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July 5, 2006

Traders Told to Prepare for Reg NMS Despite Delay Until the First Quarter of 2007

By Gregory Bresiger

The implementation of Reg NMS's trade-through rule will be delayed into 2007, but preparing for it should be a trading executive's top priority.

That was the mixed message that Securities and Exchange Commission officials offered at recent Security Traders Association's events last month.

On the one hand, SEC officials, to no one's surprise, announced that the implementation of the Reg NMS trade-through rule, which was due to become effective on June 29th, must be "substantially delayed." They said it was because there is too much technological preparation for the SEC, the exchanges and brokerages in order to meet the original deadline.

"We'll have new dates out in a few weeks," said Bob Colby, acting director of the SEC's Division of Market Regulation, at the STA conference. (See At Deadline for new dates).

In a separate interview with Traders Magazine, SEC Commissioner Paul Atkins, a critic of the new rule, said he expected the controversial rule would not go into effect until "next year." (For more on Atkins' comments, please see Q&A).

However, on the other hand, several SEC officials also warned that trading executives should not depend upon receiving another delay or that the SEC would have any second thoughts about the trade-through rule, the crown jewel of the Reg NMS package, which was approved on a 3-2 vote last year.

"I fear that people will put Reg NMS at the back of their to-do list,'' SEC Commissioner Roel Campos told the STA conference. "I would be very cautious about any second extension," he added.

Campos, along with fellow commissioner Annette Nazareth, affirmed that the SEC is still committed to Reg NMS. Campos warned trading officials who are hoping for more delays: "We are going to be prepared to move ahead and give the brokerage community the ability to trade through."

At various STA events last month, NYSE and Nasdaq officials were estimating that it would not be until the first quarter of next year before the new trade-through rule is ready.

Some trading officials speculate that delays will go beyond that.

One trading official, who declined to be quoted by name, said, "look at how long it is them taking just to implement the sub-penny section of NMS. And that is the least controversial part of the rule."