Commentary

Jared Dillian
Traders Magazine Online News

Was it Worth It?

In this piece from 10th Man, author Jared Dillian discusses how the ETF revolution is less about ETFs and more about indexing; about how people have come to view stocks less as stocks and more as blobs of stocks.

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July 31, 2000

Washington Watch: An Eye on Traders

By William Hoffman

An Eye on Traders

Items For Trading Pros as 106th Congress winds down.

Decimalization, Part Deux

The switch to decimal trading is set to happen, observers agree, and it all started in Congress.

But Lee Korins, president of the Security Traders Association, noted, "Despite all the press, I don't think anybody really knows how decimals are going to affect trading."

Federal rulemakers and industry self-regulatory organizations are working on the new trading framework.

Nevertheless, Korins and others agreed, Congress will almost certainly have to arbitrate disputes in this area.

Single-Stock Futures and Margin Lending

"It's impossible to have the short sale rule we have today in markets that trade in pennies," Korins said. The SEC rule prohibits short sales unless the last sale was at a higher price than the preceding sale, and the last sale price was unchanged but higher than the last preceding but different sale.

The rule was designed to stop pool operators,' who use heavy short-selling to drive down stock prices, then pick up the shares at a large profit.

Single-stock futures trading, which is advocated by the Competitive Market Supervision Act, leaves the status of the current short sale rule undecided, Korins said.

Added Dan Crowley, vice president of governmental affairs at the NASD, "A fundamental concern is the potential for creating regulatory arbitrage" between futures contracts governed by the Commodity Futures Trading Commission and options contracts on equities governed by the SEC.

"I think it is an issue that will need to be addressed in the legislative process, and it will be a big one," he said.

Suitability

"Customization" is the buzzword for websites of all kinds these days, said Marc Beauchamp, executive director at the North American Securities Administrators Association (NASAA), in Washington. That's true for electronic brokers and traders' websites as well, he noted. However, securities firms are bound by legal standards governing their suitability to make stock recommendations.

It's fine for Amazon.com to record your reading habits and suggest new books to buy, Beauchamp said. It's another matter for a broker's site to record an investor's trading habits and suggest new stocks she or he might trade.

"It's clearly an issue of interest" to the state regulators NASAA represents, Beauchamp said. If the association makes a proposal, he added, it will likely start from the presumption that online suitability standards must be uniform across all states.

Market Fragmentation

The SEC is currently reviewing public comments on its concept release on market fragmentation, according to agency spokesperson Chris Ullman.

Fragmentation was the subject this year of both Senate and House committee hearings on Capitol Hill and around the nation.

The SEC's concept release, "will probably head in the direction of a rule proposal, but at this point I can't speculate anymore," Ullmansaid. "We've got a ways to go there."

Regulation FD

The shorthand name for the SEC's pending regulation requiring that issuers use certain public forums to make financial disclosures,

Regulation FD is opposed in its current form by the SIA, said George Kramer, general counsel for the trade group.

"We're concerned that the rule requiring issuers to only communicate through specialized public disclosure channels will in fact discourage issuers from communicating at all," he said.