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April 30, 2004

A Trade-Through Defense Campaign

By Gregory Bresiger

The New York Stock Exchange, whose officials have criticized proposals to revise the trade-through rule, have also launched a campaign to save it.

They want executives of listed companies to write letters of protest to the regulators and lawmakers. The Securities and Exchange Commission, in its Reg NMS proposals, is looking at revising the rule.

Big Board officials, in a memo, have provided critical points for letters that would be sent to the SEC. The officials warn that a change in the rule "could substantially weaken an important element of investor protection."

These NYSE officials want their constituents to let the SEC know that the trade-through provision provides investors with assurances they'll get the best price. And that's regardless of whether they are large or small investors, the exchange contends.

"The SEC has proposed allowing institutions to opt out of this rule," the NYSE wrote. "This means those institutions would have the right to execute at something other than the best price on behalf of their ultimate investors. Professional traders would be encouraged to internalize customer flow."

The NYSE has other concerns. "Taking liquidity out of the market will raise trading costs, widen quoted spreads and increase volatility," the exchange said.

The memo contends that providing institutions an opt-out exception, "creates a regulatory endorsement for the position that the price does not matter even when speed and anonymity are relatively equal between markets."