Commentary

Jos Schmidt
Traders Magazine Online News

Reducing the Regulatory Burden on Public Companies, Yes Please But...

In this commentary, NEO's Jos Schmidt discusses regulatory requirements and needs in the Canadian equity markets.

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January 1, 2002

At Deadline

By Editorial Staff

Victory

*Trading industry officials finally persuaded federal lawmakers to see it their way. After years of often futile efforts, the trading industry's number one Congressional goal finally has been achieved. Section 31(a) reform won final approval in the U.S. Senate. Last June the House approved the same package of reforms that will reduce this stock transaction fee.

Section 31(a) was designed to fund the budget of the SEC, but the de facto tax has taken much more than was needed from investors. The reform is expected to save investors an estimated $14 billion over the next decade. "This is a terrific victory for the investing public and the investment community," said John Giesea, president of the Security Traders Association. President George W. Bush's signature on the legislation is considered a formality.

ECNs

*The big are going to become bigger in the electronic communications business. That's the prediction of TowerGroup, a Needham, Mass., consulting firm, looking at the crystal ball in the wake of the coming merger of two big ECNs, Redibook and Archipelago. "This [merger] will drive other ECNs to seek similar partnerships in order to remain in the game," said Robert Iati, TowerGroup's research director for Securities and Capital Markets. Nevertheless, an ECN competitor said it would not be dwarfed by the new entity.

"Clearly, we feel very confident that our model is going to continue to be very successful based upon the core strengths that Island brings to its matching service," according to Andrew Goldman, executive vice president of Island ECN. Island, which racks up some 10 percent of Nasdaq trading volume, said the combined entity will still be smaller than Island [see Industry Watch].

Midwest

*SWS Securities, seeking to expand its institutional coverage in the Midwest, has hired several ex-Tucker Anthony Sutro traders and set up an office in Milwaukee. An SWS official said the 12-person regional office, which has been operating since early December, includes three institutional sales traders, three investment bankers, three institutional salesmen as well as various research and support sales staff. "We hired some people from Tucker who really know this area and can help us improve our institutional business in the region," said Donald Hultgren, executive vice president and director of capital markets for Dallas-based SWS. He said all market-making operations will remain at the home office.

Protection

*The Chicago Stock Exchange is proposing to give its specialists up to 15 seconds to fill limit orders traded through on either of the two primary stock exchanges. The move is intended to punish traders who are said to be abusing the exchange's trade through protection rules. Typically, a limit order is "traded through" and executed automatically if an inferior-priced order on another exchange is executed first. The Chicago's intention is to thwart an upsurge in gaming caused by the switch to penny increments.

Traders are executing orders on the New York and American stock exchanges and then, before the prints hit the tape, sending better-priced limit orders to the CHX. Priced just one or two cents better than the fills on the primary exchange, the orders give the trader cheap, instantaneous access to liquidity, pros note. The orders burden the specialists, however, with greater risk. The practice happens most commonly in actively traded issues, such as Exchange Trade Funds (ETFs), according to Paul O'Kelly, president of the CHX. The SEC, which is reviewing the proposal, is seeking public comment.