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February 1, 2005

Fears of a Federal Takeover

By Gregory Bresiger

A version of a consolidated limit order book, part of a Reg NMS proposal, would destroy the competitive and innovative nature of markets. So says Thomas Caldwell, chairman of Caldwell Asset Management and a Big Board member. He contends the adoption of anything approaching a CLOB would wreck the NYSE's hybrid market plan.

"The proposal by the SEC to require exchanges to route orders to all market centers at all price points would establish the equivalent of a CLOB," Caldwell wrote in a comment letter to the commission, "This measure would remove any real competitive difference from the stock exchange landscape, short of bribes, for order flow."

John Thain, chairman of the New York Stock Exchange, wrote in a Wall Street Journal piece that the CLOB has "been wisely and repeatedly rejected by the previous SEC chairmen and commissioners." He says the CLOB "would convert our dynamic, diverse, and internationally competitive markets into a government-mandated, one-size fits-all monolith."

Caldwell also wrote that the NYSE's price discovery is "vastly superior" to an all-electronic system. NYSE member, Sylvia McEneaney, charged that a CLOB has been rejected by Congress and the SEC since the late 1970s and should be rejected again.