SEC Adopts Trade-Through Rule

The trade-through rule also will create greater confidence in securities markets by helping to eliminate “an impression of unfairness.”

But SEC Commissioner Cynthia Glassman noted in a speech given on April 6 that the trade-through rule, while an “excellent goal,” is one situation that does not require the rule. She argued that the goal can be met without “imposing a new layer of regulatory oversight and compliance costs that go along with any regulation and are ultimately paid for by investors.”

Glassman said the SECs Office of Economic Analysis found that approximately 2% of all trades on NASDAQ and the New York Stock Exchange were trade-through in 2003. Glassman put the cost savings to investors because of the rule at $321 million and compared it with $18.7 trillion in 2003 trading on both markets. She noted comments received by Fidelity, TIAA-CREF, Schwab and Ameritrade.

Indeed, on Feb. 15, 2005, Fidelity Investments, Boston, submitted a statement to the House of Representatives Committee on Financial Services subcommittee on capital markets, insurance and government sponsored enterprises, in which it concurs with Glassman. It states that the rule “would deny an investor the right to take into account other important factors that bear upon the choice of market and best execution.” Examples offered include market data and transaction costs.

Fidelity also argues that “so long as bids and offers are made available to investors on a timely and continuous basis, and investors have ready access to competing market centers, the government need notand should notdeprive investors of the freedom to choose among markets.”

Reproduced from National Underwriter Edition, April 15, 2005. Copyright 2005 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.