A parish= That circuit of ground committed to the charge of one
parson or vicar, or other minister having cure of souls therein.
Arty - you are the Vicar, Wall Street is the ground - then YOU Trump
Parochial Interests and cure the souls therein... that is your
Congressional mandate. Are your hands tied by the Plutocrats of
this country which control the Senate Banking Committee?
Why is Arty speaking to the Columbia Law School? Lawyers are part of
the problem. Why not bring the managers of all broker-dealers,
market-makers, and NYSE specialists before the Congress of the United
States and lecture them on the "Rights of Individual Investors" and
what WILL BE DONE to rectify the market abuses occurring RIGHT NOW!
---
Levitt Calls for Greater Competition and Innovation as
Markets Adapt and Respond to New Technologies
FOR IMMEDIATE RELEASE
99-120
Calls for Constructive Industry Dialogue to Trump Parochial Interests
New York, N.Y., September 23, 1999 – In a major speech delivered at Columbia Law School today, Securities
and Exchange Commission Chairman Arthur Levitt discussed the enormous changes occurring in today's
securities markets. He called for greater competition and innovation as markets adapt and respond to new
technologies. Importantly, Chairman Levitt made clear that as we respond to these challenges, the principles of
integrity, quality, and fairness must not be lost to parochial concerns.
Chairman Levitt said, "We have an opportunity today that I don't think we'll have again in our lifetime – to
realize the vision for a true national market system – one that embraces our future as much as it honors our
past." Chairman Levitt outlined the key issues and challenges facing the industry: demutualization of the
national exchanges; the impact greater competition is having on order flow, liquidity, and execution costs; the
imperative to interlink market centers; and more broadly, the challenge to provide investors with the efficiency
of central markets without sacrificing competition and innovation.
Chairman Levitt made the following key points:
Role of government is to foster competition, not dictate ultimate market structure
ECNs are an important development, but access fees must be addressed
Demutualization must embody effective self-regulation
Options markets are more competitive but change is still needed
NYSE Rule 390 should not be a part of our markets' future
Market participants should consider if technology offers ways to achieve the efficiencies of central
markets while fostering competition and innovation
Role of the Government and Key Developments in Market Structure
Chairman Levitt discussed how the markets have evolved these past 25 years. The Commission, Chairman Levitt
said, has sought "to establish, monitor, and uphold the framework that gives competition the space and
sustenance to flourish. Progress has sometimes been frustrated by narrow interests and that's when it's been
necessary to invoke pragmatic regulation."
Chairman Levitt cited the impact of Congress's call in 1975 to create a national market system coupled with the
SEC's Order Handling and Alternative Trading Systems Rules, established in 1997 and 1998, respectively.
Together these measures foster competition and price transparency, reduce price spreads and execution costs,
and promote innovation, such as the emergence of Electronic Communication Networks (ECNs).
Emergence of Electronic Communication Networks
Chairman Levitt said, "ECNs have been one of the most important developments in our markets in years –
perhaps decades. ECNs present serious competitive challenges to the established market centers and must be
able to compete with traditional exchanges and dealer markets in an environment free from unfair advantages or
unreasonable barriers."
Chairman Levitt discussed the responsibilities of ECNs, such as the need to confront the consequences of a
market downturn and the need to handle temporary as well as extended periods of extremely high order flow. He
also made clear that the Commission will not hesitate to take action against ECNs when they fail to correct
capacity deficiencies.
Chairman Levitt addressed ECN fees, saying, "While it's clear ECNs are subject to today's invigorated
competition, it is increasingly evident that the fees they charge to access their quotes are not. Because brokers
often have little choice but to pay whatever fee is charged by the ECN, competitive pressures on these fees
have been all but paralyzed. ECN access fees stand alone in an otherwise fee-less arena. I believe this imbalance
in the marketplace must be redressed. I have asked the Commission's staff to recommend the best approach
towards restoring a fair, competitive balance in this important area."
Demutualization Must Embody Effective Self Regulation
Chairman Levitt discussed the need for effective self regulation as the New York Stock Exchange and the
National Association of Securities Dealers consider demutualizing. He said, "The potential for conflicts of
interest that may arise if the SRO is enmeshed within a for-profit corporation must be defused. At the very least,
I believe that strict corporate separation of the self-regulatory role from the marketplace it regulates is a minimum
for the protection of investors in a for- profit structure."
He continued, "Some have suggested one SRO that regulates all markets, alleviates conflicts, and reduces
redundancy, paperwork, and operational costs. Others line up behind a model where each market would maintain
the regulatory and surveillance function solely for its own market – but member regulation, sales practices, and
all other aspects of intermarket trading would be overseen by a single SRO. While I certainly am not wedded to
any particular model at this point – a great deal more thinking needs to be done – this latter approach is
intriguing. Any restructuring, however, must ensure that the self-regulatory obligation be vigorously fulfilled,
adequately funded, and dedicated to serving the public interest."
Competition Sweeping the Options Markets
Chairman Levitt noted that the same dynamic competition and sweeping reform unfolding in the equity markets
is beginning to take place in the options markets. He indicated that in the last month, more than 130 new multiple
listings have been announced. In four of the five actively-traded options the SEC examined, effective spreads
fell between 22 and 44 percent since these options went from single exchange trading to multiple listings. But, he
noted, "in the name of more competitive, more connected, and more liquid options markets, we still have a ways
to go."
Chairman Levitt called on the options markets to:
Develop the fundamental standards reflected in our equity markets
Establish greater linkages to encourage the best possible execution of customer orders
Address swiftly the short-comings in their capacity to handle options quote traffic
Ensure that the best quote in any market is visible and accessible
Promote more competition
Competition vs. Centrality
Chairman Levitt said, "Greater competition in all of our markets has not arisen without debate. Depending on
who you talk to, the growth in new market entrants has induced 'fragmentation.' Others favorably characterize it
as providing 'heightened competition.' In reality, neither description tells the whole story."
He continued, "The fact is, multiple markets have existed since the earliest days of trading. And we have long
believed that different market centers must be connected. Today, is there fragmentation in the sense that there
are separate, isolated markets with reduced liquidity? I think not. But is there fragmentation in terms of multiple
pools of liquidity competing for orders based on transparent quotes and prices? Absolutely."
Chairman Levitt cited the fact that competition has never been greater, execution costs have never been lower,
and spreads have never been narrower. In light of this, he said, "Now is the time to ask ourselves: is there a
valid justification for a rule [NYSE Rule 390] that appears to be more a barrier than a benefit? As I see it, Rule 390
may very well be on its ninth life. And how, under any circumstances, could such an anticompetitive rule be
sustainable should the NYSE become a for-profit corporation? While rulemaking is certainly an option, one way
or another, this rule should not be a part of our future."
Background statistics on NYSE Rule 390:
The rule prohibits NYSE members from effecting transactions in the NYSE-listed
securities in the OTC market.
An analysis of Nasdaq data shows that 29 of 30 stocks in the Dow Jones Industrial
Average are subject to Rule 390.
Rule 390 stocks accounted for 48 percent of NYSE trading volume in August 1999.
Linkages and Centrality
Chairman Levitt said, "In zealously advocating competition, however, I do not dismiss the issue at the core of
arguments against fragmentation – the intrinsic value of centrality. Central markets have always had an allure.
Basic economics tells us that the greater supply and demand that congregate in one place, the more efficient the
price-setting mechanism."
Chairman Levitt continued, "Now, more than ever, is the time to revisit the historic conflict between competition
and centrality. Tonight, I call upon the leaders of the securities markets, particularly the public representatives
on exchange boards – to begin a public dialogue on whether technology offers ways to garner the benefits of
centrality without stifling competition. The guiding principles are clear: price discovery and best execution
should be enhanced; liquidity should be fostered; interaction between institutional and retail trading should be
maintained; market innovation should be encouraged; and competition among market centers, above all else,
should remain vigorous and dynamic."
Chairman Levitt said, "For instance, should we consider pulling together electronically all limit orders and
quotes displayed internally in the various markets – creating a 'virtual limit order book.' This approach may offer
the advantage of exposing all markets' limit orders to the public, thereby allowing investors to better ascertain
liquidity across the market. Should this be combined with an ability to access those orders electronically? To
encourage quote competition, should dealers be expected to execute quotes previously displayed in the virtual
book before trading at that price with customer orders themselves? And to promote innovation in individual
markets, should markets still be able to cross their agency orders internally at the best price, regardless of other
orders at that price on the book?"
He added, "These are controversial questions, without easy answers. But these are the types of questions that
many in the industry already are independently considering. Now, more than ever, is the time for thoughtful,
constructive, and far-reaching thinking. Neither our markets nor our investors can afford today's opportunity for
change to be dominated by parochialism. The public spirit must reign."
The Future of the Markets
Chairman Levitt concluded, "Let us not look back at this time as an opportunity not seized, an endeavor not
realized, a challenge not taken, or a frontier not explored. We should not indiscriminately jettison the features of
yesterday any more than we should allow entrenched interests to stonewall new market entrants and
technologies that offer us superior efficiencies. Only by embracing change, renouncing obstructive
impediments, and harnessing innovation and competition will we guarantee to our investors, our economy, and
our nation the world's most successful capital markets."
sec.gov
Last update: 08/23/1999 |
