Commentary

Richard Repetto
Traders Magazine Online News

Why Do Exchanges Own Multiple Licenses? It's Not Hard To See, Look at the SEC

In this recent research note, Sandler O'Neill + Partners, L.P. Principal Richard Repetto examines why the public exchange operators hold multiple licenses and that rationale behind this phenomenon.

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July 31, 2004

Nasdaq Favors An Auto Floor

By Gregory Bresiger

Floor-based market models must automate and "migrate" to the Nasdaq model. That's what Nasdaq's general counsel has told the SEC while generally lauding efforts to change the trade-through rule by adding an opt-out provision.

"Electronic trading is best for investors. Importantly, this truth is implicit in the SEC's proposal," according to Edward Knight, Nasdaq's general counsel. The Reg NMS package of reforms is much needed, he added.

"One might ask why the government has to do this? The reason is that the business of running a floor-based auction market is currently protected from competition by a set of SEC-mandated rules," Knight wrote to the SEC.

Knight also charged that specialists are benefiting from outdated regulations. "These rules, which are relics of our past, have provided an extraordinary dividend to the intermediaries participating in these floor-based markets. The industry is eager for change," Knight said. Nasdaq, in arguing for the revision of the almost 30-year old trade-through rule, believes there is no need to extend it to its market. But it wants regulators to "open the trading of the New York Stock Exchange securities to competition by eliminating the trade-through rule. During the floor exchange's transition to a modern market, a trade-through rule may exist, but only if accompanied by a truly usable opt-out exemption," according to Nasdaq's filing.