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May 26, 2005

SEC Chairman Defends Trade-Through Rule

By Gregory Bresiger

Why did the SEC approve a controversial rule that split the Commission and the trading world? Extending the trade- through rule to electronic markets came down to one issue - protecting the small investor, according to SEC Chairman William Donaldson. The key to protecting that investor is the use of an aggressive limit order. Putting it on the books will mean his order won't be "ignored," Donaldson said. "So the trade-through rule is, in the most fundamental sense, a rule that protects investors." Donaldson also contended that the debate over trade through too often was over competing markets.

"Some of the powerful market centers and professional traders most vocal in this debate seem to downplay order competition. But one of the greatest strengths of the U.S. equity markets is that the trading interest of all types and sizes of investors is integrated into a unified market system. Such integration ultimately works to benefit both retail and institutional investors, which I believe is why they overwhelmingly favor [the] proposal," according to Donaldson.