Hearing of U.S. Senate Committee on Banking, Housing, and Urban Affairs "Regulation NMS and Recent Market Developments"
Hearing of U.S. Senate Committee on Banking, Housing, and Urban Affairs "Regulation NMS and Recent Market Developments"
I am disappointed and troubled that the Commission was unable to proceed with one voice on Regulation NMS (National Market Structure). Instead, a divided Commission, with deeply held convictions both for and against the rule, voted 3 to 2 in favor of the 500 page rule.
Although Regulation NMS covers four primary topics, the majority of the debate centered around the trade-through rule. The lack of consensus inside or outside the commission on the need for a trade-through rule at all, let alone extending the trade through rule, raises many red flags
Additional red flags were raised due to the fact that there was very little proof that this was something required in the markets. According to the SEC Office of Economic Analysis, approximately 2% of all trades on Nasdaq and NYSE were traded through in 2003 and the majority of trade-throughs only trade-through by a penny or two.
These numbers are also curious since the NYSE market currently has a trade through rule, while the Nasdaq market does not. These numbers do not demonstrate to me that the market is not working and that more regulation is the answer. I am interested in whether our witnesses believe this rule will substantially stop trade throughs and what will be the cost of implementing this rule.
While investors clearly care about price, other attributes like anonymity, trade size, and execution speed also factor into an investor's trading decisions. An investor might be willing to forgo best price, at times, if that anonymity, or some other factor, helps him or her to protect a valuable trading strategy, for example.
It is unfortunate that the Commission decided against developing a more consensus-based alternative to Regulation NMS, rather than forcing such divisive mandates with so many experts unconvinced of the benefits. A credible alternative was available that would have allowed for more evaluations and then a future Commission vote to determine if the rule should apply to the Nasdaq market.
Thank you Mr. Chairman for holding this important hearing, and I look forward to hearing the testimony of the panels.
http://banking.senate.gov/index.cfm?Fuseaction=Hearings.Testimony&TestimonyID=859&HearingID=156