A Market of the People

Is the Securities and Exchange Commission on the verge of nationalizing the U.S. stock trading markets? It is a frightening idea, but that is one way of looking at the SEC's latest revisions to Reg NMS, which includes a voluntary system of best price protection on all posted stock quotes. The new plan still proposes best price protection in the top of the book,' or all the best quotes in individual stocks. The full depth, a new idea, has attracted savage criticism. Ed Nicoll, Instinet's CEO, said that deepening the investor's access to all the quotes in U.S. markets, "nationalizes the liquidity pools interest in the data." Nicoll had an unexpected bedfellow: The New York Stock Exchange, which believes the latest national masterplan is leading the industry towards the introduction of a Central Limit Order Book, CLOB. To be sure, there is a sneaking suspicion that the Big Board and Instinet, more commonly at loggerheads, are now privately smooching over some kind of business arrangement. But the truth is the SEC proposal could, if implemented, extend the reach of the SEC into the hitherto private affairs of the securities markets. "In theory," says Ari Burnstein, associate counsel of the Investment Company Institute, "it is better for all investors." That, of course, is what is wrong with the debate: It is explosively theoretical and only fully understood by a handful of experts. They consume this toxic stuff at cocktail parties and then ask for seconds, thirds and shots for the road. This group includes some lawyers who end up writing the final rules anyway. The rest of the industry makes a ham-fisted effort at pretending to understand.

Indeed, it must be one of the most nerve-wracking engagements of many a congressman and senator, speaking at a securities industry conference from a script prepared by baby-faced aides straight out of Harvard. Joe Crowley, one of the brightest elected Democrats in New York City, looked ill at ease at last year's Security Traders Association Congressional Conference, equating best price with – what else? – best price. That's the way most ordinary people, with above average intelligence, think. But not the SEC policy wonks. The SEC's director of market regulation, Annette Nazareth, last year described the Big Board's plan to boost its Direct+ auto-execution service as, "also part of the puzzle – and a bit puzzling." Nazareth was inadvertently summing up the confusion most felt. The latest revisions throw a monkey wrench in the NYSE's plans to turn itself into a hybrid market. It was lousy timing from the SEC. The sad part is the SEC could have won some political capital for its latest national masterplan. It should have enacted its proposed Reg NMS cap on access fees and outlawed trading in subpennies. SEC Commissioners Paul Atkins and Cynthia Glassman, two Republicans, should also have called a primetime press conference after the shocking SEC change of course. The conservative duo should have reminded the nati

John A. Byrne