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April 1, 1999

SEC Officials Say Traders Should Get ECN Compo

By Staff Reports

Securities and Exchange Commission officials say that market makers should be permitted to charge customers for the cost of accessing electronic communications networks (ECNs).

SEC Commissioner Laura Unger told the annual Washington conference of the Security Traders Association that market makers probably should be allowed to charge a "reasonable fee" for access, according to published reports.

Unger's views do not necessarily represent current SEC policy, and are her own personal opinion, she said.

Unfair

Market makers view the current arrangements with ECNs as unfair.

A trading desk typically pays an ECN a penny a share for an execution. But market makers are not allowed to charge ECNs for hiting their bids or taking their offers.

The NASD's agency-quote proposal allows market makers to operate like ECNs and charge fees to customers whenever they execute their limit orders posted on Nasdaq as agency quotes.

But some market makers view the NASD proposal as far too complex.

Incorporate

Robert Colby, deputy director of the SEC's division of market regulation, who was also a speaker at the same conference, agreed that ECN access fees should be incorporated into the quote for a stock.

But practically speaking, Colby felt that market makers would have to wait until the switch to a decimal-based trading system before that could be accomplished.

Unger later said that it would be perfect timing to permit market makers to start charging access fees at the same time as the switch to trading stocks in decimal increments.

The move to decimals is scheduled to happen in mid-2000.