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April 21, 2005

Don't Extend Trade Through

By Gregory Bresiger

An expansion of the trade-through rule into the options markets would be as bad as extending it into the electronic equities markets. That's the jist of a comment letter sent by Citadel Investment Group, a big options player, to the SEC.

Adam Cooper, Citadel's general counsel, argued on behalf of Citadel that the "Commission should eliminate the trade-through rule altogether and instead rely on market centers to discipline inefficient market centers and ensure high execution quality."

Barring abolition of the rule, Cooper wrote that the proposed reform of the rule would be "a substantial improvement." He added that trading options, the same as trading equities, must have a rule exemption for manual quotes.

Cooper wrote that, "the problems caused by applying the trade-through rule to manual quotes are more pronounced in the options markets. Options are derivative in nature and thus must rapidly react to price changes in the underlying securities."