By Christopher Faille, Reporter Thursday, May 16, 2002 LA QUINTA, Calif. (HedgeWorld.com)âThe director of the Securities and Exchange Commissionâs division of market regulation expressed her concerns about some of the measures the options exchanges are taking to ensure order flow. Speaking at the Options Industry Conference, Annette L. Nazareth said that the industry continues to feel the effects of the âremarkable pressuresâ brought to bear upon it in recent yearsââmultiple listing, new market entrants, and decreased volumes.â She praised the options exchanges for their creative responses to these challenges, as well as to the one challenge that dwarfed them all. âThese same markets that compete head to head each and every day for market shareâ¦opened their doors, and indeed their floors, to assure business continuity for the [American Stock Exchange] after it suffered damage as a result of the attack on the World Trade Center,â she said, then turned her attention back to the matter of multiple listings. Multiple listing as a prevalent practice has increased the âtrade-through problem,â i.e., the chance that a customerâs order sent to one exchange might be executed at a price inferior to that displayed on another exchange. To solve this problem, she said, the division of market regulation has overseen the development of a linkage plan. The latest implementation schedule calls for inter-market testing to begin on Dec.1, and for operational linkages by April 30, 2003. But there is another even more challenging consequence of multiple listing. It increases the pressures upon exchanges and their market makers to ensure order flow. Ms Nazareth indicated that the SEC is not likely to prohibit payment for order flow, because doing so might in effect drive the practice underground. Other âreciprocal arrangementsâ might replace explicit payment. But although the practice remains licit, she cautioned that broker-dealers âmust be continuously diligent to ensure that their routing decisions are based solely on the best interests of their customers.â She also said that some exchanges have proposed to limit the access of certain customers to their systems, because customers endowed with ever-more sophisticated technology are otherwise capable of, and the exchangesâ market makers are increasingly vulnerable to, electronic arbitrage. Despite understanding the concern, she said the SEC could not approve of attempts to level the playing field that âunfairly [discriminate] against certain classes of customers and [impose] undue burdens of competition.â Instead, the SEC wants to oversee the development of a playing field in which âthe markets themselves have new and better technology that keeps pace with their ever-innovative customer base. âShe then briefly discussed market transparency and security futures. As to transparency, she reminded her listeners that the SEC approved the order routing disclosure rule in November 2000. She is encouraged that âthe information provided under this rule appears to be achieving its goal of permitting investors to better evaluate their brokerâs order routing practices, including potential conflicts of interests.â Finally, she assured her audience that the rulemaking (by the SEC in conjunction with the Commodity Futures Trading Commission) that will make possible trading in single-stock future and narrow-based indexes is at last in its final stages. Metooxx, they want to shut you down! I love the "limit the access of certain customers" comments. Nice try!!