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August 31, 1999

Island ECN Eager to Testify at Schumer's Senate Hearing

By William Hoffman

With electronic communications networks gaining ground on Wall Street, Sen. Charles Schumer (D-N.Y.) has called for Senate hearings on updating the regulation of stock trading systems and procedures.

Cameron Smith, for one, can hardly wait.

"We'd love the opportunity to discuss the issues," said Smith, general counsel for Island, the electronic communications network operated by Iselin N.J.-based Datek Online Holdings.

"If they have hearings, there's no question we should be a part of it," Smith added.

Stock Exchange

Island recently filed an SEC Form 1, registering the firm's intention to become a fully-chartered stock exchange. That means instead of avoiding regulatory responsibility, Island is seeking it out, Smith said.

As such, the company wants to voice its opinion on the fast-changing world of trading.

"If we are going to be given more regulatory responsibility, we want the benefits that come with it," Smith said.

Schumer's call for Senate hearings came during an address to board members and industry leaders last month at the New York Stock Exchange.

He singled out ECNs as "the cotton gin of the securities market." He called for minimum standards for exchange regulation and transparency; listing best bid and ask prices across all ECN's and exchanges; and establishing transaction capacity and client due diligence standards to minimize the risk that sudden volatility could spark a crash.

Schumer's office did not respond to numerous requests for additional comment.

Island's Smith said, "I think [Schumer] raised some very important issues."

Plugged In

In particular, Island liked Schumer's suggestion that ECNs be plugged into the major exchanges to avoid

the effects of market fragmentation that have already begun to worry securities regulators and editorialists.

Smith said Island will be pleased to share its insights at a future congressional hearing.

But it's not up to Schumer to call a hearing. That prerogative lies with the Republican chairmen of the committees that would sponsor them.

In this case, that means the Senate Banking Committee, chaired by Sen. Phil Gramm (R-Texas).

No Letter

More than a week after Schumer's speech, Banking Committee communications director Christi Harlan said she still had not received a letter or other official notice from the New York Democrat's office requesting that hearings be scheduled.

"We heard about [Schumer's speech]," Harlan said. "We read about it. And that's about it."

A spokesperson for the Banking Committee's House counterpart, the Commerce Committee, likewise reported a dearth of requests by members on that side of the Capitol for any ECN-related hearings.