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July 27, 2005

Scholars Rip Donaldson

By Gregory Bresiger

(Traders Magazine, July 2005) -- "Disastrous" and "disingenuous" are how two market structure scholars characterized the record of former SEC Chairman William Donaldson, who resigned on June 30. Donaldson, the 27th chairman of the SEC, served in the post since February 2003.

Peter Wallison, a scholar at the American Enterprise Institute, said he "disagreed with everything he (Donaldson) did."

Wallison contended that the SEC's choice to regulate hedge funds was "not needed" and that the extension of the trade through rule in Reg NMS was "a disastrous decision."

Benn Steil, a scholar with the Council on Foreign Relations, said the Reg NMS decision on limit orders was "disingenuous." Steil argued that, if limit order protection is "such a good idea, why did it only apply to the top of the book? Why wasn't it for all limit orders?" he asked. "I think his reasoning was strange," he added.

Wallison and Steil's comments reflect widespread sentiment in the electronic trading industry, much of which had been lobbying for the abolition of the trade-through rule.

But the controversial Donaldson also has his defenders, contending that his market structure plan was needed.

Rick Ketchum, chief regulatory officer for the New York Stock Exchange, said Donaldson restored faith in the integrity of the Securities and Exchange Commission.

"I think Bill Donaldson's tenure was outstanding. His decision on Reg NMS was sensible," Ketchum told Traders Magazine.