April 8, 2005
Please consider this as an addendum to my earlier comment on this matter.
In its rules submission, the NYSE, as its supporting rationale, makes reference to the agency responsibilities of a specialist and the desirability of public orders trading directly with each other. The NYSE position, in any traditional sense, is unexceptional. But the NYSE is attempting to extend well-worn concepts that apply to market interest existing at the time a trade is being consummated to a situation where interest is not even in the market at the time of transaction consummation.
Clearly, the law of agency does not apply here, because the specialist, at the time of consummating a proprietary transaction, cannot possibly have an agency relationship with an order he has not yet received.
One would have assumed that the NYSE understood that the law of agency applies prospectively, from the time the agency relationship begins, rather than retroactively, which is the NYSE position by its imputing an agency relationship back to the time the proprietary transaction was consummated, even though no agency relationship in fact existed at that time.
As I noted in my earlier comment, the NYSE rules submission seems, at first glance, to be obscure and technical, but the underlying legal principle is hugely significant. Any attempt to impose agency responsibilities retroactively creates a bizarre and dangerous precedent, one hitherto unknown to any securities market anywhere.
I reiterate as well my many technical objections to this proposal.
Very truly yours,