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August 31, 1998

We don't want to get into a position again where a regulator has to come in and investigate our i

By Michael L. O'Reilly

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It's been less than a year since the STA's political action committee, STAPAC, was formed. Any progress?

AK: I think it's made tremendous progress. We've built our visibility in Washington. And [STA President] John Tognino is very good in that town. He knows what buttons to push in Washington.

The only failure of STAPAC is that we haven't marketed it enough to our membership. The STA needs to get the word out to its membership that STAPAC needs contributions. People in this business can be complacent to a certain degree.

How much money has STAPAC raised thus far?

AK: I would say about $150,000, all from member contributions.

Speaking about objectives, the STA seems to have focused more on their buy-side members in recent years.

AK: Definitely. It has to. A lot of our industry has gravitated to the buyside. It used to be that we would say the STA represents the market makers. But I think we represent the whole trading community. The buyside is as entwined in trading as the sellside. What affects us affects them.

That's why you have people like Holly Stark [head of trading at New York's Dalton, Greiner, Hartman, Maher & Co.] and Peter Jenkins [head of trading at New York-based Scudder Kemper Investments] working on STA committees alongside market makers. They may not agree with us at all times. But I think they understand that what affects the sellside also affects them.

Buy-side traders need to have strong relationships with sell-side firms, so they feel comfortable sending their orders to certain market makers for execution. The relationships in the industry may change with electronic trading and exchange consolidations, but you're always going to need relationships in this business.

You mentioned exchange consolidations. The Pacific Exchange and the Chicago Board Options Exchange have agreed to merge. The Cincinnati Stock Exchange and the Boston Stock Exchange are rumored to be in merger talks. The NASD merger with the American Stock Exchange [AMEX] and the Philadelphia Stock Exchange is close to approval. Is consolidation a wave of the future?

AK: Without question. Economies of scale is the name of the game with the exchanges. You're not going to be able to have eight different places trading the same stocks. You're starting to see some of the regional exchanges admit they can't survive on their own.

I don't think a lot of these exchanges have the money or the technology to grow. That's why they sign on with larger exchanges with deep pockets, to develop the technology to keep their business growing.

Are mergers among the regionals a threat to the New York Stock Exchange?

AK: What it does is maybe make the NYSE more competitive, and drive the costs of doing business down. Does a better marketplace surface as a result of the consolidation? Maybe. Maybe not. The NYSE is a tremendous organization with great leadership. Maybe they have to cut costs to the broker dealers or the customers as a result of the competition. They'll continue to maintain their market share, but maybe their margins will decrease a little bit.

Is this consolidation necessary?

AK: Yes. It is going to make for stronger markets going forward.