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July 31, 2004

SEC Could Pull the Plug on Reg NMS

By John A. Byrne

The Reg NMS market structure blue print may eventually gather dust along with the mind-boggling proposals in the controversial document.

The SEC, in fact, is unlikely to implement any version of the proposals before November's elections, if indeed, it ever does.

At least that's the opinion of Charlotte Chamberlain, an analyst for Jefferies & Company, who covers trading firms, which include LaBranche & Co.

"We believe that adapting some form of [Reg] NMS would require Herculean efforts by the SEC, and our assessment is there is not a sufficient political constituency behind the proposal to overcome its opposition and motivate the SEC to act quickly," Chamberlain wrote in a research note.

"While it is possible that the SEC could adopt the proposal, "as is," we think the more likely outcome is the proposal dies a slow death due to lack of attention," she added.

The Jefferies analyst points out that the SEC would need to spend several months reviewing the comment letters on Reg NMS before drafting plans. Sure, a change of administration in Washington would not upend NMS regulation, but there is a sensed lack of urgency in enacting reform, Chamberlain notes.

John Heine, an SEC spokesman, says the agency does not comment on speculation. Still, SEC Chairman William Donaldson told the Senate Banking Committee in July that regulators expect to finish their work on Reg NMS by yearend. The SEC is reviewing some 600 comment letters.

Chamberlain said the demise of Reg NMS would be "good news" for LaBranche and other specialists.