The following comment on Letter Type I,
Letter Type I:
The Honorable William H. Donaldson
Re: File No. S7-10-04 Proposed Rule on Regulation NMS
Dear Chairman Donaldson:
I am vaiting regarding the Securities and Exchange Commission's proposed Regulation NMS, which is designed to update and strengthen our national securities markets.
The SEC recently proposed two alternatives for market structure: one would ensure that investors receive best price for their transactions while rnalung certain that investors benefit from the forces of competition. The other proposal would effectively turn our internationally competitive, investor-driven markets into government utility.
The provision I am concerned about would create the equivalent of a Consolidated Limit Order Book (CLOB), a radical concept first envisioned in the late 1970's, then debated by Congress and by the SEC in 2000. The CLOB has been rejected by Congress and the SEC previously, and should be again, for one overriding reason: it would effectivelv nationalize the U.S. equitv markets, removing incentives for markets to compete with one another.
The U.S. equity markets are the strongest in the world. In a splintered, electronic-only marketplace where exchanges must chase displayed orders from market-to-market, large orders of stock would be difficult to manage. Instead, they could be traded in private markets or overseas. It is unclear whv the SEC is considering a proposal that would fix what is not broken, and put the comvetitiveness of the U.S. capital markets at risk. Regulation should not undermine the forces of competition.
I believe a better approach would be the SEC's proposed alternative to the CLOB, to protect the best price in each market center. This gives all investors confidence that if they take the risk of being the best bid or offer they will not be traded through. This balances competition between quotes with competition between market centers, providing the best price and the fairest markets for investors.
The SEC is taking on a very difficult and important task in modernizing our markets. I urge you to use caution to ensure that any regulation continues to protect investors and gives our markets the incentive to be innovative and keep our markets the best and most dynamic in the world.