October 23, 2007
In the proposed system, rather than pairing investors odd lot orders against each other, investors will receive several different prices depending on order type and direction, with the specialist as the seeming beneficiary of such a proposal. This seems contrary to a primary purpose of the exchange to promote the just and equitable principles of trade.
In the current system, the exchange is clearly capable of pairing odd lot orders against the book and even knows when the amount off odd lots has exceeded the round lots that trigger execution. Thus, the exchange, while seemingly lacking in its technological ability to display such orders, is certainly capable of pairing them against each other. It seems reasonable therefore, that such odd lot market and limit orders would be executed against each other in order to protect investors and the public interest. Why the exchange would choose a course of action seemingly contrary to such seems counterproductive.
The rule, as it exists, appears to promote inequitable trade, with an advantage shifted to the specialist at the expense of the public. For example, it appears that when a round lot is executed, the various marketplace odd lot market and limit sell orders will only be filled at the very worst prices possible, even if such orders could naturally have been paired against each other. In such a system buyers and sellers will often receive fills at significantly different prices from each other. The only person I am aware of that would profit from such a differential is the specialist. Unfortunately, this rule appears to take a step backwards in achieving the stated goal of pricing in accordance with supply and demand dynamics.