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The Big Board's Enemies

Traders Magazine, October 2004

John A. Byrne

The critics of the New York Stock Exchange are wrong. The case for repealing the trade-through rule and reforming the auction model has merit. But it is laughable when the critics suggest that trading reforms were a tonic for the Big Board's country cousin, Nasdaq. Good for whom? Do they really mean the retail and institutional investor? Give me a break. Last time I checked, it was hard to find a viable market center trading Nasdaq stocks. If the institutional trading markets are suffering at the expense of the retail investors, does this make economic sense? The typical Nasdaq model of the future is shaping up as a natural monopoly similar to the same natural monopoly - did someone call it evil? - known as the NYSE. The most obvious manifestation of this is the recent purchase of Schwab Capital Markets by UBS AG for $265 million in cash. [The Cover Story and Special Feature catch the crosscurrents.] Cutthroat profit margins seem to promote monopolies and economic tension. Yet, the critics want to dismantle the NYSE. The politicos in Washington are playing hardball. So what would it take to sponsor a bill to torpedo the rule? "If the trade-through rule was still around in a few years, we would pass a bill," Justin Daley, an aide to Rep. Michael Oxley (R.-Ohio), told me. Oxley is Chairman of the House Financial Services Committee. Daley, who was speaking extemporaneously, then added that the trade-through rule is not a free market reg, implying that repeal is a deregulatory measure. This came from one of the sharpest young market structure operatives in Washington. Oxley's office subsequently made it clear that the congressman has previously pressed for reform of the trade-through rule, which critics contend preserves the NYSE's monopoly. However, Oxley would prefer the regulatory agencies to dump the rule.

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