocks

NEW YORK Fri Nov 14, 2008 12:31pm EST

NEW YORK (Reuters) - The New York Stock Exchange will no longer halt trading in stocks that fall below $1.05, allowing the exchange to relist some 91 securities, including U.S. mortgage giants Fannie Mae FNM.N, Freddie Mac FRE.N.

The exchange's parent, NYSE Euronext NYX.N, said it received approval from the U.S. Securities and Exchange Commission to relist the securities starting Monday.

The move eliminates the "sub-penny trading halt" rule that bumps depressed stocks to NYSE's small-cap Arca platform -- seen by some companies as a demotion they would rather avoid by jumping to the rival Nasdaq Stock Market.

"A transfer to Arca is less appealing to these companies than a Nasdaq listing," said Diego Perfumo, analyst at Connecticut-based advisory firm Equity Research Desk.

"NYSE's move is to retain companies that fall below $1.05 from switching," said Perfumo.

As of next week, the NYSE also will round quotes that trade in increments below one cent to the nearest penny.

The change was made so that NYSE can "recognize sub-penny prices from other markets, and thus become Reg NMS compliant," Ray Pellecchia, a spokesman, said on Friday.

Reg NMS -- or Regulation National Market System, which was first published in 2005 -- brought in new rules intended, in part, to ensure market participants received the best possible prices.

The rules opened the door to alternative venues that specialized in trading stocks in increments below a penny. Because NYSE is not able to recognize sub-penny quotes from competing platforms, it had been transferring its cheapest securities to Arca, which is able to handle sub-penny quotes.

Going forward, all securities currently subject to a sub-penny trading halt will resume trading on the NYSE, the exchange said in an update to traders. It will also lower transaction fees for stocks below the $1.05 threshold.

NYSE's Pellecchia said the recent selloff in stocks had no bearing on the timing of the application, which NYSE submitted to the SEC on November 6.

BATTLE FOR LISTINGS

Among those to be relisted on the Big Board's main venue are Canadian telecom firm Nortel Networks Corp NT.N NT.TO,drugstore chain Rite Aid RAD.Ni, and DVD rental company Blockbuster Inc BBI.N.

Perfumo, who specializes in exchanges, said it was unlikely those on the list would move to Nasdaq, whose strategy is to aggressively win over NYSE-listed companies with lower fees.

Earlier this month, Nasdaq, the second-largest U.S. stock exchange, won an SEC ruling that allows companies to keep their stock symbol if they decide to switch venues.

Three listings moved from the NYSE to Nasdaq OMX's (NDAQ.O) venue in the previous quarter. However, companies also move in the other direction.

NYSE's sub-penny halt rule has been in effect since March, 2007. It kept the massive stock exchange compliant with a Reg NMS rule that ensured buy and sell orders for stocks cheaper than $1 were sent to the venue with the best price.

The all-electronic Arca allowed NYSE to compete with Nasdaq and other displayed platforms, as well as with anonymous trading venues known as "dark pools."

NYSE, which has been losing market share to competitors, announced plans last month intended to further automate its Wall Street trading floor.

NYSE Euronext shares fell $1.87 to $25.13 on the New York Stock Exchange, amid a broad market decline.

(Editing by Matthew Lewis and Brian Moss)

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