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April 30, 2001

SRO Reform Too Little, Groups Contend

By Gregory Bresiger

The Securities and Exchange Com mission should go back to the drawing board, trading executives say.

The regulators understand the problems of SROs, many of which are falling behind the often more nimble electronic communications networks, but their proposed reforms won't work.

That's the gist of complaints from buyside traders and sellside groups as well as academics who have studied the SEC's proposed changes to Rule 19b.

Proposed Revisions

The 19b reforms would allow SROs to make some quick changes in some of their rules. Under the proposed revisions, the categories of proposed rule changes that may qualify for immediate approval would include many trading rules. The reform would also allow SROs to file proposed changes electronically, according to the SEC.

But each group has a different criticism of 19b. For example, buyside firms want the public comment period, which recently closed, to be re-opened to allow for a more thorough review of the proposed changes, according to a letter from the Investment Company Institute. But SROs say that the proposed 19b expedited rule changes should provide more extensive relief for their members.

Meanwhile, a group of academics at George Mason University also is critical of the proposed reforms.

"Although the SEC's deregulatory action is a step in the right direction, it seems overly cautious. It also appears to be based on a general mistrust of SROs' willingness and ability to adhere to relevant securities laws," according to Jay Cochran, a fellow at the Mason's Mercatus Center.

Wendy Gramm, director of regulatory studies at the center, and a former chairwoman of the Commodity Futures Trading Commission (CFTC), said the SEC isn't moving fast enough.

"Over the past six months the CFTC processed nearly 80 percent of SRO rule change proposals in under 10 days, as compared to 19 percent processed by the SEC in 10 days or fewer," she said. "In addition, the CFTC's self certification process covers a significantly wider variety of potential rules changes than does the SEC."

An SEC official said the comment period is closed and it is unlikely to be re-opened. He told Traders Magazine as it went to press that there was no scheduled meeting to act on 19b changes. He added that the SEC doesn't "comment on public comments."