[ by Howard Haykin ] The NYSE sparked an uproar from the trading community by its new program to effectively lure retail orders away from the individual firms and onto the NYSE floor.  The plan to do this by offering better prices on trades through a program that mimics the so-called dark pools used by large banks and institutions. As expected, the SEC approved the NYSE proposal on Friday, and now it's likely that other exchanges and market centers - e.g., Nasdaq, the CBOE stock exchange - will follow submit similar rule proposals to the SEC.  Given the flagging volume of orders, it will be interesting  to see whether all these development have any lasting, meaningful effect on the stock market, in general, and on individual trading firms. Nonetheless, even before they have all the facts - remember, the NYSE program officially starts August 1 - the big brokers have been challenging the Big Board's approach, there is little or no benefit of the NYSE program to them.  While it may turn out that these exchange programs cause little impact to the flow of orders to brokers, one thing is for certain - it will not help to increase order flow to the brokers - so, the brokers, at worst, are looking at a lose-lose situation and draw-draw situation at best. The Big Board is looking to become the first stock exchange that is allowed to offer retail investors better prices than those available to pension managers and hedge funds.  That would give it a leg up on its rival exchanges and probably have a positive after-effect on NYSE's volume. Handling individuals' stock trading is prized as a source of short-term profit, and mainly flows through a handful of banks and electronic-trading firms that pay fees to retail brokers for the chance to fill stock orders before they arrive at exchanges.  In some cases those firms execute trades at prices that beat the going market rate by fractions of a cent, something exchanges have been barred from doing. The business has helped banks and trading firms - such as Knight Capital Group, Citadel,  Citigroup, and UBS -  capture market share from established exchanges - NYSE Euronext and Nasdaq OMX Group.  And, frankly, it would be difficult for these firms to give up that advantage - especially since it's been in place for the past decade of so - firms kinda get spoiled. Brokers' Contention. Some of those firms have criticized the NYSE proposal for upending one of the basic pillars of a financial exchange - providing a level playing field for all participants - and for creating new wrinkles in the already complex trading landscape by improving prices by fractions of a cent. The NYSE proposal—called the "Retail Liquidity Program" ... works along the same lines as the dark pools that trade large blocks of shares for institutions.  Dark pools are private platforms set up for anonymous stock trading.

e.g., a doctor trading stocks from his home office wants to sell 100 shares of Sirius XM Radio and the inside bid price is $1.85 a share.  A tenth-of-a-cent improvement on the NYSE would see his order filled for $185.10, instead of $185.00.

NYSE executives defend the changes, saying the playing field is not level, but tilted to the advantage of dark pool operators.  Furthermore, there's something positive coming out of this - and that is the small individual investors will get price improvements - which has never been the norm. For exchanges like the NYSE, recruiting more retail business to their markets would likely draw in more electronic firms looking to turn a profit by trading with slower-moving investors, and could help boost market share in a business that has become the domain of banks and trading firms. The discussion continues for a short while longer.  To continue reading or for further details, go to:  [WSJournal, 7/4/12].