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May 31, 2000

Traders Attack High Cost of Compliance: OATS Record Keeping System Seen As Thr

By William Hoffman

If you thought Section 31 fee relief and decimalization were the only concerns on traders' agendas, think again.

The Security Traders Association's Fourth Annual Congressional Conference in Washington might change your mind.

A more flexible, small-business friendly OATS rule is needed, according to Bonnie Wachtel, vice president and general counsel for Wachtel & Co., in Washington. And she wants the Securities and Exchange Commission, which approved of OATS, to listen.

"It is the most expensive regulation we've seen in the 40 years we've been in the industry," Wachtel said in an interview at the conference. She says the current OATS rule hurts small brokerage firms. Several executives at other small firms, speaking on the condition of anonymity in recent interviews, concurred.

OATS is the Order Audit Trail System proposed by the National Association of Securities Dealers in the wake of the price-fixing lawsuits against Nasdaq.

"[OATS] is just a huge record-keeping initiative," Wachtel complained in an interview at the conference. "It requires orders to be clocked and a lot of information to be indicated to the second, and then e-mailed to New York at the end of every business day."

Wachtel said she sent regulators a comment letter earlier this year, warning that the rule could put her out of business.

Phase three of the rule was scheduled to go into effect on July 31. Wachtel said a conferee told her that her letter helped delay implementation of phase three of the OATS rule until October 31.

(She learned this, she said, during a question-and-answer session with SEC director of market regulation Annette Nazareth.)

The proposal is undergoing revisions. Wachtel said that Nazareth, during a private conversation at the conference, expressed sympathy for her firm's plight.

"Every firm is not interested in pushing out the horizon of the brave new world," Wachtel said. "You know, I'm not interested in globalization, or decimalization, or round-the-clock trading. None of that stuff affects me."

"What does affect me is regulatory burden," she added. "Frequently these rules are written in a way that make sense if you have a large volume [of orders]. They are not sensible if you don't." Wachtel said it is important for small firms to be heard. While she felt that regulators want to do the right thing "for small firms, it is a life or death [situation]."