Commentary

Elaine Wah

Modern Markets, Modern Metrics - A Blog By IEX

In this blog by IEX's Elaine Wah, the newest public exchange looks to refute public claims that the metrics it uses are designed to inflate its own volume numbers and mislead people.

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March 1, 2003

Cincy Tells SEC: Nasdaq Misleads

By Gregory Bresiger

Nasdaq's complaints in a recent white paper about holes in the regulatory system are based on "material misstatements, mischaracterizations and suppositions." Nasdaq is attempting to "cloak its anti-competitive desires behind the claims that the CSE [Cincinnati Stock Exchange] and other markets lack sufficient rules...CSE is greatly troubled by these accusations, which the Nasdaq knows to be false."

That's what Jeffrey Brown, senior vice president and general counsel of the Cincinnati Stock Exchange, wrote in a blistering reply to the Nasdaq white paper, which was sent to the Securities and Exchange Commission. Brown contended that Nasdaq's paper is inconsistent.

"Nasdaq," Brown continued, "does not appear to be arguing that the same surveillance programs are inadequate as applied toward NYSE-listed securities, nor does Nasdaq appear to be arguing that NYSE assume regulatory jurisdiction over Nasdaq members trading NYSE stocks." Nasdaq, Brown contends, is less concerned about regulatory holes than its own competitive position and costs.

"Its motivation in proposing this change is to effect a bailout of its contract for regulation with NASD, a contract that failed to anticipate real competition in the trading of Nasdaq securities," according to Brown.

Cincinnati officials contend that, if the SEC accepts the proposals of the Nasdaq white paper, the system of self-regulation will end because Nasdaq will be able to police its competitors' marketplaces.