Jan. 9, 2001 SEC Chairman Arthur Levitt Jr. yesterday took a swipe at the equity markets in a speech delivered at Stanford University.
The commission at the same time released a study purporting to show that Nasdaq spreads are sometimes higher, while the NYSE’s executions are sometimes slower. The long-awaited study set off a predictable follow-up skirmish between the two market centers.
Meanwhile, Levitt addressed a wide range of equity market structure issues at the Stanford Law School gathering. He noted that the 1975 amendments to the ’34 Act directed the SEC to facilitate a "national market system" of electronically linked markets that allowed investors to bypass dealers and specialists where possible.
But to this day, no such system exists. And as he prepares to leave office, Levitt is still wringing his hands. He criticized markets for refusing to make reforms that were not in their financial interests. "Individual competitive interests cannot always be relied upon to produce a basic framework for competition that serves the public," Levitt said. The SEC’s role, he said, is to be the "catalyst for market infrastructure refinements."
But exactly how the soon-to-be-Levitt-less SEC will successfully tackle the Wall Street status quo after failing to do so for 25 years remains to be seen. Levitt himself was slow to jump on the reform bandwagon. His agency began its investigation of market makers’ collusion in 1994 only after the Justice Department had begun its own inquiry. And Levitt sided with Nasdaq and the NYSE in delaying decimalization--despite bipartisan calls from Congress for penny pricing.
In a parting shot to the NYSE, Levitt took to task the exchange’s continued lack of access to non-members (Nasdaq allows more access to competing trading systems like ECNs). Public access to order flow is a critical element in breaking down walls.
"Without a doubt, the issue of access in the listed market will confront my successor sooner rather than later," Levitt said.
The Intermarket Trading System currently links exchanges and can deliver orders to a trading floor, but what happens then is left to the particular exchange. The system carries virtually no traffic. Critics deride the two-decade-old ITS concept as purposefully flawed, designed to deny outside access and maintain market centers’ control, while seemingly fulfilling Congress’ call for a national market system.
Levitt also criticized the private process by which market centers collect, price and disseminate market data. Reformers have called on the SEC to treat market data like a public good; market centers shun such talk, as the sale of data is a huge revenue item. Levitt suggested that the collection and distribution of data be opened up to outside vendors. -- Dan Jamieson
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