Commentary

Elaine Wah

Modern Markets, Modern Metrics - A Blog By IEX

In this blog by IEX's Elaine Wah, the newest public exchange looks to refute public claims that the metrics it uses are designed to inflate its own volume numbers and mislead people.

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January 1, 2005

At Deadline

By Editorial Staff

Reg NMS

*Industry pros spent the holidays studying the Securities and Exchange Commission's proposed new version of its controversial trade-through rule. The revision, one part of a revamped Reg NMS, both narrows and broadens the scope of the original trade-through proposal. The new version extends trade-through protection only to those quotes - of both Nasdaq and listed securities - that are "immediately accessible." Those that can't be executed automatically receive no protection. The original proposal provided for a blanket trade-through rule covering all quotes. The revision has resulted in the elimination of the first version's "opt-out" provision. The SEC now says opt-out is unnecessary. Under the new version, the SEC has also proposed broadening trade-through protection to include all posted quotes. The original idea was to offer protection only to a market's best bids and offers. This new "voluntary depth alternative" has been criticized by the New York Stock Exchange.

Bear Stearns

*Bear Stearns has merged its listed and OTC trading operations. Traders from both divisions are now grouped together according to industry sectors. A Nasdaq market maker with responsibility for technology stocks, for instance, will now be seated alongside a listed trader with a similar portfolio. The move is intended to facilitate the flow of information between traders working the same sector. Bear previously assigned traders to specific sectors within their division. Ken Savio remains in charge of the entire equity trading operation. Aldo Parcesepe runs the Nasdaq desk. James Manfredonia runs the listed desk. There are no immediate plans to assign a single trader responsible for both Nasdaq and listed names in his sector.

Soft Dollars

*Soft dollars survived another year and were endorsed by a regulatory task force that reported as 2004 was coming to a close. Soft dollars are, "especially beneficial to the clients of smaller investment advisers," according to the NASD report of the Mutual Fund Task Force on Soft Dollars and Portfolio Transaction Costs. Some advisers need soft dollars because they lack effective research capabilities. Still, the NASD recommended that those using soft dollars narrow the scope of research services, "for the purposes of the safe harbor set forth in Section 28(e)." NASD recommends that advisers, "Apply disclosure requirements to all types of commission and require enhanced disclosure to fund shareholders about portfolio transaction costs."

NYSE

*Is the New York Stock Exchange floor auction threatened with extinction? According to Big Board CEO John Thain, the Securities and Exchange Commission's proposed trade-through rule could mean an end to floor trading at the Big Board. As part of a revised Reg NMS package, the SEC is considering the enactment of one of two possible trade-through rules. The first would extend coverage only to the market's best bids and offers, the so-called "top-of-book." The second would apply to all quotes. That has the NYSE worried. "Going beyond top-of-book makes our hybrid market very difficult to implement," Thain told reporters at a press conference. The more comprehensive trade-through rule could force it to trade more frequently with other marketplaces electronically. That would disrupt the floor auction process, especially during fast market conditions, the exchange believes.