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April 1, 1999

U.K. Stock Exchange Is Approved for Trading U.K. Equities in the U.S.

By Staff Reports

The Securities and Exchange Commission has approved a 55-person, London-based electronic stock exchange's application for trading U.K. stocks in the U.S., a sign that equity markets are transcending national borders.

The SEC granted the filing exemption on March 23 to the Tradepoint Stock Exchange in London, making it the first time the SEC has allowed a foreign stock exchange to accept order flow directly from U.S. money managers and brokers.

"We expect fund managers in the U.S. to be receptive because Tradepoint allows them to avoid a broker-dealer intermediary," said Nic

Stuchfield, chief executive of the three-and-a-half-year-old exchange.

Institutions and brokers trade directly with each other with equal and anonymous access on Tradepoint. The exchange charges a small fee, usually several basis points per trade, whenever a user hits a bid or takes an offer, a process the exchange calls consuming liquidity. The investor exposing a bid is referred to as the patient side of the bid. The investor does not pay a fee.

Tradepoint, which only has one member of its 55-person staff based in the U.S., currently executes trades valued at up to GBP35 million, or $50 million daily on listed U.K. equities. Trades are cleared in the U.K. via the London Clearing House.

While Tradepoint seems somewhat similar to alternative trading systems, such as Reuters Group's Instinet, there is at least one important distinction. Instinet is operated as a broker dealer, while Tradepoint is a stock exchange.

The SEC's approval for Tradepoint comes as the U.S. equity markets are undergoing fundamental changes, with broker dealers and stock exchanges considering links with each other.

One broker dealer, Iselin, N.J.-based Datek's Island, is planning to become a stock exchange. staff reports

A bill by Rep. Sue Kelly (R.-N.Y.), reducing the amount of 31(a) fees paid by market makers and exchange specialists on each transaction in an equity trade, is expected to be introduced before the summer. As previously reported, her bill would set the fee at 1/600th of one percent on each transaction, instead of the current 1/300th of one percent.

The proposal is receiving strong support from several brokerage giants, as well as from the National Association of Securities Dealers, the New York Stock Exchange and William & Jensen, the Washington-based law firm that has lobbied for fee reductions, according to sources on Capitol Hill.


Kelly's legislation is likely to gain momentum as soon as Congress votes on financial-modernization legislation. The main hurdle for Kelly is crafting a bill that is revenue neutral. That is, the bill must provide a revenue stream sufficient to preserve the U.S. Department of Treasury's budget. The 31(a) fees, which are used to fund the annual budget of the Securities and Exchange Commission, are initially channeled into the department's budget. Critics point out that the annual sums raised are at least three times the amount needed to fill the SEC budget.

At press time, Kelly's office could not be reached for comment.