SEC To Allow Electronic Trading To Flourish

by Philip Morton, Investors Offshore.com

01 August 2001

With Bush favourite Harvey Pitt poised to take the helm at the Securities and Exchange Commission, it looks as if electronic trading systems will be allowed to continue to compete for business with telephone dealers and those on the exchange floor.

'I think the focus of the commission has been in recent years to make the traditional rules and laws fit the more modern trading techniques,' observed Frank Goldstein, securities attorney with Washington law firm Sidley Austin Brown & Wood. 'I doubt Harvey Pitt will make radical changes in this area because everything is working reasonably well.'

However, one area that the regulatory watchdog is said to be concerned about is market fragmentation and its effect on the pricing of securities. With an ever growing number of locations in which to trade the same securities, regulators are worried that buy and sell orders may not be executed at the best price or lowest cost: 'They're concerned that in an atmosphere of competition, that they may still have an environment where not enough liquidity exists in any given venue,' explained Ian Domowitz, a former finance professor at Pennsylvania State University.

The agency has been studying this topic for decades, and earlier this year asked for comments regarding market fragmentation from the public and market particpants. However, no rule-making initiatives have been launched as yet.

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