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December 1, 2002

Back to Drawing Board for Regulators

By Staff Reports

Regulators found no consensus in meetings they held with market participants. For example, best execution remains a highly debatable issue in the wake of the recent market structure hearings conducted by the Securities and Exchange Commission.

Participants debated whether it meant competition for best price, access fees, competition among market centers, speed versus price and who is responsible for attaining best execution on the institutional side.

But the buyside firm officials had one item they all agreed on - best price is not a priority in having a deal with size completed. Still, Morgan Stanley officials then said that many of the same clients who want speed also wanted the best price. Things became more dicey when payment for order flow was debated.

Some academics complained that the practice is a disservice to the investor because it "undermines best execution," according to Maureen O'Hara, an economics professor at Cornell University. But Bernard Madoff, the longtime market maker with his own firm, disagreed. He said that, "there is absolutely no reason why payment for order flow has to come at the expense of best execution."