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May 31, 2004

Options Mart Is No.1 Despite Trade Through

By John A. Byrne

Are advocates of trade-through reform forgetting about service?

One securities industry executive thinks so. And he suggests that U.S. market centers should concentrate more on competitive pricing and access to the best prices than on trade-through reform.

Michael Simon, general counsel of the International Securities Exchange (ISE), reckons his electronic options mart is an example of how to succeed: Since it was launched in May 2000, the ISE has become the largest equity options exchange. That's despite his own industry's trade-through protection rule, according to Simon.

Simon's counterpart at the Philadelphia Stock Exchange, Lanny Schwartz, contends that advanced technology and attractive fees have also contributed to the competitive options landscape. The two exchange executives were speaking on a panel at a trading conference at Baruch College in New York City.

At the same conference, another industry leader pressed his case for trade-through reform. Instinet CEO, Ed Nicoll, said in a speech that Nasdaq, which does not have a trade-through rule, provides a better deal for investors than the NYSE. He said 11Ac1-5 statistics show that Nasdaq had lower effective spreads compared with the NYSE in S&P 500 stocks.

"Greater size at the inside and narrower spreads throw cold water over the assertion that a trade-through rule is necessary to encourage limit orders," Nicoll told the Baruch conference.