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Spoofing, Surveillance and Supervision

Jay Biondo, Product Manager - Surveillance at Trading Technologies, co-authored an article along with James Lundy and Nicholas Wendland, both of Drinker Biddle & Reath LLP, reviewing the CFTC's regulations and expanding efforts, 21st century surveillance and supervision, as well as strategic recommendations.

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March 15, 2007

NYSE Gets into TRF Game

By Nina Mehta

The New York Stock Exchange is about to get the accessory every exchange wants: its own trade reporting facility.

The NASD submitted a proposal to the Securities and Exchange Commission to create a trade reporting facility in conjunction with NYSE Market Inc., the entity responsible for NYSE's non-regulatory exchange functions, including trading, listings and market data.

The NASD requested that SEC approval be effective on the day the new TRF begins operations, which is expected to be sometime this month.

The NASD/NYSE TRF will give NASD members another mechanism to report "locked-in" transactions in exchange-listed securities that are not executed on an exchange. NASD members can match or execute orders internally or through proprietary systems and report those trades to the NASD/NYSE TRF.

The NASD's filing noted that the "proposed rule change is substantially similar to the rules relating to the Approved NASD Trade Reporting Facilities." The SEC has already approved separate TRFs established by the NASD and Nasdaq, the National Stock Exchange and the Boston Stock Exchange.

The NASD/NYSE TRF, established as a limited liability company, will be a facility of NASD and subject to the self-regulatory organization's rules and regulations.

NYSE Market Inc. will pay for the cost of regulation and will provide the systems for NASD members to report trades to the TRF. NYSE Market Inc.'s initial capital contribution to the TRF is $150,000. The NYSE will get whatever profits the TRF generates.

Unlike other approved TRFs, the NASD/NYSE TRF will not submit trades to clearing. TRF participants must handle that themselves. The NASD/NYSE TRF also requires that reporting ECNs use a three-party trade report, as opposed to a two-party trade report that's permitted at some approved TRFs.

NASD members can choose to report over-the-counter trades to any of the SEC-approved TRFs, NASD's Alternative Display Facility or NASD's Intermarket Trading System/Computer Assisted Execution System.