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August 31, 2003

STA Friends and Foes

By John A. Byrne, Editor

Mary McDermott-Holland, profiled in this month's cover story, assumes her new role as

chairwoman of the Security Traders Association at a critical moment in regulatory history. The job comes with a heavy load. But the popular Boston buyside trader can handle it. McDermott-Holland's job is formulating a logical set of policies for a group that is trying to be more than just a sellside, Nasdaq-oriented trade association. McDermott-Holland, who succeeds the equally popular Jack Hughes of Philadelphia, must meld the concerns of buyside and sellside constituents into sensible but far-reaching policy. But these must be policies that reflect the best interests and traditions of a diverse organization. The STA includes market makers, buysiders, alternative trading systems and the traditional brick and mortar type stock exchange traders. It won't be easy. Can the industry satisfy the demands of market makers, for instance, while not stepping on the toes of the ECNs? Can it persuade the buyside and sellside to be nice boys and girls? How about reforming the Intermarket Trading System so that NYSE off-board trading pros can have better access to the listed markets? That action would alienate some powerful interests of the NYSE, which has its own group of pros, a group that seems to ignore the STA. Still, successfully representing these various groups is possible. McDermott-Holland, in her own charming fashion, may get it done. She can count on STA President John Giesea, a man of principle and professional accomplishment.

Finding common ground is nothing new at the STA. It recently published a White Paper on market structure, a document that showed how difficult it is to reconcile its own lofty goals with the obvious objective of every trading professional: making money in a capitalist market. The STA identified fragmentation, market linkages, ECN access fees and regulatory arbitrage as areas ripe for immediate reform. The STA said the most important criterion is that each market center be judged on whether it impedes or promotes the National Market System (NMS).

The STA should be commended for its bravery. Carrying out its mission risks alienating many of the same traders that the STA wants to represent. After all, the NMS puts the welfare of individual investors before the goals and best interests of the professional trading community. Nevertheless, the STA's White Paper notes the lunacy of the current policy on access fees. It contains the example of how a broker might be profitably served by locking a market, instead of hitting a bid, thereby earning a small rebate. Unfortunately, these same outrageous rebates and access fees have become embedded in the business model of various ECNs and market centers. Convincing these groups that access fees should be abolished so the goals of the NMS can be accomplished is a big job. Muy buena suerte, Mary. And may the wind be at your back.

John A. Byrne