SEC Issues Preliminary Proposal to End Fragmented Trading
2/23/0 12:38 (New York)
SEC Issues Preliminary Proposal to End Fragmented Trading
Washington, Feb. 23 (Bloomberg) -- The Securities and
Exchange Commission opened public discussion about the future of
U.S. securities markets by issuing a release aimed at ending
fragmentation in stock trading.
The so-called ``concept release' asks public comment on six
alternative plans that seek to increase competition and give
customers access to the best possible prices.
The plans vary from requiring stock exchanges, brokerages and
electronic trading networks to disclose how they route their
customers orders, to forming a central market by linking all the
U.S. markets.
``The goal of this effort is to seek a wide range of
information from as many participants as possible, not to stake
out any position,' SEC spokesman Chris Ullman said.
SEC Chairman Arthur Levitt has said that fragmentation in the
securities industry has prevented investors from having some
orders matched with orders placed on another market or trading
network. He has said that the concept release will likely usher in
many months of often contentious discussion among market
participants with disparate business interests.
The SEC also issued a New York Stock Exchange proposal that
would scrap a rule that prohibits brokerage members from trading
many large stocks off the floor of an exchange. Levitt has pushed
NYSE Chairman Richard Grasso to eliminate NYSE Rule 390, which has
made it difficult for brokerages to match orders internally and on
electronic trading networks such as Reuters Group Plc's Instinet
Corp.
The most controversial of the six plans in the concept
release is likely to be the formation of a central market that
links all exchanges and trading networks, said Annette Nazareth,
SEC market-regulation director.
Goldman, Sachs & Co. and other brokerages that handle large
orders have expressed support for a central market, while firms
such as the Charles Schwab Corp. that handle smaller orders have
opposed it, saying it would limit competition.
``If every bid can meet every offer, you're guaranteed to get
the best price possible at the time in a simplified market,' said
Junius Peake, a University of Northern Colorado finance professor
who was a National Association of Securities Dealers vice
chairman.
The electronic market links under discussion would seek to
connect customer ``limit orders' that are made at specified
prices. These are increasingly popular orders that now make up the
majority of customer orders on the Nasdaq Stock Market and trading
networks such as Instinet and Datek Online Holdings Corp.'s
Island.
The SEC is giving the public 60 days to comment on the
concept release and 21 days to comment on the NYSE rule proposal.
A concept release often leads to a more specific rule
proposal that again seeks public comment before the five
commissioners decide whether to approve the plan. The process can
take several years, long after Levitt is expected to retire.
The Senate Banking Committee, chaired by Texas Republican
Phil Gramm, plans to hold hearings next Monday and Tuesday on the
future of the securities markets, at which Levitt and Grasso are
due to testify. |
