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Date Posted: 15:32:44 04/06/05 Wed
SEC's Donaldson Casts Deciding Trade-Through Vote (Update5) Listen
April 6 (Bloomberg) -- U.S. Securities and Exchange Commission Chairman William Donaldson cast a deciding vote to extend a rule that guarantees all investors get the best price on electronic stock trades.
The plan was opposed by discount broker Charles Schwab Corp. and Fidelity Investments, which were concerned that the measure will make it more difficult to buy large blocks of stock at a desired price. Some federal legislators, including Republican Senator Mike Crapo, also contested the proposal. Vanguard Group, the largest U.S. mutual fund company after Fidelity, and Bear Stearns Co. supported the regulation.
``The trade through rule, is in the most fundamental sense, a rule that protects investors,'' Donaldson said. ``Our actions today will, I am certain, irritate a handful of influential interests who are able to couch their arguments in broad principles with which we can all agree.''
Donaldson, a Republican, championed the proposal and got it passed with the aid of Democratic Commissioners Roel Campos and Harvey Goldschmid, defying his fellow Republicans at the commission for at least the third time on major policy decisions. Republicans Cynthia Glassman and Paul Atkins voted against it.
``We don't need the trade-through rule on either the New York Stock Exchange or Nasdaq,'' Glassman said, adding the staff's justification for the plan is ``biased, unsupportable or internally inconsistent.''
Opposition
Republican Representative Richard Baker, chairman of the House subcommittee on capital markets, and Crapo, an Idaho Republican, may introduce legislation to kill the new rule.
``The lack of consensus within the commission, academics and capital markets experts questions the need of going forward and raises the possibility that Congress should intervene,'' said Crapo in a statement. ``There appears to be growing support for congressional action at this point and I am evaluating all options including legislation to address this matter.''
Crapo and senators Melquiades Martinez, Jim Bunning and John Sununu sent a letter yesterday to Donaldson urging him ``to take a cautious and pragmatic approach'' before adopting any changes.
``There are all sorts of points of view in Congress,'' Donaldson said in a televised interview with Bloomberg. ``We will have to see what their ultimate point of view is. It certainly is a Congressional prerogative to change'' SEC oversight of markets.
The rule will apply to a small group of stocks April 10, 2006, to allow market participants to test their systems and procedures. All trading centers would be required to comply with the regulation June 12, 2006.
`Markets' Mechanic'
Atkins said the rule will result in SEC ``micro-management'' of the nation's markets.
`` Reg. NMS will empower commission staff to tinker with every nook and cranny in the market,'' Atkins said. ``Why should the commission want to become the markets' mechanic?''
Some investors oppose any trade-through rule since it prevents them from skipping a best price for a small quantity in favor of buying at a large block of stock at a next-best price They complained that in the time it took to execute a small transaction, someone else could take advantage of the next-best price. Fidelity and others argued the Nasdaq operated efficiently without a trade-through rule.
Pros and Cons
``While we are disappointed that the commission voted to approve the rule in the face of both empirical and policy reasons that in our view weigh against adoption of the rule, we are very encouraged that commissioners Glassman and Atkins agreed with the views that we and many others expressed,'' said Eric Roiter, general counsel of Fidelity's investment management unit.
Roiter said Fidelity had no plans to sue the SEC over the rule. ``It has not been our policy or practice to sue over rules but then again we haven't seen the details,'' he said.
Investment Company Institute, the mutual fund industry's main trade association in Washington, favored the SEC move.
``The trade-through rule is an important step in the development of a market structure that bests serves all investors,'' Paul Schott Stevens, president of the association, said in a prepared statement.
The rule may speed up trading on the New York Stock Exchange as it attempts to compete with the faster electronic markets. Chief Executive John Thain has introduced a hybrid market to allow the floor traders to co-exist with electronic trading, which completes transactions in milliseconds.
NYSE
The rule ``is a major step forward for investors and markets, creating a fair and level playing field for all and a sound framework for the U.S. equities marketplace to grow, compete and remain the world's best,'' the NYSE said in a statement.
The plan also requires quotes displayed for comparison across markets to reflect only the best bids or offers or `top of the book.''
Donaldson said this alternative is ``an approach that I believe strikes the right balance between market competition and order competition, while at the same time providing incentives to all market centers to improve their speed and efficiency.''
Bloomberg Tradebook, an order-matching system, or electronic communication network known as an ECN, owned by Bloomberg News parent Bloomberg LP, lobbied against the trade-through proposal.
To contact the reporter on this story:
Judith Mathewson in Washington at jmathewson@bloomberg.net.
To contact the editor responsible for this story:
Erik Schatzker at eschatzker@bloomberg.net.
Last Updated: April 6, 2005 17:03 EDT
http://www.bloomberg.com/apps/news?pid=10000087&sid=aByLfMB_j7EQ&refer=top_world_news
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SEC's Donaldson Casts Deciding Trade-Through Vote (Update5) Listen