University Northern Colorado
Greeley Co 80639
United States Securities and Exchange Commission
File No. S7-16-97
Release No. 34-38672
The following comments will be directed to the proposed rule: Disclosure of Order Routing and Execution Practices.
It is my opinion that the new proposal suggests some new regulations that could help the existing conditions on today's market. However, there are some aspects to the proposal that leave me questioning proposed rules 11Ac1-5 and 11Ac1-6.
Under proposed Rule 11Ac-1 market centers must prepare and make available to the public monthly reports in electronic form; uniform statistical measures of execution quality on a security by security basis. Some reasoning behind this proposal is that there is too much information as a result of inconsistently calculating measures of execution, and this often leads to confusion. The Sec has good intentions in putting the investors interests first by trying to make this type of information available. However, in the process they may be creating more problems with attempting to install a new system of handling information. The market center that they are proposing will have to deal with a large amount of information that could very easily be mishandled. The proposal stated that with technology, once systems have been programmed that the work becomes easier. This is true, but the work becomes easier once the information is loaded manually, and who is to say that all information will be given honestly.
The proposal also is dependent on independent analysts to help them process some information. The proposal states:
Given the volume of data to be included in the electronic reports by market centers, most individual investors likely would not be interested in receiving and digesting the reports themselves. Rather, the commission anticipates that independent analysts, consultants, broker-dealers, the financial press, and other market centers will analyze this information and produce summaries that respond to the needs of investors.
This would have the market going in circles because the information that is being processed for investors on the quality of executed trades is given back to the people who make the trades so that they can interpret it for their clients.
Proposed Rule 11Ac-6 is another rule that also shows good intentions but also leaves questions to be asked. Rule 11Ac-6 proposes that broker-dealers would be required to disclose their order routing practices to assure that they are working in the best interest of the customer.
A question that comes to mind is, Couldn't the customer determine if their best interest was being met based on the performance of the broker? Investors have the opportunity of choosing who handles their money. One of the best marketing tools possible is word of mouth. Usually investors find their broker-dealer through a recommendation of a friend. If brokers are not performing, then they will not have a very big client list. It would probably be in the best interest of the broker to do the best job that they can do.
Both proposals have good intentions. However, sometimes it is best when things are left as they are. The biggest factor concerning both these proposals is the extra time and money that will have to be spent to realize that all of that hard work was really a non-factor in the investment world