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June 20, 2005

The Reg NMS Debate Goes On and On...

By Gregory Bresiger

Lawmakers will be closely examining the recently approved Reg NMS, which contained the extension of the trade-through rule to electronic markets. They promise to hold oversight hearings. Some lawmakers continue to criticize Reg NMS.

Nevertheless, no member of Congress, speaking to the recent STA Congressional Conference, called for the immediate reversal of the SEC's controversial three to two vote.

"It will certainly require some highly vigilant oversight. It will require much scrutiny," said Rep. Richard Baker (R-La), the chairman of the House Subcommittee on Capital Markets.

Previously, Baker has branded the trade-through rule a relic that should be junked. Still, in the wake of Reg NMS passage, he has promised hearings. Other lawmakers also remain suspicious of NMS.

"I'm very concerned with this. We run the risk of discouraging trading competition between exchanges," according to Senator John Sununu (R-NH), a member of the Senate Banking Committee. He has been a critic of the trade-though rule.

Sununu complained of "a tilt" in favor of the New York Stock Exchange. "Members of Congress should take a hard line on the rule," Sununu replied when asked by Traders Magazine if Congress might consider an override of the commission's decision.

Privately and publicly most congressional members were critical of the rule extension, but they hedged their critical comments. They said that they have to see the exact terms of the rules as they will be translated by the staff of the SEC. The Reg NMS plan-a complex measure covering four major areas of market structure-hadn't been printed in the Federal Register some four weeks after approval by the SEC. (See "Where is Reg NMS?" item).

When Reg NMS was passed several lawmakers issued critical press releases, intimating that they might try to override the SEC's action. However, at presstime, no lawmaker had commited to offering an override bill.Spokesmen for members of Congress have emphasized that they need to go over the order in the Federal Register line by line. They have also said that they want to see how the industry reacts to the new rules before they take any action in Congress. The debate may continue for some time because there is much to read, interpret and put into rule form.