NYSE seeks SEC approval for new floor trading rules

NEW YORK, June 13 (Reuters) - The New York Stock Exchange, a unit of NYSE Euronext Inc (NYX.N), has proposed a series of rules that would transform how specialist traders operate on the exchange's floor amid increased electronic trading.

The proposal, filed Thursday with the U.S. Securities Exchange Commission, would grant specialists, who ensure an orderly market and dampen volatility, new privileges but fewer advantages in how they trade.

Currently, specialists typically handle 10 percent of trading volume, a figure that can rise to 20 percent to 30 percent when trading in a given stock becomes volatile and investors seek human intervention. NYSE is one of the few remaining exchanges to use the floor traders, while its competitors have largely gone electronic.

Specialists ensure an orderly market by stepping in with their own liquidity when needed, and by trading against trends when the market gets volatile. These obligations would remain under the new guidelines.

The new roles would end the NYSE's experiment with a "hybrid model," launched in 2006, which automatically executes orders while allowing specialists to interact with NYSE's electronic order book and maintaining the floor auction system.

The specialists would be renamed "designated market makers" and gain new rights, such as the right to trade in options and other derivative securities for risk management purposes. A firm's specialists would also be permitted to have more access to technology and experts from other parts of their firm, subject to strict information barriers.

But they would no longer be allowed to receive electronic orders prior to being publicly displayed, called "advance look" in industry parlance.

In recent years, the number of specialist firms on the NYSE has dwindled to six, with about 250 specialists working the exchanges floor. Last year, the exchange closed two of its four trading rooms.

In May, NYSE Euronext Chief Executive Duncan Niederauer said the exchange's floor population could fall by another 15 percent to 20 percent by year's end.

Still, he said he has no intention of closing the trading floor, calling it an important part of the exchange's branding and saying human intervention is still needed in volatile markets. (Reporting by Phil Wahba; editing by Jeffrey Benkoe) (phil.wahba@thomsonreuters.com; + 1 646 223 6128)