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July 27, 2005

The Reg NMS Debate Goes On:
NMS Decision

By Gregory Bresiger

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  • The Reg NMS Debate Goes On:
    NMS Decision
  • Page 2

(Traders Magazine, July 2005) -- Representative Richard Baker, the chairman of the House Subcommittee on Capital Markets Insurance & Government Enterprises, opposed the recently passed Reg NMS plan. He was critical of the extension of the trade-through rule, or what the SEC calls the order protection rule.

Baker (R-La), in the months leading up to the final adoption of Reg NMS by the SEC, called the trade though rule a "relic" and an "anachronism." Along with much of the electronic trading industry, he has advocated the end of the rule.

In the days after the controversial three-to-two SEC vote, Baker and others on Capitol Hill hinted that they might try to reverse the SEC's decision. However, no lawmaker would commit to trying to override the commission's action until the unveiling of the order. That 500-page order was recently released. Rep. Baker discussed Reg NMS issues with Traders Magazine's Gregory Bresiger.

Traders: The SEC, in passing Reg NMS, said it was putting the best interests of individual long-term investors-who it said are paying excessive transaction costs because of undue volatility-over those of professional traders who often hold stocks for very short periods.

Congressman Baker: I don't know that I agree with their reasoning. I agree with the underlying premise that investors should be treated the same regardless of the dollar flow they bring to the market, regardless of in which profession they engage. The overarching mission of the Congress and the SEC should be to ensure transparency and that all orders are treated in an equitable manner. But I don't necessarily agree with all the SEC conclusions.

Traders: The SEC staff built its case on an OEA (Office of Economic Analysis) study that found that trade-through rates on both the Nasdaq and the NYSE are excessive. They said that they were 7.9% and 7.2%, respectively. That is resulting in "inferior prices," the staff said. That study's authenticity was disputed by the two dissenting SEC commissioners. Who is right?

"If we want to have uniformity, let's abolish the trade-through."

Congressman Richard Baker