HEADLINE: HEARING OF THE SUBCOMMITTEE ON CAPITAL MARKET, INSURANCE AND GOVERNMENT SPONSORED ENTERPRISES OF THE HOUSE COMMITTEE ON FINANCIAL SERVICES
SUBJECT: THE SEC'S MARKET STRUCTURE PROPOSAL: WILL IT ENHANCE COMPETITION?
CHAIRED BY: REPRESENTATIVE RICHARD BAKER (R-LA)
EDWARD J. NICOLL, CHIEF EXECUTIVE OFFICER, INSTINET GROUP INC.; ROBERT G. BRITZ, PRESIDENT AND CO-CHIEF OPERATING OFFICER, NEW YORK STOCK EXCHANGE, INC.; CARRIE E. DWYER, GENERAL COUNSEL, THE CHARLES SCHWAB CORPORATION;
MATT ANDRESEN, PRESIDENT, CITADEL EXECUTION SERVICES; ROBERT H. MCCOOEY, JR., PRESIDENT AND CHIEF EXECUTIVE OFFICER, THE GRISWOLD COMPANY, INC.; THOMAS M. JOYCE, PRESIDENT AND CHIEF EXECUTIVE OFFICER, KNIGHT TRADING GROUP, INC.; KIM BANG, PRESIDENT AND CHIEF EXECUTIVE OFFICER, BLOOMBERG TRADEBOOK, LLC; ROBERT GREIFELD, PRESIDENT AND CHIEF EXECUTIVE OFFICER, THE NASDAQ STOCK MARKET, INC.
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Thank you, Chairman Baker. I appreciate the opportunity to comment on the SEC's
latest market structure proposal.
Today's hearing builds upon previous inquires by this subcommittee into of the
overall soundness of our capital markets. Regulations issued by the SEC,
specifically Reg NMS, have the potential to significantly alter the U.S. equities
On December 15, 2004, the SEC re-proposed Regulation NMS (National Market
Structure) with two alternatives. The first, which I support, is the best Bid and
Offer (BBO) alternative which preserves intermarket competition. Protecting the
best prices in each market encourages intra-market and inter-market competition
which, in turn, attracts the most aggressive orders. This competition within and
between markets create low transaction costs and equal protection and choice for
small and large investors alike.
The second proposal, which concerns me, is the Voluntary Depth Alternative. This
alternative shares many of the characteristics, and problems, of a Consolidated
Limit Order Book (CLOB), a proposal conceived in the 1970s and rejected by the
Congress and SEC in 2000. This proposed alternative would turn our market
centers into mindless order routers. It has the potential to nationalize the U.S.
equity markets and remove any incentive for market competition.
Investors in U.S. listed stocks benefit from competition between markets and from
efforts made to ensure the best price of a particular transaction. As a result, spreads
are among the tightest in the world, and transaction costs are among the lowest. In
addition, investors can choose which type of execution they prefer based on
particular circumstances or strategy (i.e. electronic vs. auction markets).
I have serious reservations on implementing a 100 percent computer-based market
system which eliminates human judgment at the point of sale. Our capital markets
should be more than order routers because those orders are more than numbers -
they're customers with individual needs and goals. That is why the human element
is so important throughout the day, and particularly during times of market duress.
Specialist and floor brokers offer judgment and expertise in everyday trading. Those
skills benefit large mutual fund transactions as well as the 100 shares of IBM that
you or I may be interested in purchasing.
I applaud the Commission for its diligence in considering these important market
structure issues, and for offering an alternative that promotes competition and
innovation. However, I believe the Voluntaty Depth Alternative would have
damaging effects on our markets and investors. I look forward to the testimony from
our distinguished panel of witness on these proposals.
Thank you, Mr. Chairman.
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