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September 30, 2001

SEC Group Advocates Transparency

By Gregory Bresiger

Most on Levitt's Panel' Support Competition in Data DistributionConsolidated market information and price transparency must continue to be the core elements of the securities markets in the United States. The Display Rule 11Ac1-2 should be retained.

Those were some of the conclusions of the SEC Advisory Committee on Market Information, which has issued its final report. However, the committee was not unanimous in its support of a controversial rule that mandates broker dealers to provide a consolidated display of last transaction reports and quotations from all reporting stock market centers.

Market Centers

Another conclusion of the report calls for market centers to be permitted to distribute additional market information, which would include limit order books free from mandatory consolidation requirements. (Market centers include listed exchanges, market makers and electronic communications networks.) The recommendation would allow information to be customized.

Also, the committee, with some dissenters, argued that the SEC should permit a system of competing consolidators. A majority of the committee expects that this system would evolve from the current unitary consolidator model. In this scenario, the Consolidated Tape Association receives and disseminates market information from all reporting market centers and distributes the information to vendors and subscribers.

For this recommendation to become effective, the SEC must be satisfied that a system of competing consolidators would meet its technological and economic standards. A few dissenters on the committee argued against the economic benefits of a new model.

Still, the Advisory Committee agreed that, if the SEC vetoes the competing consolidator model, it should "adopt specific improvements to the exit model." Those would include selecting the information processor by competitive bidding and broadening governance through a non-voting advisory committee.

On the issue of options, the committee was not decisive because it said it was more difficult to obtain options data than equities data. So a majority of the committee concluded that it supports, "the development of a consolidated display of the best bid and offer quotations from any options exchange and permission for competing consolidators to evolve."

The committee said that on this issue its, "conclusions were more tentative than with equities." That's because a competing consolidator options model might not be available that would meet SEC technological requirements.

Former SEC Chairman Arthur Levitt authorized the formation of the panel last year. The 25-member advisory committee was charged with exploring a number of relevant market information issues, including exchanges, ECNs, broker dealers, data vendors and public representatives.

Another controversial part of the report criticized the previous commission position on fees: "The Advisory Committee expressly rejected the proposal in the SEC December 1999 Concept Release for SEC review of market information fees under a cost based standard somewhat similar to a utility commission review of rates. The Advisory Committee recommends that the Commission continue review of relevant plan and fees under existing standards."

In a note accompanying the report, the chairman of the committee wrote that the most significant part of its recommendations is its calls "for a more competitive structure for market information consolidation and a less regulatory approach to this aspect of the National Market System. To a large extent, each of the committee's recommendations is a reflection of the new possibilities created by the changes that have occurred in information technology since 1975, when the statutory basis for the current market was enacted," according to Joel Seligman, who was chairman of the committee. He is also the Dean of the Washington University School of Law. An SEC spokesman said the commission will review "the document very carefully," but has no schedule for action on its recommendations.