Commentary

Jos Schmidt
Traders Magazine Online News

Reducing the Regulatory Burden on Public Companies, Yes Please But...

In this commentary, NEO's Jos Schmidt discusses regulatory requirements and needs in the Canadian equity markets.

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June 20, 2005

At Deadline

By Editorial Staff

Citadel's New Line

*Citadel Execution Services (CES), the broker-dealer arm of the large hedge fund, is entering the wholesale equities business. The Chicago-based shop will "soon" use computers to make markets in all Nasdaq and listed names," according to Andy Kolinsky, in charge of sales and client services at CES.

Citadel is the second big financial firm recently to announce plans to become a wholesaler. Earlier this year, Citigroup started its broker-dealer servicing business. Wholesalers execute orders for retail brokerages. The major players are Knight Capital Group, Bernard L. Madoff Investment Securities, E*Trade Financial Group and Automated Trading Desk.

Citadel has made markets in options on the ISE for about two years. It began offering retail brokers routing services to options exchanges in January. The move into wholesaling is a logical extension, say Citadel execs. CES has no plans to hire human market makers. Computers will do all the work.

Harborside Docked

*Harborside Plus is gone. Last month the firm closed Harborside Securities, ending its anonymous matching system, Harborside Plus. The reason? A liquidity crunch: The firm needed cash to continue. Harborside, which rarely traded more than a few million shares per day, finally ran out of money.

The three-year-old electronic brokerage spent its last months unsuccessfully trying to secure a buyer, sources tell Traders Magazine. Morgan Stanley was rumored to be interested, as was a "similar-type firm," according to one source. Both passed on the deal. Morgan Stanley declined comment.

NSX Violates MOE

*The National Stock Exchange (NSX) and its top leader failed to enforce its market order exposure (MOE) rule, according to the SEC. Both have been censured. The NSX, at the direction of CEO David Colker, neglected to file a proposed rule amendment for its limited enforcement of MOE, regulators said. Consequently, investors lost opportunities for potential price improvement during the 1997-2003 period, said the SEC, which ordered NSX to spend $1 million on a regulatory auditor.

An SEC official wrote that SROs need to "vigorously" enforce their rules. The settlement includes Colker's censure and a $100,000 civil fine. It also requires structural changes in the NSX. An NSX attorney told Traders Magazine it "was a good settlement and we look forward to enhancing our regulatory and enforcement programs."

Blocking & Trading

*Block traders, under Reg NMS, will find the SEC's new trade-through rule a bigger challenge than will small-order traders, according to top Street executives speaking at a recent SIA market structure conference. Chris Concannon, a Nasdaq executive vice president, and Andy Madoff, of wholesaler Bernard L. Madoff Investment Securities, explained why. "The problem is on the institutional side," Madoff said. "We've been living inside the NBBO for many years." Of block traders, Concannon asked: "Do you sweep the market? Or is your attempt to comply enough?" Under the new rule, block traders have two choices. They can comply by printing trades at the inside. (And keep records that prove the trade was inside when it was negotiated.) Or, if they choose to print outside the NBBO, they must sweep the market's better quotes.