Commentary

David Weisberger
Traders Magazine Online News

Stop the BS & Promote Real Transparency!

In this shared blog, David Weisberger says a recent WSJ article is wrong and that traders do need to purchase faster and more comprehensive market data to avoid being fined for violating "Best Execution" obligations.

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July 31, 2002

At Deadline

By Editorial Staff

Best Execution

*The National Association of Securities Dealers is still trying to find a clear standard on best execution, and is seeking comments on several tricky parts of what it actually constitutes. Among those issues under discussion by the NASD are whether, "the obligation of best execution should be limited to customer orders where there is an agreement or arrangement between two broker dealers that the recipient broker dealer would comply with the duty of best execution." The NASD is also asking whether best execution should, "be defined more broadly to include all orders that are identified by the routing member as customer orders." The NASD, finally, asks whether there should "be a different best execution rule for orders from foreign broker dealers or affiliates?" The comment period was slated to end on Aug. 9.

Rebates

*Best execution has become more important to Bernard L. Madoff Investment Securities' customers than rebates. So the market maker announced it is ending payment for order flow. That's even though some clients are unhappy. "It was a difficult decision," said Mark Madoff, who is the firm's co-director of trading. "But we decided that since we're quoted in so many market centers that the quality of execution is more important than rebates to our customers."

Although Madoff concedes that the firm's policy change has brought some objections, he added that so far the number of lost clients has been "very small." About a fifth of the firm's business has been coming from customers who expected some sort of rebate, the firm said. Madoff's move comes at a time when several other firms have either ended the practice or have it under review.

ADF

*The Alternative Display Facility, which was finally approved, cleared the way for the SuperMontage to be fully operational. That's provided the ADF is viable. But the Security Traders Association, in a letter sent to the Securities and Exchange Commission, complained that the initial SuperMontage delays hurt all market participants. "Any further delay in its implementation could only harm the industry and public investors," the STA wrote.

SEC officials have promised that SuperMontage would not become operational until ADF is already working so that critics of Nasdaq's trading platform would have an alternative. Technically, said STA President John Giesea, the ADF is ready. But ADF, the SEC said, is supposed to function as a "viable alternative" to SuperMontage. Those two words can be the stuff of big debates, several trading executives told Traders Magazine.

Stock Future

*Single stock futures may begin to trade on several U.S. exchanges sometime later this year. That's because the SEC has given final approval to trading these entities. The approval comes after the Commodities Futures Trading Commission recently gave its ok. It stipulated that margin requirements in a single stock futures account should be set at 20 percent of current market value.

The final rules for trading the product are scheduled to take effect 30 days after the rules are published in the Federal Register. Designated contract markets for single stock futures include the Nasdaq Liffe Markets and Island Futures Exchange. Officials of these exchanges have said they hope to start trading this product in the late summer or early fall.