The U.S. Securities and Exchange Commission has approved the New York Stock Exchange’s proposed Hybrid Market, enabling the NYSE to integrate its traditional floor-based auction market with enhanced automated trading functionality.

The NYSE says that the Hybrid Market will provide customers with choices that include sub-second automated, anonymous transactions for NYSE-listed stocks or the opportunity to have orders represented in the auction market with the benefits of human judgment.

Under the Hybrid Market model: the NYSE’s automatic execution facility, Direct+, will be expanded so that it will accept more order types and allow executions to occur against liquidity that is priced outside the NYSE’s best bid or offer; participation by NYSE floor members will be automated so that they can electronically provide liquidity that would be available for automatic executions; and, specialists will be able to create proprietary algorithms so that they can electronically quote and trade.

The commission recently extended a pilot program that has allowed NYSE to begin testing some of the systems enhancements that must be made to enable NYSE to switch to the Hybrid Market. The NYSE will begin a phased rollout of all of the necessary systems changes over several months.

“The commission supports the markets’ adoption of new trading systems and new technologies in order to deliver improved service to investors,” said SEC chairman Christopher Cox. “At the same time, with our major exchanges now responsible to their public shareholders for performance, the SEC is redoubling its focus on investor protection, to ensure that competition among markets is conducted on the basis of what’s best for the investing public.”

“We welcome the SEC’s approval of the Hybrid Market and the opportunity to move into the next phase of development,” said NYSE Group chief executive officer, John Thain. “The Hybrid Market will increase efficiencies by marrying the best of electronic trading and the auction market. We will better accommodate our customers’ diverse trading strategies by giving them new choices in order execution to access our superior prices and market liquidity. Greater choice in our marketplace benefits all customers, from the smallest investors to the largest institutions.”