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June 30, 2004

At Deadline

By Editorial Staff


*Some may think that rebates and access fees will not survive or will be eventually reduced to insignificance. But not officials of the National Stock Exchange, which was previously known as The Cincinnati Stock Exchange. They were recently asking the SEC for permission to extend their liquidity provider fee and rebate pilot program, which was due to expire. Exchange officials want the program extended through the middle of next year. The program provides a transaction credit for liquidity providers. It is paid by liquidity takers on each "intra-exchange" execution in Nasdaq securities, according to the filing. The exchange does not believe that the proposed rule change will impose any "inappropriate burden on competition."


*The Securities and Exchange Commission is throwing more fuel into the trade-through fire. Based on feedback from an April hearing, the agency reevaluated and published for comment four major parts of the trade-through proposals of Reg NMS. The new thinking could bode well for the New York Stock Exchange, which was expected to lose under the original proposal. Now the SEC is considering changing its fast market/slow market concept to one of fast quotes and slow quotes. The SEC is also looking at defining the word "automated" as it pertains to quotes and orders. And the SEC is mulling the possibility of trade-throughs unrestricted by price. Finally, the SEC is questioning the need for an opt-out clause if certain "manual" markets automate their executions. If the four new talking points do shape the final form of the trade-through rule, the Big Board would likely face fewer trade-throughs than under the initial Reg NMS draft, according to some observers

Foreign Firms

*The foreign operations of New York Stock Exchange member firms are now said to be within the reach of Big Board regulators. NYSE officials confirmed that they are now conducting investigations of some of the foreign operations of members, and affirmed they have the authority to do so. One reason cited by Big Board regulators is that so much business is being executed overseas. NYSE officials said that another reason for assigning their people to firms outside the U.S. is because a large misappropriation of customers assets was discovered at a foreign branch of a member firm. Although NYSE officials wouldn't name the firm, they confirmed that they have had examiners in France and are increasing their level of cooperation with regulators of other countries.


*The Securities and Exchange Commission may force changes in the operation of the NASD's Alternative Display Facility (ADF). Based on criticism raised at market structure hearings in April, the SEC is considering whether to require entities such as the ADF to publish their quotes through an SRO. Panelists at the hearing complained it was too costly to establish direct links to market players like the ADF, which trade limited share volume. They want instead to be able to access the quotes through an SRO such as Nasdaq. Only if volume grew sufficiently could the ADF then pull out of the SRO. At the April hearing, trading veteran Bernard Madoff, who has studied market structure over a long career, noted the problem, "shows up to a very small degree in the marketplace today." But Madoff noted that, "this doesn't mean that it cannot become a real problem in the future."