The proposal from NYSE Euronext to create a new system aimed at capturing more retail order flow has sparked lots of controversy.

While the comment period for the proposal has ended, there are plenty who think the industry needs more time to digest the plan, which would create a retail program allowing liquidity providers to make trades at sub-penny increments. That would level the playing field somewhat vis a vis wholesalers, which now have that ability as long as they are offering price improvement.

The movement to allow the NYSE and Amex to trade in smaller increments will not be quick. A sub-penny proposal has been on the table before and it ended up generating lots of debate and delay before eventually expiring. Traders magazine notes that the NYSE vs. wholesalers storyline has likely been overplayed.

The point of the proposal is not to create a system that will allow the NYSE to take market share from wholesalers but rather to gain market share for trades that internalizers eventually send on to other venues for execution. They do not execute every trade that comes their way. This so-called "exhaust" is what the NYSE really wants, according to the magazine. If the wholesalers can get behind the program, one would think that proposal has a greater chance of adoption.

One issue here is the extent to which institutions think that sub-penny pricing for retail orders will eventually migrate to the institutional market. That brings with it a whole can of possible worms. Some think it will make it easier for high-frequency traders to jump in front of orders, for example. The SEC likely is also aware of the possibility of a legal challenge, perhaps on ground that the cost benefit analysis was lacking. In any case, this is going to drag out for a while. 

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NYSE Euronext aims for retail order flow with sub-penny pricing