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The Case for Real Reform

Traders Magazine, June 2004

Larry Leibowitz

Competition is being held back in the NYSE and Amex-listed securities markets. It can be unleashed by reforming the trade-through rule and the current market data system. The SEC's Reg NMS contains reform proposals. And what has to be reformed? For starters, the trade-through rule, which purportedly protects investors from inferior prices. It has actually insulated the specialist system from competition. The trade-through rule reduces efficiency, because it forces orders to be routed to manual markets for execution. In some cases, it undermines a broker's duty of best execution. Moreover, investors attempting to cancel orders often find themselves in limbo, waiting for an exchange response, and then discovering that their orders have been executed against their wishes.

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