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April 1, 2004

An SEC Life Saver For Market Makers? A Glimmer of Hope in Fee and Market Data Proposals

By Gregory Bresiger

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  • An SEC Life Saver For Market Makers? A Glimmer of Hope in Fee and Market Data Proposals

Did the Securities and Exchange Commission's market structure proposal finally get it right this time?

That's the question that trading practitioners and executives - who have been eagerly awaiting the SEC National Market System (NMS) plan for some two years - are asking as they wade through the hundreds of pages. No one seems sure at this point, but various groups are preparing to make their points in what is likely to be a protracted debate.

The SEC plan tries to resolve years of arguments over issues as varied as ECN access fees, the trade through rule, market data and sub-penny trading. If successful, the objectives of these proposals, "would affect fundamental innovations in this nation's equity markets," according to the SEC.

"It's a good first step because they're finally trying to tackle some of these very difficult issues," Arthur Pacheco, a trading executive and senior managing director with Bear Stearns, said of the SEC proposals. "I think the SEC has done a reasonable job with a very difficult task."

But Pacheco said he has questions about how the SEC is approaching the market data issue, the trade through rule and the proposed one mil ECN access fee. So the debate over market structure hasn't ended. It has actually just begun, several trading officials noted. The comment deadline for this set of proposals is May 24.

"And the comment period is expected to be extended beyond that," said Rich Repetto, a trading industry analyst with Sandler O'Neill & Partners. "And what they start out with isn't necessarily what they're going to end up with."

One key official of a leading trade industry group said, "We think the proposals are intelligent and we commend the Securities and Exchange Commission." But these words of praise from John Giesea, President and CEO of the Security Traders Association, come with a few caveats.

Almost any market structure proposals would have been welcome because the STA, for some two years, has been calling for the SEC to pay attention to battles between various market centers. The group, in a White Paper presented last year to the SEC, pushed for the elimination of all access fees, called for better linkages, a set of improved Intermarket trading rules, consistent rules across all market centers, as well as the elimination of sub-penny trading.

Different Sides

Although the STA was very happy with the latest sub-penny proposal - "a slam dunk," Giesea said - and generally endorsed the access fees plan, there is a potential battle brewing within this group and the industry about the trade through plan. This was conceded by Giesea, who said that two key STA committees, Institutional and Trading Issues, will be reviewing what is expected to be the most controversial part of the proposal.