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November 1, 2004

Demise of Trade-Through Rule

By Editorial Staff

The big guns in Washington are playing hardball with the New York Stock Exchange.

The office of Rep. Michael Oxley (R.-Ohio), chairman of the House Financial Services Committee, has signaled that the days of the trade-through rule are numbered.

Critics of the rule credit it with preserving the Big Board's listed trading dominance.

"It is anachronistic and I think it will die because it is outdated," Justin Daley, an aide to Oxley, said at the STA's annual conference in Boca Raton, Fla. Oxley himself has previously called for reform of the rule, which was designed back in the pre-decimal era of wider bid-ask spreads to offer price protection on customer orders.

At the Securities and Exchange Commission, the powerful director of market regulation had no words of comfort for the Big Board's floor-based auction model.

"It's unclear whether the floor will exist ten years from now," Annette Nazareth told reporters at the STA confab.

Did she know something? Nazareth - a self-professed friend of the trader - does not simply isolate herself in a regulatory tower. She hung out at one STA conference party, at ease with traders who were quaffing cold beers.

Daley, senior counsel and one of the market structure stars of Oxley's group, told Traders Magazine the House Financial Services Committee may ultimately promote legislation to repeal the trade-through rule. He says the rule was, in effect, government sanctioned and should therefore be regulated out of existence.

Institutional investors, such as Fidelity Investments, which represents individual investors, would propel this reform, according to Daley.