Regulation of Electronic Communications Networks: An Examination of Tradepoint Financial Network's SEC Approval to Become the First Non-American Exchange to Operate in the United States

Cornell International Law Journal

Volumn 33, Issue 1, 2000, Pages 209-262

  McCarroll, Elizabeth M ^a  

^a NONE

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EID: 0347616690     PISSN: 00108812     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Article

References (334)

1. MARSHALL HERBERT MCLUHAN, THE MEDIUM IS THE MESSAGE (1967), reprinted in FAMILIAR QUOTATIONS FROM JOHN BARTLETT 730(5) (Justin Kaplin ed., 16th ed. 1992).
2. MARSHALL HERBERT MCLUHAN, THE MEDIUM IS THE MESSAGE (1967), reprinted in FAMILIAR QUOTATIONS FROM JOHN BARTLETT 730(5) (Justin Kaplin ed., 16th ed. 1992).
3. NASDAQ is a computerized quotation system operated by the National Association of Securities Dealers, which acts as a self-regulatory organization for the [over-the-counter] market. Inaugurated in 1971, NASDAQ displays continuously the updated bids and offers of competing market makers on a real-time basis on cathode-ray-tube screens located in subscribers' offices. The system enables subscribers to see at a glance which market maker in any NASDAQ-quoted stock is making the highest bid or the lowest offer. Thus, a brokerage firm with a customer's order to buy a security would check its NASDAQ screen for the market maker in that security making the lowest offer and then telephone or telex that market maker in order to execute the trade. Beginning in 1985, small orders in all NASDAQ-quoted stocks could be executed electronically over the system. NORMAN S. POSER, INTERNATIONAL SECURITIES REGULATION: LONDON'S "BIG BANG" AND THE EUROPEAN SECURITIES MARKET 41 (1991).
4. Greg Ip, The Stock Exchanges, Long Static, Suddenly Are Roiled by Change, WALL ST. J., July 27, 1999, at Al. Richard Grasso, NYSE chief, observed: "I don't think there's ever been a period like this in the history of the world capital markets." Id.
5. See Jesse Angelo, No Easy Answers to ECN Challenge, N.Y. POST, July 27, 1999, at 41.
6. Id.
7. "[Alternative trading systems (ATS) refers generally to 'automated systems that centralize, display, match, cross, or otherwise execute trading interest, but that are not currently registered with the Commission as national securities exchanges or operated by a registered securities association.'" A. Jared Silverman, SEC Proposes Significant Market Restructuring, WALLSTREETLAWYER.COM: SECURITIES IN THE ELECTRONIC AGE, Aug. 1997, at 6.
8. The SEC defines order as "any firm indication of a willingness to buy or sell a security, as either principal or agent, including any bid or offer quotation, market order, limit order, or other priced order." 17 C.F.R. § 240.3b-16(c) (1999).
9. Ian Domowitz, An Exchange Is a Many-Splendored Thing: The Classification and Regulation of Automated Trading Systems, in THE INDUSTRIAL ORGANIZATION AND REGULATION OF THE SECURITIES INDUSTRY 96 (Andrew W. Lo ed., 1996).
10. Ian Domowitz defines ATSs as "mathematical algorithms that enable trade matching without the person-to-person contact afforded by traditional trading floors or telephone networks." Id.
11. See id.
12. The National Securities Trading System (NSTS) of the Cincinnati Stock Exchange serves as an example of an ATS which comprises "the entirety of an exchange's trading operations," whereas the Arizona Stock Exchange is a single-price auction. Id. Basically, what occurs in a single-price auction format is as follows: participants enter limit orders. Bids and offers are displayed in order books. Customers can then view these orders on their screens and alter them until a specified cutoff time. Almost instantaneously after this cutoff time, the system reviews the orders. This review entails a process of determining the most accurate price at which "the volume of buying interest is closest to the volume of selling interest. That price will be the 'auction price.' Participants that have [sic] entered bids at or above and offers at or below the auction price will be entitled to execution at the auction price on the basis of time priority." Carl Landauer & Elizabeth K. King, Technology and the Securities Market, PRACTISING LAW INSTITUTE, CORPORATE LAW AND PRACTICE COURSE HANDBOOK SERIES, PLI ORDER NO. B4-7241, Oct. 1998, at 474-75. Generally speaking, "[t]he U.S. exchange markets" historically have been termed "'auction' markets, in the sense that all orders are channeled to one place, the stock exchange floor, where there is a two-way auction to arrive at the best price available. Customers' buy-and-sell orders have an opportunity to meet without the intervention of a professional dealer." Poser, supra note 2, at 39.
13. Examples include: "Retail Automated Execution System (RAES) of the Chicago Board Options Exchange, Scorex of the Pacific Stock Exchange, and the after-hours crossing networks of the New York Stock Exchange (NYSE)." Domowitz, supra note 8, at 96.
14. See id. at 94; Silverman, supra note 6, at 6. See also Regulation of Exchanges and Alternative Trading Systems, SEC Release No. 34-40760, 63 Fed. Reg. 70844, 70845 (Dec. 22, 1998) [hereinafter SEC Release No. 34-40760], "[A]ny person engaged in the business of effecting transactions in securities for the account of others, but does not include a bank" is a broker. A dealer is any person engaged in the business of buying and selling securities for his own account, through a broker or otherwise, but does not include a bank, or any person insofar as he buys or sells securities for his own account, either individually or in some fiduciary capacity, but not as part of a regular business. Securities Exchange Act of 1934, § 3(a)(4)-(5), 15 U.S.C. § 787c (1994). Instinet, "[t]he oldest and largest electronic network," is "[o]fficially registered as a broker-dealer . . . ." This system "has enabled its big-money clients to trade over 170 million shares a day in 40 of the world's markets, as well as after the close of the U.S. exchanges." Bill Alpert, Wall Street Revolution: Technology Is Toppling Trading's Berlin Wall, BARRON'S, July 26, 1999, at 19.
15. Domowitz, supra note 8, at 98. A system may also be classified as a securities association, but such an association (e.g., the National Association of Securities Dealers [NASD]) is subject to very similar requirements as registered exchanges; see Securities Exchange Act of 1934, § 15A(b)(1)-(8). Other categories include clearing agency, transfer agent, and securities information processor. The first is not relevant, given the emphasis on the process of trading rather than on the clearing of transactions. The second involves issuance and registration of securities. The NASD has suggested that a trading system be categorized as a securities information processor. Registration as such is not required unless the trading system is first classified as an exchange or securities information processor that acts on an exclusive basis on behalf of a self-regulatory organization. See Sections 3(a)(22)(B) and 11a(b)(1) of the Securities Exchange Act. Id. at 98 n.14.
16. See id. at 99.
17. See id.
18. See id.
19. Regulation ATS is the name which refers to the new market-oriented regulatory scheme adopted pursuant to SEC Release No. 34-40760. This Regulation determines the amount of regulation that is applied to a system according to a set of specifications. See infra note 19.
20. SEC Release No. 34-40760, supra note 13, at 70844. Regulation ATS breaks down its requirements into three levels. If a system has (A) "less than five percent of the trading volume in all securities it trades" it "is required only to: (1) file with the Commission a notice of operation and quarterly reports; (2) maintain records, including an audit trail of transactions; and (3) refrain from using the words 'exchange,' 'stock market,' or similar terms in its name." If however, the system has (B) "five percent or more of the volume in national market system securities" it must "be linked with a registered market in order to disseminate the best priced orders in those national market system securities displayed in their systems (including institutional orders) into the public quote stream." Finally, if a system has (C) "twenty percent or more of the trading volume in any single security, whether equity or debt" it "would be required to: (1) grant or deny access based on objective standards established by the trading system and applied in a non-discriminatory manner; and (2) establish procedures to ensure adequate systems capacity, integrity, and contingency planning." Id. at 70848.
21. Ip, supra note 3, at A10. While 10 years ago the United States had only nine securities exchanges, some feel that due to Reg ATS, the United States "could theoretically have more than 20." This "[a]lmost everyone agrees . . . would be too many." Id. A corresponding increase in demand would not necessarily be present. See id. Similar concerns have been voiced about allowing a low-volume exemption to ATSs - that it may result in an unnecessary proliferation of exchanges. See infra note 167.
22. See SEC Release No. 34-40760, supra note 13, at 70846.
23. Founded by "former London Stock Exchange officials to rival the LSE," Tradepoint commenced operations in 1995. Chris Kentouris, NYSE Complains About Tradepoint's U.S. Expansion, SECURITIES INDUSTRY NEWS, Jan. 4, 1999, at 21.
24. The Commission believes that an exchange operated offshore but targeting U.S. persons, which is owned or controlled, directly or indirectly, through a financial interest or otherwise, by a U.S. national securities exchange or national securities association, would be considered a U.S. market operated by an SRO. As such, it would be subject to Commission oversight. The Commission notes that Tradepoint, as a condition to this Order, has agreed that it is subject to the Commission's jurisdiction. Tradepoint Financial Networks pic; Order Granting Limited Volume Exemption from Registration as an Exchange Under Section 5 of the Securities Exchange Act, SEC Release No. 34-41199, 64 Fed. Reg. 14953, 14956 n.30 (1999) [hereinafter SEC Release No. 34-41199].
25. Kentouris, supra note 22, at 21. The registration requirement is waived if "such exchange . . . is exempted from such registration upon application by the exchange because, in the opinion of the Commission, by reason of the limited volume of transactions effected on such exchange, it is not practicable and not necessary or appropriate in the public interest or for the protection of investors to require such registration." Securities Exchange Act of 1934, § 5, 15 U.S.C. § 78e (1997) (emphasis added).
26. CHARLES H. MEYER, THE SECURITIES EXCHANGE ACT OF 1934 ANALYZED AND EXPLAINED 148 (1994).
27. SEC Release No. 34-41199, supra note 23, at 14959.
28. A screen-based system is one which operates solely on computers - there is no physical trading operation outside of the network. If it is permitted to operate in the United States, the Tradepoint system will be run on Bloomberg machines "or through a direct connection to the Exchange through an existing global private data network operator." SEC Release No. 34-41199, supra note 23, at 14955.
29. See Letter from Bloomberg L.P. to Jonathan G. Katz, Secretary of the Securities and Exchange Commission (Aug. 28, 1998) (visited Sept. 21, 1998) 〈http:// www.sec.gov/rules/proposed/s71298/ecclest1.html〉 [hereinafter Letter from Bloomberg] (discussing the reasons why exchange classification is not adequate).
30. See Notice of Application for Limited Value Exemption from Registration as an Exchange Under Section 5 of the Securities Exchange Act, Release No. 34-40161, 63 Fed. Reg. 37146, 37151-52 (July 9, 1998) [hereinafter SEC Release No. 34-40161].
31. See id. at 37147. Generally, an exchange must register under §§ 6 and 19(a) of the Securities Exchange Act of 1934 in order to become a national exchange. Securities Exchange Act of 1934, Correlator, CCH ¶ 15,511.
32. See Tradepoint Receives SEC Approval to Apply For Exemption from Registering as a U.S. Exchange, SECURITIES WEEK, July 6, 1998, at 4.
33. See Michael Dabaie, Tradepoint to Advertise Orders Over Autex, AMERICAN BANKER, INC., Sept. 28, 1998, at 31; see also Roger D. Blanc, Broker Dealer Regulation: 13 Letters Regarding SEC File No. S7-16-97, ALI-ABA COURSE OF STUDY MATERIALS, 36, n.1 (Jan. 8, 1998); Laurence James, Securities Law in the United Kingdom, in INTERNATIONAL SECURITIES LAW HANDBOOK 209, 212 (Karl-Eduard von der Heydt, Stanley Keller eds., 1995) (explaining that "[t]he UK's securities markets are regulated by the Financial Services Act 1986. With its enactment, most of the statutory powers under the Act were transferred from the Secretary of State to the Securities Investment Board (SIB), an agency specifically created for this purpose."). The 1986 Act lays out the structure of regulation for securities and commodities in Britain. See Roger D. Huang & Hans R. Stoll, Major World Equity Markets: Current Structure and Prospects for Change, MONOGRAPH SERIES IN FINANCE AND ECONOMICS, Monograph 1991-3, 4 (1991).
34. See Michael Dabaie, Tradepoint to Advertise Orders Over Autex, AMERICAN BANKER, INC., Sept. 28, 1998, at 31; see also Roger D. Blanc, Broker Dealer Regulation: 13 Letters Regarding SEC File No. S7-16-97, ALI-ABA COURSE OF STUDY MATERIALS, 36, n.1 (Jan. 8, 1998); Laurence James, Securities Law in the United Kingdom, in INTERNATIONAL SECURITIES LAW HANDBOOK 209, 212 (Karl-Eduard von der Heydt, Stanley Keller eds., 1995) (explaining that "[t]he UK's securities markets are regulated by the Financial Services Act 1986. With its enactment, most of the statutory powers under the Act were transferred from the Secretary of State to the Securities Investment Board (SIB), an agency specifically created for this purpose."). The 1986 Act lays out the structure of regulation for securities and commodities in Britain. See Roger D. Huang & Hans R. Stoll, Major World Equity Markets: Current Structure and Prospects for Change, MONOGRAPH SERIES IN FINANCE AND ECONOMICS, Monograph 1991-3, 4 (1991).
35. See Michael Dabaie, Tradepoint to Advertise Orders Over Autex, AMERICAN BANKER, INC., Sept. 28, 1998, at 31; see also Roger D. Blanc, Broker Dealer Regulation: 13 Letters Regarding SEC File No. S7-16-97, ALI-ABA COURSE OF STUDY MATERIALS, 36, n.1 (Jan. 8, 1998); Laurence James, Securities Law in the United Kingdom, in INTERNATIONAL SECURITIES LAW HANDBOOK 209, 212 (Karl-Eduard von der Heydt, Stanley Keller eds., 1995) (explaining that "[t]he UK's securities markets are regulated by the Financial Services Act 1986. With its enactment, most of the statutory powers under the Act were transferred from the Secretary of State to the Securities Investment Board (SIB), an agency specifically created for this purpose."). The 1986 Act lays out the structure of regulation for securities and commodities in Britain. See Roger D. Huang & Hans R. Stoll, Major World Equity Markets: Current Structure and Prospects for Change, MONOGRAPH SERIES IN FINANCE AND ECONOMICS, Monograph 1991-3, 4 (1991).
36. See Michael Dabaie, Tradepoint to Advertise Orders Over Autex, AMERICAN BANKER, INC., Sept. 28, 1998, at 31; see also Roger D. Blanc, Broker Dealer Regulation: 13 Letters Regarding SEC File No. S7-16-97, ALI-ABA COURSE OF STUDY MATERIALS, 36, n.1 (Jan. 8, 1998); Laurence James, Securities Law in the United Kingdom, in INTERNATIONAL SECURITIES LAW HANDBOOK 209, 212 (Karl-Eduard von der Heydt, Stanley Keller eds., 1995) (explaining that "[t]he UK's securities markets are regulated by the Financial Services Act 1986. With its enactment, most of the statutory powers under the Act were transferred from the Secretary of State to the Securities Investment Board (SIB), an agency specifically created for this purpose."). The 1986 Act lays out the structure of regulation for securities and commodities in Britain. See Roger D. Huang & Hans R. Stoll, Major World Equity Markets: Current Structure and Prospects for Change, MONOGRAPH SERIES IN FINANCE AND ECONOMICS, Monograph 1991-3, 4 (1991).
37. Though commonly known as the London Stock Exchange, the formal name for the market is the International Stock Exchange of the United Kingdom and the Republic of Ireland Limited. See James, supra note 32, at 209.
38. See SEC Release No. 34-40161, supra note 29, at 37147. Presently, Tradepoint "offers dealing in almost all of the shares in the FT All-Share index." Ceri Jones, Absolute Beginners: When the best price isn't so good - This week, Beginners explains why the price at which your broker executes share deals isn't necessarily the best available, INVESTORS CHRONICLE, Dec. 11, 1998, at 39. Presently, the system "allows trading in around 2,000 listed UK equities." SEC Approves Tradepoint to Enter U.S. (Mar. 23, 1999) 〈http:// www.tradepoint.co.uk/pr990323.html〉.
39. See SEC Release No. 34-40161, supra note 29, at 37147. Presently, Tradepoint "offers dealing in almost all of the shares in the FT All-Share index." Ceri Jones, Absolute Beginners: When the best price isn't so good - This week, Beginners explains why the price at which your broker executes share deals isn't necessarily the best available, INVESTORS CHRONICLE, Dec. 11, 1998, at 39. Presently, the system "allows trading in around 2,000 listed UK equities." SEC Approves Tradepoint to Enter U.S. (Mar. 23, 1999) 〈http:// www.tradepoint.co.uk/pr990323.html〉.
40. See Tradepoint Financial Network PLC, Audited Results for the Year Ended 31 March 1998, CANADA NEWSWIRE, June 25, 1998.
41. Under Rule 144A of the Securities Exchange Act, a "qualified institutional buyer" is defined as: "(i) Any of the following entities, acting for its own account or the accounts of other qualified institutional buyers, that in the aggregate owns and invests on a discretionary basis at least $100 million in securities of issuers that are not affiliated with the entity." See 17 C.F.R. § 230.144A(a) (1998). In brief, these include: any insurance company; any investment company or any business development company; any small business investment company; any plan established and maintained by a state or its political subdivisions for the benefit of its employees; any trust fund whose trustee is a bank or trust company; any business development company; any organization described in Section 501(c)(3) of the Internal Revenue Code; any investment adviser; any dealer acting for its own account or the accounts of other QIBs, that own at least $10 million; any dealer acting in a riskless principal transaction on behalf of a QIB; any investment company acting for its own account or account of QIBs; any entity, all of which the equity holders are QIBs, acting for its own account or account of other QIBs; any bank, savings and loan association, foreign bank or savings and loan or its equivalent, etc. See id.
42. See Kentouris, supra note 22, at 21.
43. Unlike members of other exchanges, membership in Tradepoint solely entitles one to the right to trade on the system. It does not give one voting rights. See SEC Release No. 34-40161, supra note 29, at 37147. "Potential Members," who are marketmakers, broker-dealers and institutional investors "must meet the eligibility requirements of the Exchange." SEC Release No. 34-41199, supra note 23, at 14954. Currently, there are "more than 80 members . . . ." SEC Approves Tradepoint to Enter U.S., supra note 34.
44. Traditionally, "order-driven" markets are ones in which a specialist, "an exchange member who is permitted to act both as broker on behalf of customers and as a dealer in his own account, responds to orders and seeks to match buyers and sellers." Such a system differs from a "quotation-driven" system within a "dealer" market. In a dealer market, virtually every trade goes through a professional dealer, or market maker, who continually publishes bids and offers in the securities in which she is registered. While trades are executed not in a central location but by telephone or telex between the offices of brokers and dealers, prices are established through competition among market makers. The over-the-counter market has been called a 'quotation-driven' system, in that investors respond to prices quoted by market makers. Poser, supra note 2, at 39-40.
45. The SEC recently added "for certain securities listed on the LSE" to its description after the word "routing." SEC Release No. 34-41199, supra note 23, at 14954.
46. SEC Release No. 34-40161, supra note 29, at 37197. In addition, "[t]he minimum display size for any order is 1,000 shares. The Exchange does not provide a facility for 'reserve' orders . . . and is completely anonymous." SEC Release No. 34-41199, supra note 23, at 14954.
47. SEC Release No. 34-41199, supra note 23, at 14954.
48. Id.
49. Id. This includes provisions which cover disputes. [A] court or tribunal with jurisdiction over any dispute arising out of or in connection with a transaction made on the Exchange shall apply the U.S. federal securities law statutes to any cause of action based upon fraudulent acts or omissions that either (a) occurred in the United States or (b) resulted in damages suffered in the United States. SEC Release No. 34-41199, supra note 23, at 14958. It is also interesting that "[a]lthough the Exchange's market rules and member agreement require members to arbitrate their disputes in England, the Commission believes and expects that English arbitrators and courts will follow the above requirements and interpret and apply the U.S. federal securities laws as defined above." Id.
50. Regulation of Exchanges, SEC Release No. 34-38672, 62 Fed. Reg. 30485 (1997) [hereinafter SEC Release No. 334-38672], This release was an extension of SEC Release No. 39885 that "explor[ed] ways to respond to the rapid technological developments affecting securities markets and, in particular, the growing significance of alternative trading systems." SEC Release No. 34-40760, supra note 13, at 70845.
51. An appropriate manner will provide the traditional protections investors have come to expect, while also allowing innovation and growth. Some question the sincerity of this aim. SEC Release No. 34-40760, supra note 13, at 70846. The Commission encapsulated its aim in its final ruling on ATS regulation: "[T]he Securities and Exchange Commission is adopting a regulatory framework for alternative trading systems, to strengthen the public markets for securities, while encouraging innovative new markets." Id. at 70845. It later continued: The Commission believes that its regulation of markets should both accommodate traditional market structures and provide sufficient flexibility to ensure that new markets promote fairness, efficiency, and transparency. In adopting a new regulatory framework for alterhative trading systems today, the Commission has incorporated suggestions and responded to requests for clarification made by commenters. The Commission believes that this regulatory approach effectively addresses commenters' concerns while carefully tailoring a regulatory framework that is flexible enough to accommodate the evolving technology of, and benefits provided by, alternative trading systems. Id. at 70846. In summary, the SEC that the "regulatory framework" they wish to establish, "should encourage market innovation while ensuring basic investor protections." Id.
52. See supra note 13 for definitions of the terms broker and dealer.
53. See Greg Ip, Upstart British Stock Exchange Seeks SEC Permission to Operate in the U.S., WALL ST. J., July 2, 1998, at A6.
54. See Jonathan R. Macey & Maureen O'Hara, Regulating Exchanges and Alternative Trading Systems: A Law and Economics Perspective (last modified Oct. 7, 1997) 〈http:// www.sec.gov/rules/concept/s71697/ohara1.htm〉.
55. 15 U.S.C. § 78c(a)(1) (1999).
56. Macey & O'Hara, supra note 49. In addition to providing liquidity, "exchanges offer monitoring of exchange trading, standard form, off-the-rack rules to reduce transaction costs for investors, and a signaling function that serves to inform investors that the issuing companies' stock is of high quality." Id.
57. See Edward J. Rosen, Developments, in SWAPs AND OTHER DERIVATIVES IN 1997, at 1017 (PLI Corp. L. & Practice Course Handbook Series No. B4-7212, 1997).
58. Blanc, supra note 32, at 28.
59. SEC Release No. 34-40760, supra note 13, at 70847. The SEC explains that "Rule 3b-16 explicitly excludes those systems that the Commission believes perform only traditional broker-dealer activities." Id. Therefore, if a system only routes orders, operates the bids and offers of merely one market maker or offers a forum for an individual to place orders against a single dealer, it is not included in Rule 3b-16's definition of an exchange. See id.
60. See Ip, supra note 48, at A6.
61. Id.
62. While a foreign exchange has never employed this tactic, the U.S. Arizona Stock Exchange has. The Arizona Stock Exchange (AZX) is a fully automated single-price auction market that facilitates secondary trading of certain registered equity securities by broker-dealers and institutional participants. It is the only stock exchange currently operating under a limited volume exemption from exchange registration. AZX participants enter limit orders through terminals in their offices. Bids and offers are displayed in the order books, which participants can view on their screens. Prior to a preestablished cut-off time, participants may replace or cancel orders. Within seconds after the auction cutoff time, the system reviews all orders with respect to each security and determines the price at which the volume of buying interest is closest to the volume of selling interest. That price will be the 'auction price.' Participants that have entered bids at or above and offers at or below the auction price will be entitled to execution at the auction price on the basis of time priority. Orders matched in the auction are executed by a registered broker-dealer pursuant to a contract with AZX. AZX operates two after-hours auctions and recently obtained Commission approval to operate a single auction during regular trading hours. AZX also allows participants to enter pre-matched orders into its system; these orders are then routed directly for auction. Landauer & King, supra note 11, at 474-75. In granting the AZX its low-volume exemption, "the Commission used the volume levels of the fully regulated national securities exchanges at that time as the benchmark for low volume for AZX." SEC Release No. 34-41199, supra note 23, at 14956.
63. See Letter from Bloomberg, supra note 28, at 2. Bloomberg has a direct stake in this regulatory debate since "[o]utside the United States, Bloomberg provides to institutional customers and others the ability over the BLOOMBERG service to trade on Tradepoint Investment Exchange." Id. If Tradepoint received approval by the SEC, U.S. investors could only access Tradepoint via Bloomberg terminals, though the possibility remains that in the future others may be able to provide such access. See SEC Release No. 34-40161, supra note 29, at 37147.
64. Macey & O'Hara, supra note 49.
65. Id. "For free" means that no negotiation costs are incurred as a standard contract already exists.
66. See id.
67. See id.
68. See id. Minimizing fraud and manipulation of the market is among the SEC's outlined goals as mandated by Congress, which specifically requires fairness and transparency. The Securities Exchange Act of 1934 addresses manipulation in two different sections. Section 9 is the Prohibition Against Manipulation of Security Prices, while § 10, the best known of the manipulation and fraud provisions, is termed Regulation of the Use of Manipulative and Deceptive Devices. Section 10 states: It shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce or of the mails, or of any facility of any national securities exchange - (a) To effect a short sale, or to use or employ any stop-loss order in connection with the purchase or sale, of any security registered on a national exchange, in contravention of such rules and regulations as the Commission may prescribe as necessary or appropriate in the public interest or for the protection of investors, (b) To use or employ, in connection with the purchase or sale of any security registered on a national securities exchange or any security not so registered, any manipulative or deceptive device or contrivance in contravention of such rules and regulations as the Commission may prescribe as necessary or appropriate in the public interest or for the protection of investors. Securities Exchange Act of 1934, § 10, 15 U.S.C. § 78j (1997).
69. See Macey & O'Hara, supra note 49.
70. See id. Technology has afforded the SEC a better ability to monitor trading. However, in the SEC's final ruling regarding regulation of ATSs, the Commission discussed its concerns as to why ATSs do present unique justifications for additional regulation. Focusing mainly on the private versus public formation of ATSs, the SEC is concerned over the formation of a private market that developed only because the activity on alternative trading systems is not fully disclosed, or accessible to public investors. Moreover, these trading systems have no obligation to provide investors a fair opportunity to participate in their systems or to treat their participants fairly. These systems may also not be adequately surveilled for market manipulation and fraud. . . . In addition, alternative trading systems have no obligation to ensure that their systems are sufficient to handle rapid increases in trading volume as occurs in times of market volatility, and at times they have failed to do so. SEC Release No. 34-40760, supra note 13, at 70845.
71. See Securities Exchange Act of 1934, § 11(a), Regulated or Prohibited Trading by Members, CCH ¶ 22,801.
72. Letter from Bloomberg, supra note 28, at 7.
73. See Securities Exchange Act of 1934, Correlator, supra note 30, CCH ¶ 15,511.
74. See Macey & O'Hara, supra note 49.
75. I believe there are also wider advantages to be gained from the existence of competition between exchanges and trading mechanisms in encouraging a better service for customers, particularly in the context of the dominating market share in the trading of U.K. equities held by the LSE. These are advantages which the SEC has recognized in its policy making in the domestic U.S. market. Letter from Anthony Neuberger, Institute of Finance and Accounting, to Jonathan G. Katz, Secretary of the Securities and Exchange Commission (July 9, 1998) 〈http:// www.sec.gov/rules/other/f10-101/neuberg2.text〉 [hereinafter Letter from Neuberger]. See also Jeremy J. Siegel, Manager's Journal: The SEC Prepares for a New World of Stock Trading, WALL ST. J., Sept 27, 1999, at A34: If the SEC mandated this centralization of order-flow, competition would significantly enhance investor choice and the quality of the trading environment. 'If barriers to competition did not exist, then neither would the need, in many respects, for regulatory involvement,' said Mr. Levitt - a remarkable statement from a man who heads a regulatory agency. Id.
76. I believe there are also wider advantages to be gained from the existence of competition between exchanges and trading mechanisms in encouraging a better service for customers, particularly in the context of the dominating market share in the trading of U.K. equities held by the LSE. These are advantages which the SEC has recognized in its policy making in the domestic U.S. market. Letter from Anthony Neuberger, Institute of Finance and Accounting, to Jonathan G. Katz, Secretary of the Securities and Exchange Commission (July 9, 1998) 〈http:// www.sec.gov/rules/other/f10-101/neuberg2.text〉 [hereinafter Letter from Neuberger]. See also Jeremy J. Siegel, Manager's Journal: The SEC Prepares for a New World of Stock Trading, WALL ST. J., Sept 27, 1999, at A34: If the SEC mandated this centralization of order-flow, competition would significantly enhance investor choice and the quality of the trading environment. 'If barriers to competition did not exist, then neither would the need, in many respects, for regulatory involvement,' said Mr. Levitt - a remarkable statement from a man who heads a regulatory agency. Id.
77. Chris Gregory, Comments: Tradepoint: Unique Service in the USA (Apr. 1999) 〈http://www.tradepoint.co.uk/newslet_apr99_3.html〉. For example, "[o]ne Member saw total price improvement over the prevailing LSE best bid/ask of over £46,000." Id.
78. In 1996, Congress provided the Commission with greater flexibility to regulate new trading systems by giving the Commission broad authority to exempt any person from any of the provisions of the Securities Exchange Act of 1934 . . . and impose appropriate conditions on their operation. This new exemptive authority, combined with the ability to facilitate a national market system, provides the Commission with the tools it needs to adopt a regulatory framework that addresses its concerns about alternative trading systems without jeopardizing the commercial viability of these markets. SEC Release No. 34-40760, supra note 13, at 70846.
79. Letter from Larry E. Fondren, President, Integrated Bond Exchange, Inc., to Jonathan G. Katz, Secretary of the Securities and Exchange Commission (July 28, 1998) 〈http://www.sec.gov/rules/proposed/s71298/fondren1.htm〉 [hereinafter Letter from Fondren].
80. Blanc, supra note 32, at 26.
81. Insecurity due to the concern regarding this similarity is evidenced by SEC Release No. 34-38672, supra note 45.
82. See id. at 12.
83. Sam Scott Miller et al., Tethering Technology: The SEC's Market Structure Concept, INSIGHTS 10 (Sept. 1997).
84. See SEC Release No. 34-38672, supra note 45, at 30987.
85. See id.; see also Miller, supra note 77, at 10. A SIP is a Securities Information Processors under § 11A of the Securities Exchange Act.
86. However, some feel registration as a SIP would just apply a new set of regulatory burdens on ATSs that may discourage innovation and would not necessarily eliminate the problems cross-border trading may create. See Miller, supra note 77, at 10.
87. See SEC Release No. 34-38672, supra note 45, at 30488 (discussing "adequate protections to U.S. investors trading on foreign markets . . . .").
88. See SEC Release No. 34-40760, supra note 13, at 70844.
89. This is the name given to the SEC's functional approach. See notes 18-20 and accompanying text.
90. Oddly, according to Benn Steil, Director of the International Economics Programme, "[a]ll natural economic distinctions between stock exchanges and broker-dealers have broken down . . . . Exchanges and brokers are now doing exactly the same thing." Additionally, "Steil expects America's big stock markets to follow the lead of the Stockholm and Sydney exchanges, where the silent screen has replaced the open outcry." Alpert, supra note 13, at 19.
91. See Domowitz, supra note 8, at 98.
92. See id. The first step in the registration of an exchange is the filing by the exchange with the Securities and Exchange Commission of a registration statement. This registration statement must be in the form prescribed by the Commission and must contain: (1) An agreement by the exchange to comply with the Act and enforce compliance by its members, which is discussed in greater detail below. (2) Data as to the exchange's organization, rules of procedure and membership, and other information which the Commission may require. (3) Copies of its constitution, articles of incorporation, by-laws, rules, etc., and (4) An agreement to furnish the Commission with all amendments to the documents referred to in paragraph (3). Meyer, supra note 25, at 44. For a complete description of Section 6's requirements, see Securities Exchange Act of 1934, § 6(a), 15 U.S.C. § 78(f) 1997).
93. Letter from Benn Steil, Director of International Economics Programme, The Royal Institute of International Affairs, to Jonathan G. Katz, Secretary of the Securities and Exchange Commission (July 16, 1998) 〈http://www.sec.gov/rules/other/f10-101/ steill.html〉 [hereinafter Letter from Steil]. While unaffiliated with Tradepoint at the time the letter was written, Mr Steil recently was "appointed as a non-executive director" of Tradepoint, taking effect as of March 9, 2000. Tradepoint Financial - Re Directorate, REG. NEWS SERV., Mar. 9, 2000, available in 2000 WL 16609628.
94. Letter from Benn Steil, Director of International Economics Programme, The Royal Institute of International Affairs, to Jonathan G. Katz, Secretary of the Securities and Exchange Commission (July 16, 1998) 〈http://www.sec.gov/rules/other/f10-101/ steill.html〉 [hereinafter Letter from Steil]. While unaffiliated with Tradepoint at the time the letter was written, Mr Steil recently was "appointed as a non-executive director" of Tradepoint, taking effect as of March 9, 2000. Tradepoint Financial - Re Directorate, REG. NEWS SERV., Mar. 9, 2000, available in 2000 WL 16609628.
95. Many feel the world's most liquid market, the U.S. government bond market, is also the world's safest. See Rich Miller & Beth Belton, Dow Soars on Rate Cut Fed Psychology: Prevent Havoc of Lost Confidence, USA TODAY, Oct. 16, 1998, at 1B.
96. Other foreign markets would be unable to copy this means of entering the U.S. system. See Ip, supra note 48, at A6.
97. According to the Securities Exchange Act of 1934, § 5, the exemption applies to exchanges of limited-volume, but it remains unclear as to which exchanges can qualify as such.
98. The guideline which was used to determine whether the Cincinnati Stock Exchange constituted a low volume exchange was "the volume of the smallest of the fully regulated national exchanges." Domowitz, supra note 8, at 99. This exchange averaged 717 trades per day with a daily share volume of 1,238,241 in 1990. See id. at 99 n.20.
99. See SEC Release No. 34-40161, supra note 29, at 37148-49. When discussing the "Exemption Standards" for Tradepoint, the SEC noted that the Exchange is a low-volume market in the U.K. since its volume was "significantly less than one percent of the LSE's average daily volume." The standard used to measure securities transactions and "overall market activity" is "the monetary value of trading." Seeing as "[i]n the U.K., share prices are roughly one-seventh of what they are in the U.S. for a comparable security," the SEC therefore detailed the adjusted measures that it would have to utilize to measure activity if operating in the United States. Id. at 37149.
100. Id.
101. Letter from Steil, supra note 87, at 2. "Regulatory arbitrage" is the phrase Steil uses to describe what he believes would be the eventual outcome of a decision to allow Tradepoint to enter the United States under a low-volume exemption. Steil suggests that "[r]ather than create a formalized structure for promoting regulatory arbitrage between National Securities Exchange (NSE) and ATS classifications, I believe that the Commission needs to consider seriously a much different approach." Id.
102. Securities Exchange Act of 1934, § 6, 15 U.S.C. § 78(f) (1997). A national exchange is subject to U.S. jurisdiction.
103. Letter from Bloomberg, supra note 28.
104. See id.
105. See Macey & O'Hara, supra note 49. In addition to the problems Macey and O'Hara suggest exchange classification would have, they briefly set out additional arguments against such registration. They argue that under an exchange classification, ATSs would be (1) unable to protect their customers property rights in information; (2) unable to solve the conflict of interest problems that exist within firms that act simultaneously as brokers and dealers; and (3) unable to innovate to further improve market conditions by reducing the transactions costs associated with secondary market trading. See id.
106. See id.
107. See id.
108. See id.
109. Id.
110. Id. See also supra note 19 for the requirements of Regulation ATS, describing the coordination requirement for ATSs that trade "five percent or more of the volume in national market system securities."
111. Its capacity would be lessened as its ability to handle orders would decrease. See Macey & O'Hara, supra note 49.
112. Id.
113. Id.
114. The list of critiques of exchange classification for Tradepoint, and ATSs in general, is extensive. One additional critique that Bloomberg L.P. offered in its August 28, 1998 letter is that as an exchange, an ATS would lose many statutory protections it now enjoys, including effective appeals to the Commission and the federal courts based on statutory protections provided to exchange members and members of the NASD under the Exchange Act. In place of those protections, the ATS would have only the uncertain and amorphous protections from, e.g., predation by other market centers, that might be afforded it as an Intermarket Trading System (ITS). See Letter from Bloomberg, supra note 28.
115. See supra notes 46 and 63 regarding the SEC's goals.
116. See Blanc, supra note 32, at 26, 29.
117. Id. at 30, 31. Section 12 of the Exchange Act, Registration Requirements for Securities. Rule 144A (4)(i) permits such foreign trading: In the case of securities of an issuer that is neither subject to Section 13 or 15(d) of the Exchange Act, nor exempt from reporting pursuant to Rule 12g3-2(b) (Section 240.12g3-2(b) of this chapter) under the Exchange Act, nor a foreign government as defined in Rule 405 (Section 230.405 of this chapter) eligible to register securities under Schedule B of the Act, the holder and a prospective purchaser designated by the holder have the right to obtain from the issuer, upon request of the holder. . . . 17 C.F.R. § 230.144A (1998).
118. Institutional investors include insurance companies, pension funds, banks. See Blanc, supra note 32, at 31.
119. See id.
120. See Silverman, supra note 6, at 1. See also note 13.
121. Registration as a BD is required under Section 15(a)(1) of the Securities and Exchange Act of 1934. Section 15(b) describes the procedure for filing, while Section 15b1-1 details the application process as follows: "(a) An application for registration of a broker or dealer filed pursuant to Section 15(b) shall be filed on Form BD in accordance with the instructions." Securities Exchange Act of 1934, § 15b, 15 U.S.C. § 78o-4.
122. Domowitz, supra note 8, at 98.
123. See id.
124. See id.
125. See Letter from Bloomberg, supra note 28.
126. Id. The following BD registration requirements help illustrate why the process is exhaustive. In addition to registering with the SEC, many BDs also file with the NASD. The NASD requires a signed and notarized registration form (Form BD), Applicant Certification Form, Form U-4s and fingerprint cards for each employee who is required to be registered as an agent or principal due to their activities, New Member Assessment Reports, Firm Contact Questionnaire, a check or money order for the appropriate exam and fingerprint fees as well as a series of informational and documentation requirements as outlined in Rule 1013(a)(2) of the NASD's Membership Proceedings. In brief, the applicant must provide detailed business plans, description of financial controls and description of supervisors and principals. The list of information required is extensive since it requests very specific information. In addition to SEC, NASD, and state requirements, "[c]ertain broker/dealers will be subject to federal statutory provisions requiring them to become members of SIPC. . . . All non-bank broker/dealers registered with the SEC that conduct their principal business within the United States, its territories, or possessions must become members of the Securities Investor Protection Corporation (SIPC)." National Association of Securities Dealers, Inc., How to Become a Member of the National Association of Securities Dealers, Inc. (visited Nov. 8, 1999) 〈http://www.nasrd.com/4700_toc.html〉 [hereinafter How to Become a Member].
127. How to Become a Member, supra note 119.
128. Id.
129. See id. for details regarding the suggested means of alleviating the BD registration process. See also note 119 for discussion of the extensive BD registration requirements.
130. See 17 C.F.R. § 249.617 (1998) for FOCUS Report, Form X-17 A-5. Under Rule 17a-5 of the Securities Exchange Act of 1934, BDs are required to file certain specified monthly or quaarterly reports on Form X-17 A-5. This Form, composed of several parts, is known as a FOCUS Report which is an acronym for "Financial and Operational Combined Uniform Single Report." See 17 C.F.R. § 1.10 (1998).
131. See Letter from Bloomberg, supra note 28.
132. See SEC Release No. 34-40760, supra note 13, at 70844. In the SEC's summary regarding "Regulation of Exchanges and Alternative Trading Systems," the Commission stated that it was "adopting new rules and rule amendments to allow alternative trading systems to choose whether to register as national securities exchanges, or to register as broker-dealers and comply with additional requirements under Regulation ATS . . ." Id.
133. See id.
134. Domowitz, supra note 8, at 95.
135. Macey & O'Hara, supra note 49.
136. See note 94 regarding the concern that regulatory arbitrage would result from allowing Tradepoint to utilize the low-volume exemption as a means of registering in the United States. This is similar to the concerns examined earlier regarding "regulatory arbitrage."
137. See Macey & O'Hara, supra note 49. Presently, there is a lack of even-handedness in the SEC's treatment of ATSs. "It makes no sense for two firms that offer the same service to clients to be subject to different regulatory burdens merely because one of these firms has been classified as an 'exchange' while the other has been classified as a broker-dealer firm." Id.
138. Id.
139. Id.
140. SEC Release No. 34-38672, supra note 45, at 30487. See also SEC Press Release No. 97-43, SEC Solicits Comment on Regulation of Markets, 1.
141. See SEC Release No. 34-38672, supra note 45, at 30487. The Commission identifies registration as an exchange and no regulation as the two extremes of the regulatory spectrum.
142. See id.
143. Id. at 14. Generally, in terms of the SEC's regulation of domestic securities, "[a]s long as the prospectus contains the required information and fully discloses the risks of the offering, the SEC will permit the offering to go forward. The SEC does not judge the merits of the offering as an investment but only seeks to ensure the full and fair disclosure of all relevant facts about the issuer and the offering." James, supra note 32, at 227.
144. See Poser, supra note 2, at 7.
145. See id.
146. See Silverman, supra note 6, at 6; SEC Release No. 34-38672, supra note 45, at 12.
147. See Letter from Neuberger, supra note 70, at 1. Neuberger describes how "[i]t is . . . a transparent market where all users of the system have access to exactly the same information at exactly the same time."
148. The Financial Services Act 1986 provides the standard to which the U.K.'s markets are subject. See James, supra note 32, at 212.
149. See id. at 209-10. The USM is comprised primarily of newer and smaller companies than the Official List. See Huang, supra note 32, at 8.
150. See James, supra note 32, at 213.
151. Id. at 213-14. A complete listing of the requirements is located in sections 5 and 6 of the Yellow Book, the Exchange's Listing Rules. Id. at 212. See also Poser, supra note 2, at 314.
152. James, supra note 32, at 228-29.
153. Poser, supra note 2, at 314.
154. ROBERT C. ROSEN, INTERNATIONAL SECURITIES REGULATION 23 (1986). To list securities, the company must have been run by the current management for three years; must show it's independent of any holder who has 30% of stock; "and at least two brokers must be willing to make a market in the securities." Id.
155. An annual report must include: (1) any departures from standard accounting practices; (2) any differences between its operating results and previous forecasts; (3) a geographical analysis of its operations; (4) major holdings in other companies; (5) bank loans and other borrowings; (6) significant contracts with the company of its subsidiaries in which a director or substantial shareholder has a material interest; and (7) biographical information about the company's outside directors. Poser, supra note 2, at 316. Yellow Book, at 5.16-5.27. For further discussion of an issuer's continuing obligations, see ROSEN, supra note 147, at 23.
156. See Poser, supra note 2, at 322.
157. The standard exemptions are: (a) Private offers: there are no regulatory requirements to circulate an offer to existing shareholders where private issues are concerned. For example, no prospectus or listing particulars are necessary on a private placement. (b) Public offers: no disclosure document is needed where the securities offered are: (i) shares allotted by a capitalization issue, known as a bonus issue, to holders of shares already listed; (ii) small share issues, such as where the shares to be issued do not exceed those already listed by 10 per cent; or (iii) issues to employees, if shares of the same class are already listed. Id. at 214. In the United States, there are numerous exemptions for non-public offerings. See id. at 225.
158. SEC Release No. 34-38672, supra note 45, at 30487.
159. Id.
160. See Silverman, supra note 6, at 6 for discussion of foreign market
161. Id. at 6.
162. Id. Silverman also advances the idea that BDs that are access providers should be regulated in the same manner as SIPs. He suggests that "[t]hese broker-dealers could also be permitted . . . to provide retail and sophisticated investors with electronic links to foreign markets and to foreign markets that trade U.S. and foreign securities, regardless of U.S. registration." Id.
163. See Letter from Steil, supra note 87, at 1. Steil supports Tradepoint's application "on the basis that it offers U.S. institutional investors an excellent low-cost non-intermediated mechanism for trading U.K. stocks."
164. Silverman also suggests that in addition to requiring access providers that link U.S. members and foreign markets to register as SIPS, "foreign markets, information vendors, and other access providers could be required to register as SIPs or to conduct their U.S. activities through another registered SIP." Silverman, supra note 6, at 6.
165. See Letter from Neuberger, supra note 70, at 1.
166. See Ip, supra note 48, at A6. See also Faith Glasgow, Survey - Share Dealing: Trade's up at Tradepoint - The UK's most recent stock exchange distinguishes itself from competitors by offering direct access for fund managers. How viable an alternative is it to the main exchange?, INVESTORS CHRONICLE, Nov. 20, 1998, at 58. From the buy side perspective, "[i]t makes no sense for a US broker to have to pay brokerage commission to a UK broker - why pay commission to your competitor when you don't need to? By joining the Tradepoint Stock Exchange, they are given true independence." April 1999 Newsletter 〈http://www.tradepoint.co.uk/newslet_apr99_3.html〉. In addition to Tradepoint being less costly due to the lack of a middleman, Tradepoint was "launched on the back of the theory that phone trading was inefficient and that the market would welcome a cheap and efficient alternative." Glasgow, supra, at 58.
167. See Ip, supra note 48, at A6. See also Faith Glasgow, Survey - Share Dealing: Trade's up at Tradepoint - The UK's most recent stock exchange distinguishes itself from competitors by offering direct access for fund managers. How viable an alternative is it to the main exchange?, INVESTORS CHRONICLE, Nov. 20, 1998, at 58. From the buy side perspective, "[i]t makes no sense for a US broker to have to pay brokerage commission to a UK broker - why pay commission to your competitor when you don't need to? By joining the Tradepoint Stock Exchange, they are given true independence." April 1999 Newsletter 〈http://www.tradepoint.co.uk/newslet_apr99_3.html〉. In addition to Tradepoint being less costly due to the lack of a middleman, Tradepoint was "launched on the back of the theory that phone trading was inefficient and that the market would welcome a cheap and efficient alternative." Glasgow, supra, at 58.
168. SEC Approves Tradepoint to Enter U.S., supra note 34.
169. While Benn Steil "endorsed direct U.S. investor access to Tradepoint," he "questioned the need for the exchange to win SEC approval on the grounds of its size." Kentouris, supra note 22, at 21.
170. Macey & O'Hara, supra note 49.
171. Id.
172. Laura S. Unger, Commissioner, U.S. Securities & Exhange Commission, Remarks at the Ninth Annual New England Securities Law Conference, June 11, 1999.
173. Id.
174. Id.
175. He further noted how this option is not available to larger institutions: "The conditions that the Commission has set won't allow the major European stock exchanges to qualify for U.S. operation." Tradepoint Becomes First U.S. Foreign Stock Exchange to Operate in U.S. (last modified June 15, 1999) 〈http:// www.tradepoint.co.uk/news_sec.html〉. Rule 15a-16 is the "Exemption of Foreign Brokers or Dealers" regulation. See Securities Exchange Act of 1934, Broker-Dealer Regulation Registration and Regulation of Brokers and Dealers, CCH ¶ 25,006B.
176. He further noted how this option is not available to larger institutions: "The conditions that the Commission has set won't allow the major European stock exchanges to qualify for U.S. operation." Tradepoint Becomes First U.S. Foreign Stock Exchange to Operate in U.S. (last modified June 15, 1999) 〈http:// www.tradepoint.co.uk/news_sec.html〉. Rule 15a-16 is the "Exemption of Foreign Brokers or Dealers" regulation. See Securities Exchange Act of 1934, Broker-Dealer Regulation Registration and Regulation of Brokers and Dealers, CCH ¶ 25,006B.
177. See Letter from Steil, supra note 87, at 1.
178. Blanc, supra note 32, at 32. The SEC adopted Rule 144A of the Securities Exchange Act in 1990. This rule "expanded trading in the private-placement market, where issuers sell to 'qualified institutional buyers' mainly insurance companies, banks, mutual funds and pension funds." Judith Burns, 'Aircraft Carrier' Overhaul Aims to Curtail Surge of Private Placements, WALL ST. J, Jan. 5, 1999, available at 1999 WL-WSJ 5435357.
179. Burns, supra note 169. The practice of converting a private placement to a public offering was at one time prohibited. However, the SEC reversed this policy in its 1988 Exxon Capital decision, in which Exxon Corp's financing unit was permitted to convert a private-placement debt offering to a public one. This was most important to foreign issuers because they gained a means of performing a public offering in the United States. Private placements are "booming." Yet, the SEC is considering slowing this tide by amending U.S. securities laws to "reduce the use of private placements by encouraging companies to issue stocks and bonds through public offerings." This proposal is called the "aircraft carrier." Id.
180. See Glasgow, supra note 159, at 58. Glasgow and Jones describe the positive aspects of Tradepoint as: its lack of middleman fees as compared with the LSE, its anonymity and transparency as well as its low trading costs and entry fees.
181. The London Clearing House is an independent entity serving as a central counterparty which "financially assure[s] all of the trades executed via Tradepoint." Clive Davidson, London Clearing House Uses Technology to Reinvent Itself, SECS. INDUSTRY NEWS, Feb. 8, 1999, at 2. See also Glasgow, supra note 159, at 58 (stating that settlement occurs at the end of every business day through the clearing house); and Tradepoint Financial Networks PLC (last modified June 15, 1999) «http://www.tradepoint.co.uk/ pr990323.html〉. Now more than 100 years old, LCH was, until two years ago, much like any other clearinghouse: a low-profile, back-office service center for the London International Financial Futures and Options Exchange, London Metal Exchange and International Petroleum Exchange (in 1995 it also took on the clearing for the Tradepoint Stock Exchange). Then in October 1996, its members, which now number 114, plus the exchanges, bought LCH from its pervious owners, a consortium of six clearing banks. Now the clearinghouse could respond to the wishes of the broader community of its members, who made it clear they wanted to expand the role of the organization. Davidson, supra at 2.
182. Alpert, supra note 13, at 22. The system maintains anonymity since "[u]sers can buy or sell UK stocks without having to disclose their complete trading intentions." Members achieve this as they "are given the opportunity to advertise their own IOIs (via AutEx and Bloomberg) without disclosing their trading intentions." SEC Approves Tradepoint to Enter U.S., supra note 34.
183. See Jones, supra note 34, at 39. Unfortunately, however, few small investors have access to Tradepoint because only a handful of private-client stockbrokers are members of the exchange. And Tradepoint isn't suitable for all deals. Liquidity on the market is thin compared with the LSE. Mr. Urquhart Stewart says: "it's all very well them saying they can beat the LSE's prices, but when you try to deal you find you can only do so in institutional sizes." Id.
184. See Letter from Steil, supra note 87, at 1.
185. See Silverman, supra note 6, at 6. According to Silverman, orders are indistinguishable due to technology. It is possible for United States investors to obtain real-time information about trading on foreign markets from a number of different sources and electronically to enter and execute orders from the United States. Enhanced technology can make U.S. originated orders indistinguishable from orders originating in the country in which the market is situated. Technology also permits members of foreign securities markets to trade without being physically present on the market floor or establishing a physical presence in the market's home country. Id.
186. Macey & O'Hara, supra note 49.
187. Id.
188. See Letter from Bloomberg, supra note 28.
189. Id. The letter discusses the "extraordinarily protracted" process of registering as an exchange "particularly for a start-up entity but also, [they] expect, for an ATS that has been in business for some time." Id. It continues to detail the administrative burdens that accompany registration.
190. Id.
191. See Letter from Steil, supra note 87, at 1; Blanc, supra note 32, at 34.
192. Ip, supra note 3, at A1. The cost difference can be significant. "Market makers pocket the spread between the bid and ask prices for a stock - that can range between five cents and 75 cents. When an ECN processes trades, it charges a fee of a couple of cents per share." Alpert, supra note 13, at 19. Because of this, Tradepoint's "aim is to be the lowest cost stock exchange in the world." SEC Approves Tradepoint to Enter U.S., supra note 34.
193. See Kentouris, supra note 22, at 21. This argument, according to Kentouris, was put forward by Bloomberg "which provides its users with access to Tradepoint prices." The SEC noted in its recent release that "[a] number of commentators stated that the Tradepoint System would enable broker-dealers in the United States to compete on equal footing with foreign broker-dealers with respect to trades in U.K. securities." SEC Release No. 34-41199, supra note 23. The buy/sell side differentiation is important. While most stress the benefits to buy-side participants, "[t]he sell side can also take advantage of the benefits of direct membership of a UK exchange, such as a stamp duty tax relief, enabling trading on the same basis as UK based Market Makers. Tradepoint is the only exchange to provide stamp duty relief in the USA." Tradepoint Financial Networks PLC (last modified June 15, 1999) 〈http://www.tradepoint.co.uk/ newslet_apr99_3.html〉.
194. See SEC Release No. 34-40161, supra note 29, at 5. "The Commission proposes to impose other conditions on the Exchange besides the low volume requirements discussed above. In general, these conditions would allow the Commission to monitor the Exchange for compliance with all applicable sections of the Securities Act and the Exchange Act (such as the anti-fraud and securities registration sections), and would ensure that the Commission has access to books, records and personnel of the Exchange should the need arise." In SEC Release No. 34-41199 the Commission enumerated the conditions for the low-volume exemption. Among the finalized requirements are: (a) Daily summaries of trading and time-sequenced records of each transaction involving a U.S. Member; (b) Information disseminated to U.S. Members; (c) Daily pound and the equivalent dollar value of transactions; (d) A list of securities for which U.S. orders are accepted; and (e) Copies of Member applications and standards for admission to the Exchange . . . [it] will also be required to provide 30 days prior notice to the Commission of any material changes in the operation of the Tradepoint System . . . . direct access to real-time quotes and trading information . . . on a quarterly basis within 30 days of the end of each quarter . . . . (a) Total volume and average daily volume . . . (i) Number of units of securities . . . (ii) Number of transactions . . . (iii) Monetary value . . . and (b) Records regarding the identity of U.S. Members . . . and the identity of those denied participation in the Tradepoint System and the reason for such denial . . . SEC Release No. 34-41199, supra note 23, at 14958.
195. See SEC Release No. 34-40161, supra note 29, at 37150. Response time concerns factor highly in Bloomberg's proposal regarding the regulation of ATSs generally. Bloomberg advocates two separate supervisory models based upon the manner of response an ATS uses. Our proposal set forth in the Bloomberg October Letter asks the Commission to distinguish between those ATSs that respond to non-participant orders immediately and that provide direct connection to such non-participants on request, and those that do not. If an ATS responds immediately to non-participants orders and provides a direct connection on request, it should qualify to receive order messages, not executions, [whereas] . . . [I]f an ATS does not meet the standard of providing direct connections on request and responding immediately, that ATS should be subject to execution messages from NASDAQ. Letter from Bloomberg, supra note 28, at 6. The distinction between execution messages as opposed to direct connections is important. If a large volume investor has a high level of technology available to it, direct connections could be provided. However, if an investor does not have access to such technology, NASDAQ can and should supply high-speed data links and automatic re-routing software to give them a feasible alternative to execution message delivery. Using such technology, a 'direct hit' through execution message delivery is not superior from the point of view of non-participants. If NASDAQ installs high-speed T-1 communications lines on a system-wide basis, the three-second delay that a non-participant currently experiences between transmission of a NASDAQ SelectNet order and the receipt of a response would practically disappear. Id. This is most important as the SEC must attempt to provide a fair trading system. If there was a large disparity in the response time to high-tech participants and low-tech participants, the level of fairness would be far too slanted in favor of the former. Another key element of the Bloomberg proposal is the effect of placing an order that has already been filled. For instance, "[i]f an ATS sends a rejection to NASDAQ because the order has already been filled in the ATS, NASDAQ will have the opportunity to immediately resend the message order to another ATS or market maker. Re-routing of orders would be efficient and fast." Id.
196. See SEC Release No. 34-40161, supra note 29, at 37150.
197. As of November 20, 1998, Tradepoint had "85 fully signed up members (both stockbroking firms and institutional investors), and is handling around £ 35m of business per day, compared with the LSE's turnover of pounds 3bn - roughly one percent of the market." Glasgow, supra note 159, at 58.
198. See, e.g., Tradepoint Financial Networks PLC Unaudited Results for The Three Months Ended 30 June 1998, CANADA NEWSWIRE, Aug. 28, 1998 [hereinafter Unaudited Results]; Unaudited Financial Results for the Nine Months Ended 31 December 1997, CANADA NEWSWIRE, Feb. 27, 1998. Tradepoint Financial Networks . . . has plunged further into the red. The group revealed its half-year losses had widened from GBP 3 million to GBP 3.6 million, mainly due to higher development costs. Tradepoint conceded it was unlikely to become self-financing in the short term and would require additional funds. However, there has been 'solid growth' in order book volumes. Tradepoint's Troubles Grow, EVENING STANDARD, Nov. 27, 1998, at 34. Despite this, for the year ending March 1999, the company's pre-tax loss was (7.30) £m. as compared to (6.67) £m. for 1998. Tradepoint Financial Networks PLC, Five Year Summary P&L with Balance Sheet (Mar. 10, 1999) 〈http://www.hemscott.co.uk/EQUITIES/company/corp/ crpo3067.html〉.
199. See, e.g., Tradepoint Financial Networks PLC Unaudited Results for The Three Months Ended 30 June 1998, CANADA NEWSWIRE, Aug. 28, 1998 [hereinafter Unaudited Results]; Unaudited Financial Results for the Nine Months Ended 31 December 1997, CANADA NEWSWIRE, Feb. 27, 1998. Tradepoint Financial Networks . . . has plunged further into the red. The group revealed its half-year losses had widened from GBP 3 million to GBP 3.6 million, mainly due to higher development costs. Tradepoint conceded it was unlikely to become self-financing in the short term and would require additional funds. However, there has been 'solid growth' in order book volumes. Tradepoint's Troubles Grow, EVENING STANDARD, Nov. 27, 1998, at 34. Despite this, for the year ending March 1999, the company's pre-tax loss was (7.30) £m. as compared to (6.67) £m. for 1998. Tradepoint Financial Networks PLC, Five Year Summary P&L with Balance Sheet (Mar. 10, 1999) 〈http://www.hemscott.co.uk/EQUITIES/company/corp/ crpo3067.html〉.
200. See, e.g., Tradepoint Financial Networks PLC Unaudited Results for The Three Months Ended 30 June 1998, CANADA NEWSWIRE, Aug. 28, 1998 [hereinafter Unaudited Results]; Unaudited Financial Results for the Nine Months Ended 31 December 1997, CANADA NEWSWIRE, Feb. 27, 1998. Tradepoint Financial Networks . . . has plunged further into the red. The group revealed its half-year losses had widened from GBP 3 million to GBP 3.6 million, mainly due to higher development costs. Tradepoint conceded it was unlikely to become self-financing in the short term and would require additional funds. However, there has been 'solid growth' in order book volumes. Tradepoint's Troubles Grow, EVENING STANDARD, Nov. 27, 1998, at 34. Despite this, for the year ending March 1999, the company's pre-tax loss was (7.30) £m. as compared to (6.67) £m. for 1998. Tradepoint Financial Networks PLC, Five Year Summary P&L with Balance Sheet (Mar. 10, 1999) 〈http://www.hemscott.co.uk/EQUITIES/company/corp/ crpo3067.html〉.
201. See, e.g., Tradepoint Financial Networks PLC Unaudited Results for The Three Months Ended 30 June 1998, CANADA NEWSWIRE, Aug. 28, 1998 [hereinafter Unaudited Results]; Unaudited Financial Results for the Nine Months Ended 31 December 1997, CANADA NEWSWIRE, Feb. 27, 1998. Tradepoint Financial Networks . . . has plunged further into the red. The group revealed its half-year losses had widened from GBP 3 million to GBP 3.6 million, mainly due to higher development costs. Tradepoint conceded it was unlikely to become self-financing in the short term and would require additional funds. However, there has been 'solid growth' in order book volumes. Tradepoint's Troubles Grow, EVENING STANDARD, Nov. 27, 1998, at 34. Despite this, for the year ending March 1999, the company's pre-tax loss was (7.30) £m. as compared to (6.67) £m. for 1998. Tradepoint Financial Networks PLC, Five Year Summary P&L with Balance Sheet (Mar. 10, 1999) 〈http://www.hemscott.co.uk/EQUITIES/company/corp/ crpo3067.html〉.
202. In December of 1998, Tradepoint announced that it was "seeking renewed financing." Suzy Jagger, U.S. Group Seeking Tradepoint Stake, DAILY TELEGRAPH, Feb. 17, 1999, available at 1999 WL 12600741. Presently, [i]t is understood that Cantor Fitzgerald is seeking to buy venture capitalists Apax Partners' 29pc stake in Tradepoint. And insider said: 'It is well-known that Tradepoint will need to re-finance over the next few months. Cantor's are rumored to be in talks with Tradepoint which would fulfill their ambition to have an exchange facility in Britain. Id.
203. On January 20, 1999, trading "totaled more than pounds 200 million." Nick Goodway, Business Day: Tradepoint Teeters on Brink of Red Alert, EVENING STANDARD, Jan. 29, 1999, at 42. However, this is not to say that the financial situation of Tradepoint is anything but dismal. In fact, Goodway writes that the British system is in danger of running out of money again . . . . The electronic stock market . . . revealed that it lost pounds 2 million, up from pounds 1.78 million, in the three months to 31 December. By the same date, cash in the bank had dwindled to just pounds 2.08 million which at current rates would see it in the red by April. But Tradepoint is hopeful of raising more money before that dreaded overdraft appears. It said today that it is talking to advisers about a number of new financing options. Id. These options can include "another rights issue and partnerships with institutional investors and Internet brokers, particularly in the United States, who could direct order flows through Tradepoint. The company last raised pounds 11.4 million through a rescue rights issue in August 1997." Id.
204. Tradepoint Financial Networks plc Unaudited Results for the Year Ended 31 March 1999 (last modified June 15, 1999) 〈http://www.tradepoint.co.uk/pr990615.html〉. Yet, despite these problems, Tradepoint plans on breaking even by the end of 2000. "[It] aims to capture 5.5% of all equity trade in the U.K., its break even point, by the end of the fourth quarter, up from 1% it currently trades," according to Richard Kilsby, the Company's chief executive. Global Finance: Tradepoint Sees Break-Even, WALL ST. J. EUR.. Feb. 11, 2000, at 22. Note: there is a .5% differential between what sources say Tradepoint's market share is. Silvia Ascarelli, U.K. Regulators Seek Advice on ways to Oversee Electronic Trading Networks, WALL ST. J., Jan. 24, 2000.
205. Tradepoint Financial Networks plc Unaudited Results for the Year Ended 31 March 1999 (last modified June 15, 1999) 〈http://www.tradepoint.co.uk/pr990615.html〉. Yet, despite these problems, Tradepoint plans on breaking even by the end of 2000. "[It] aims to capture 5.5% of all equity trade in the U.K., its break even point, by the end of the fourth quarter, up from 1% it currently trades," according to Richard Kilsby, the Company's chief executive. Global Finance: Tradepoint Sees Break-Even, WALL ST. J. EUR.. Feb. 11, 2000, at 22. Note: there is a .5% differential between what sources say Tradepoint's market share is. Silvia Ascarelli, U.K. Regulators Seek Advice on ways to Oversee Electronic Trading Networks, WALL ST. J., Jan. 24, 2000.
206. Tradepoint Financial Networks plc Unaudited Results for the Year Ended 31 March 1999 (last modified June 15, 1999) 〈http://www.tradepoint.co.uk/pr990615.html〉. Yet, despite these problems, Tradepoint plans on breaking even by the end of 2000. "[It] aims to capture 5.5% of all equity trade in the U.K., its break even point, by the end of the fourth quarter, up from 1% it currently trades," according to Richard Kilsby, the Company's chief executive. Global Finance: Tradepoint Sees Break-Even, WALL ST. J. EUR.. Feb. 11, 2000, at 22. Note: there is a .5% differential between what sources say Tradepoint's market share is. Silvia Ascarelli, U.K. Regulators Seek Advice on ways to Oversee Electronic Trading Networks, WALL ST. J., Jan. 24, 2000.
207. See Unaudited Results for Three Months Ended 30 June 1998, supra note 189; see also Glasgow, supra note 159, at 58.
208. See Glasgow, supra note 159, at 60. "Inroads" refers to its application's progress within the SEC. "In early July, the U.S. Securities and Exchange Commission (SEC) approved for publication in the Federal Register its application for exemption from registration as a National Securities Exchange." Id.
209. See id.
210. Kentouris, supra note 22, at 21. Thus far, Tradepoint has only been operating in the red. Commentators such as Kentouris feel that the achievement of U.S. participation is the primary means for Tradepoint to pose a threat to the established LSE.
211. See QL Stock Market Letter, WORLD REPORTER, July 30, 1998, available at 1998 WL 11182527.
212. Id. SETS stands for the "Stock Exchange's Electronic Trading Service." The system was introduced in 1997 and "has led to a reduction in the cost of share transactions." Trading System Helps Cut Costs, DIE WELT, Oct. 6, 1998, at 20, available at 1998 WL 23871573. SETS "automatically links sale and buying orders, will be made more available to individuals because the minimum limit for transactions is being abandoned." See London Stock Exchange Changes for the SETS System, L'ECHO, May 3, 1998, at 20, available in 1998 WL 8481062.
213. Id. SETS stands for the "Stock Exchange's Electronic Trading Service." The system was introduced in 1997 and "has led to a reduction in the cost of share transactions." Trading System Helps Cut Costs, DIE WELT, Oct. 6, 1998, at 20, available at 1998 WL 23871573. SETS "automatically links sale and buying orders, will be made more available to individuals because the minimum limit for transactions is being abandoned." See London Stock Exchange Changes for the SETS System, L'ECHO, May 3, 1998, at 20, available in 1998 WL 8481062.
214. See QL Stock Market Letter, supra note 197 (emphasis added).
215. Glasgow, supra note 159, at 58.
216. See London Stock Exchange, Dancing to a New Tune, EUROMONEY MAGAZINE, Aug. 10, 1998, at 24. According to Legal & General Group PLC's investment director David Rough, SETS is "not a success" "since it has made it harder to trade in all but thirty London-quoted equities." Legal & General Investment Director Criticises SETS Trading System, AFX (U.K.), Apr. 2, 1998, available in 1998 WL 17622163. Rough states that for the top thirty FTSE 100 stocks, SETs have "made a big improvement - spreads have narrowed and there is greater liquidity," however, "outside that group this is not the case." Id. Rough also criticized the system, claiming that it only works "efficiently" between the hours of 9:30a.m. and 3:30a.m. because of the LSE's new dealing system. Id. Nie Stuchfield, chief executive of Tradepoint, suggests that SETS has not been more successful for the same reasons that Tradepoint has only made "relatively little headway into the London Stock Exchange's territory." Id. This reason, according to Stuchfield, is that "there's a natural resistance in the U.K. to the idea of posting bids and offers publicly on the screen, rather than privately through a broker."
217. See London Stock Exchange, Dancing to a New Tune, EUROMONEY MAGAZINE, Aug. 10, 1998, at 24. According to Legal & General Group PLC's investment director David Rough, SETS is "not a success" "since it has made it harder to trade in all but thirty London-quoted equities." Legal & General Investment Director Criticises SETS Trading System, AFX (U.K.), Apr. 2, 1998, available in 1998 WL 17622163. Rough states that for the top thirty FTSE 100 stocks, SETs have "made a big improvement - spreads have narrowed and there is greater liquidity," however, "outside that group this is not the case." Id. Rough also criticized the system, claiming that it only works "efficiently" between the hours of 9:30a.m. and 3:30a.m. because of the LSE's new dealing system. Id. Nie Stuchfield, chief executive of Tradepoint, suggests that SETS has not been more successful for the same reasons that Tradepoint has only made "relatively little headway into the London Stock Exchange's territory." Id. This reason, according to Stuchfield, is that "there's a natural resistance in the U.K. to the idea of posting bids and offers publicly on the screen, rather than privately through a broker."
218. Nick Goodway, Business Day: Tradepoint 'fair play' call to SFA, EVENING STANDARD, Dec. 9, 1998, at 41 [hereinafter Goodway 2]. In order to show this, the company monitored deals struck on the LSE's electronic trading system over the past three months against the prices showing on its own system at exactly the same time. The result invariably was that the LSE price, both for selling and buying, was worse by anything from 12p to 5p per share. The price also tended to be worst on small, usually retail, trades of 10,000 shares or fewer. The net shortfall on such trades ranged from only a few pounds to several hundred and in a few cases thousands of pounds. An example was Halifax on 13 October. In the half hour from 11:20a.m., 57 trades on SETS ranged from 0.5p to 5.3p a share higher than the bid price on Tradepoint. So in that period alone investors lost a total of more than pounds 800, ranging in individual amounts from pounds 1 to pounds 200 and all for trades of 10,000 shares or fewer. Id.
219. Alpert, supra note 13, at 22. See also Tradepoint Financial Networks PLC (last modified Sept. 7, 1999) 〈http://www.tradepoint.co.uk/pr990709.html〉 . This money was vital as "the Company required additional finance to ensure its long-term viability. Cash resources would without an injection, have fallen below the regulatory minimum required as a Recognised Investment Exchange." Tradepoint Financial Networks PLC (last modified June 15, 1999) 〈http://www.tradepoint.co.uk/pr990615.html〉. See also David Fairlamb & Stanley Reed, Frankfurt's Power Play, BUS. WK., Dec. 27, 1999/Jan. 3, 2000, at 80EB (listing the amount of money injected into Tradepoint by the Consortium as $22.4 million). Due to this change in the shareholder base, Tradepoint has decided to no longer be listed on the Canadian Ventures Exchange (formerly the Alberta and Vancouver Stock Exchange) as of January 31, 2000. Originally, Tradepoint was listed on the Vancouver Exchange because a large portion of the Company's shares were held by Canadians. Tradepoint Financial Network PLC - Tradepoint Financial Delists from CDNX, CANADIAN STOCK WATCH, Jan. 20, 2000, at 2000 WL 6296194. See also infra note 207 (discussing an addition to the consortium).
220. Alpert, supra note 13, at 22. See also Tradepoint Financial Networks PLC (last modified Sept. 7, 1999) 〈http://www.tradepoint.co.uk/pr990709.html〉 . This money was vital as "the Company required additional finance to ensure its long-term viability. Cash resources would without an injection, have fallen below the regulatory minimum required as a Recognised Investment Exchange." Tradepoint Financial Networks PLC (last modified June 15, 1999) 〈http://www.tradepoint.co.uk/pr990615.html〉. See also David Fairlamb & Stanley Reed, Frankfurt's Power Play, BUS. WK., Dec. 27, 1999/Jan. 3, 2000, at 80EB (listing the amount of money injected into Tradepoint by the Consortium as $22.4 million). Due to this change in the shareholder base, Tradepoint has decided to no longer be listed on the Canadian Ventures Exchange (formerly the Alberta and Vancouver Stock Exchange) as of January 31, 2000. Originally, Tradepoint was listed on the Vancouver Exchange because a large portion of the Company's shares were held by Canadians. Tradepoint Financial Network PLC - Tradepoint Financial Delists from CDNX, CANADIAN STOCK WATCH, Jan. 20, 2000, at 2000 WL 6296194. See also infra note 207 (discussing an addition to the consortium).
221. Alpert, supra note 13, at 22. See also Tradepoint Financial Networks PLC (last modified Sept. 7, 1999) 〈http://www.tradepoint.co.uk/pr990709.html〉 . This money was vital as "the Company required additional finance to ensure its long-term viability. Cash resources would without an injection, have fallen below the regulatory minimum required as a Recognised Investment Exchange." Tradepoint Financial Networks PLC (last modified June 15, 1999) 〈http://www.tradepoint.co.uk/pr990615.html〉. See also David Fairlamb & Stanley Reed, Frankfurt's Power Play, BUS. WK., Dec. 27, 1999/Jan. 3, 2000, at 80EB (listing the amount of money injected into Tradepoint by the Consortium as $22.4 million). Due to this change in the shareholder base, Tradepoint has decided to no longer be listed on the Canadian Ventures Exchange (formerly the Alberta and Vancouver Stock Exchange) as of January 31, 2000. Originally, Tradepoint was listed on the Vancouver Exchange because a large portion of the Company's shares were held by Canadians. Tradepoint Financial Network PLC - Tradepoint Financial Delists from CDNX, CANADIAN STOCK WATCH, Jan. 20, 2000, at 2000 WL 6296194. See also infra note 207 (discussing an addition to the consortium).
222. Alpert, supra note 13, at 22. See also Tradepoint Financial Networks PLC (last modified Sept. 7, 1999) 〈http://www.tradepoint.co.uk/pr990709.html〉 . This money was vital as "the Company required additional finance to ensure its long-term viability. Cash resources would without an injection, have fallen below the regulatory minimum required as a Recognised Investment Exchange." Tradepoint Financial Networks PLC (last modified June 15, 1999) 〈http://www.tradepoint.co.uk/pr990615.html〉. See also David Fairlamb & Stanley Reed, Frankfurt's Power Play, BUS. WK., Dec. 27, 1999/Jan. 3, 2000, at 80EB (listing the amount of money injected into Tradepoint by the Consortium as $22.4 million). Due to this change in the shareholder base, Tradepoint has decided to no longer be listed on the Canadian Ventures Exchange (formerly the Alberta and Vancouver Stock Exchange) as of January 31, 2000. Originally, Tradepoint was listed on the Vancouver Exchange because a large portion of the Company's shares were held by Canadians. Tradepoint Financial Network PLC - Tradepoint Financial Delists from CDNX, CANADIAN STOCK WATCH, Jan. 20, 2000, at 2000 WL 6296194. See also infra note 207 (discussing an addition to the consortium).
223. Id. The highlights from the company's unaudited financials for the year ended 31 March 1999 are as follows: "Loss for the period of £7,295,667 (1998: 6,669,990), Operating costs £8,240,856 (1998: 7,561,566), Depreciation and amortisation £1,035,962 (1998: 1,090,869), Secured a long term refinancing package with a Consortium led by Instinet Corporation, Subject to shareholder approval, the refinancing package will raise approximately £13,100,000 net of expenses." Tradepoint Financial Networks PLC (last modified June 15, 1999) 〈http://www.tradepoint.co.uk/ pr990615.html〉.
224. See Alpert, supra note 13, at 22.
225. Id.
226. In June of 1999, the Frankfurt plan was considered as well as various other identified opportunities including: the use of the Tradepoint Stock Exchange by Consortium members could substantially improve the level of Tradepoint's trading volumes; the global presence of the Consortium members and their focus on reducing transaction costs, together with market and technological efficiencies, should assist Tradepoint's participation in the evolution of a global market exchange model; a planned electronic link between Instinet and Tradepoint, to allow Instinet customers to route orders to the Tradepoint Stock Exchange; and working in co-operation, Tradepoint and the Consortium will have opportunities to maximise the use of the Tradepoint technology and regulatory license by broadening the range of securities traded. Tradepoint Financial Networks PLC (last modified June 15, 1999) 〈http:// www.tradepoint.co.uk/pr990615.html〉; see also Fairlamb & Reed, supra note 203, at 80EB. Yet now, the scope of Tradepoint's expansion plan is far greater. Recently joining the consortium is ABN Amro Holding NV. ABN is hoping Tradepoint will succeed in its plan to launch a Pan-European market by the end of 2000 as a rival to the combined eight European Exchanges. See John Carreyrou, Deals & Deal Makers: ABN Amro Decides to Back Tradepoint, Buying 9% Stake, WALL ST. J., Dec. 30, 1999, at C18. Tradepoint is hoping to lure "big international investors who are frustrated at the bureaucratic logjam holding up attempts to meld the existing eight European stock markets . . . ." Andrew Garfield, Tradepoint Signs up Partners for European Exchange, THE INDEPENDENT - LONDON, Feb. 11, 2000, at 20. If successful, the Company's growth potential could be seemingly limitless.
227. In June of 1999, the Frankfurt plan was considered as well as various other identified opportunities including: the use of the Tradepoint Stock Exchange by Consortium members could substantially improve the level of Tradepoint's trading volumes; the global presence of the Consortium members and their focus on reducing transaction costs, together with market and technological efficiencies, should assist Tradepoint's participation in the evolution of a global market exchange model; a planned electronic link between Instinet and Tradepoint, to allow Instinet customers to route orders to the Tradepoint Stock Exchange; and working in co-operation, Tradepoint and the Consortium will have opportunities to maximise the use of the Tradepoint technology and regulatory license by broadening the range of securities traded. Tradepoint Financial Networks PLC (last modified June 15, 1999) 〈http:// www.tradepoint.co.uk/pr990615.html〉; see also Fairlamb & Reed, supra note 203, at 80EB. Yet now, the scope of Tradepoint's expansion plan is far greater. Recently joining the consortium is ABN Amro Holding NV. ABN is hoping Tradepoint will succeed in its plan to launch a Pan-European market by the end of 2000 as a rival to the combined eight European Exchanges. See John Carreyrou, Deals & Deal Makers: ABN Amro Decides to Back Tradepoint, Buying 9% Stake, WALL ST. J., Dec. 30, 1999, at C18. Tradepoint is hoping to lure "big international investors who are frustrated at the bureaucratic logjam holding up attempts to meld the existing eight European stock markets . . . ." Andrew Garfield, Tradepoint Signs up Partners for European Exchange, THE INDEPENDENT - LONDON, Feb. 11, 2000, at 20. If successful, the Company's growth potential could be seemingly limitless.
228. In June of 1999, the Frankfurt plan was considered as well as various other identified opportunities including: the use of the Tradepoint Stock Exchange by Consortium members could substantially improve the level of Tradepoint's trading volumes; the global presence of the Consortium members and their focus on reducing transaction costs, together with market and technological efficiencies, should assist Tradepoint's participation in the evolution of a global market exchange model; a planned electronic link between Instinet and Tradepoint, to allow Instinet customers to route orders to the Tradepoint Stock Exchange; and working in co-operation, Tradepoint and the Consortium will have opportunities to maximise the use of the Tradepoint technology and regulatory license by broadening the range of securities traded. Tradepoint Financial Networks PLC (last modified June 15, 1999) 〈http:// www.tradepoint.co.uk/pr990615.html〉; see also Fairlamb & Reed, supra note 203, at 80EB. Yet now, the scope of Tradepoint's expansion plan is far greater. Recently joining the consortium is ABN Amro Holding NV. ABN is hoping Tradepoint will succeed in its plan to launch a Pan-European market by the end of 2000 as a rival to the combined eight European Exchanges. See John Carreyrou, Deals & Deal Makers: ABN Amro Decides to Back Tradepoint, Buying 9% Stake, WALL ST. J., Dec. 30, 1999, at C18. Tradepoint is hoping to lure "big international investors who are frustrated at the bureaucratic logjam holding up attempts to meld the existing eight European stock markets . . . ." Andrew Garfield, Tradepoint Signs up Partners for European Exchange, THE INDEPENDENT -LONDON, Feb. 11, 2000, at 20. If successful, the Company's growth potential could be seemingly limitless.
229. Alpert, supra note 13, at 22.
230. Id.
231. In the United States, "Tradepoint's target market on the buy and sell side is 100 firms . . . but that could get much bigger if the exchange expands trading to include European equities - expected to be in place before the end of 1999." Tradepoint Financial Networks PLC (last modified June 15, 1999) 〈http://www.tradepoint.co.uk/ news_sec.html〉.
232. U.S. approval can be a major help for the company. According to Tradepoint's sales literature, U.S. fund managers are used to using electronic trading systems. Domestic Electronic Crossing Networks (ECNs) and new electronic matching systems seem to proliferate by the week in the U.S.A. Yet, U.S. fund managers have never been able to trade directly in an overseers order book before, without having to pay a broker to access it. Until now, that is. Tradepoint has a completely unique offering, with no competitors to its services in the U.S.A., so strong demand is expected from the U.S. buy-side and sell-side. Tradepoint Financial Networks PLC (last modified June 15, 1999) 〈http:// www.tradepoint.co.uk/newslet_apr99_3.html〉. Tradepoint's management seems to believe that U.S. managers will be more receptive to the electronic format than those in Britain.
233. Id. Tradepoint's flexibility allowing "any customer demand for trading in euros or other currencies" is an added attraction to U.S. institutions. Tradepoint Financial Networks PLC (last modified June 15, 1999) 〈http://www.tradepoint.co.uk/ news_launched.html〉.
234. See Tradepoint Financial Networks PLC (last modified June 15, 1999) 〈http:// www.tradepoint.co.uk/newslet_apr99_1.html〉.
235. Id.
236. Id.
237. Id.
238. See London Stock Exchange, Dancing to a New Tune, supra note 201, at 24.
239. Id. Though not necessarily a direct correlation, Tradepoint has reported "solid growth" in its order book volumes as of the end of November, 1998. Tradepoint's Troubles Grow, supra note 189, at 34.
240. The alliance between the LSE and Frankfurt seeks to "develop a common platform to combine the trading of stocks." London Stock Exchange, Dancing to a New Tune, supra note 201, at 24.
241. See Glasgow, supra note 159, at 58; see also Siegel, supra note 70, at A34.
242. SEC Release No. 34-40161, supra note 29, at 37149.
243. See Unaudited Results, supra note 189, for Peter R. Stevens' (chairman of Tradepoint) outline of the company's "Building and Developing" plans, as well as for his description of the company "Outlook." ("The international equity markets are changing at an unprecedented rate. We are confident that your company is well positioned both to respond to and take advantage of these changes.").
244. See Kentouris, supra note 22, at 21. The NYSE recently complained that [t]here is no basis to grant Tradepoint's exemption request without requiring it to provide U.S. investors with full-sale and quotation information as mandated for all other public markets trading registered equity securities . . . . To allow otherwise will permit those market players that have accesses to Tradepoint data to have significant informational advantage over other investors, raising serious investor protection concerns. Id. (emphasis added).
245. See Letter from Steil, supra note 87, at 2. See also Kentouris, supra note 22, at 21. However, the "larger buy-side players, which Tradepoint targets, typically prefer to deal directly with an exchange." Id. See also London Stock Exchange, Dancing to a New Tune, supra note 201, at 24, discussing how Tradepoint "focus[es] on large trades for institutional investors." At present, Instinet is an example of an instrument which provides direct access to markets electronically. Instinet has allowed market makers to "quote prices better than those made available to public investors." SEC Release No. 34-40760, supra note 13, at 70845. For this reason, the SEC is wary of the impact Instinet and other systems can have on the market. See Macey & O'Hara, supra note 49.
246. See Letter from Steil, supra note 87, at 2.
247. See Macey & O'Hara, supra note 49 (discussing the hindering of Tradepoint's growth).
248. Anthony Neuberger argues that Tradepoint should be welcomed into the U.S. system because it provides investors with a "widening in choice of trading strategy." See Letter from Neuberger, supra note 70, at 1.
249. See Domowitz, supra note 8, at 98.
250. See SEC Release No. 34-38672, supra note 45, at 30487, for discussion of "Alternatives for Revising Regulation Applicable to Foreign Market Activities in the United States."
251. Mark Hendrickson, Automated Trading & Straight-Through Processing: Bloomberg Slams SEC ATS Proposals as 'Unworkable,' SECS. INDUSTRY NEWS, AMERICAN BANKER, INC., Sept. 14, 1998, at 9.
252. Id.
253. Id.
254. See Macey & O'Hara, supra note 49.
255. Domowitz, supra note 8, at 98.
256. See supra Part II.C.
257. See supra notes 46 and 63 regarding the SEC's goals and its forward looking concerns.
258. SEC Release No. 34-40760, supra note 13, at 70845.
259. For example, if a large shopping store were to be regulated by an agency it would have to have its sales monitored. If the store had a café, it would be wise to regulate the kitchen and survey the food that the café dispenses. If the store had a playroom for children, for safety reasons it would probably be wise to make certain that the children were properly supervised. But, should the store have to fill out the same paperwork that a full-service child day care facility would? And what if the store did not have a café but rather had vending machines in the basement for its workers? Would that store have to comply with the same filing requirements as a café? Or how about a change machine located beside the vending machine - would the store then have to fill out paperwork for performing currency exchange services?
260. See supra note 228 regarding areas of ATSs which require supervision.
261. See SEC Release No. 34-40161, supra note 29, at 37150, for discussion of the need to ensure equivalent responses time for orders placed by U.S. and foreign investors. This form of equity is important in assuring that American investors are not only protected, but that they have a fair shot at succeeding in this market.
262. See id.
263. See id. This quarterly information would include: "total volume and average daily volume of transactions effected through the system during the period and year-to-date aggregates of these numbers, expressed in (a) number of units of securities . . .; (b) number of transactions; and (c) monetary volume . . . ." Id.
264. See Blanc, supra note 32, at 33. Blanc addresses surveillance issues in his discussion of "Proposed Regulation of ATSs as Exchanges."
265. Id.
266. Id.
267. See supra note 68 regarding the SEC's Congressionally established responsibilities.
268. Macey & O'Hara, supra note 49. According to Macey and O'Hara, as technology improves, so, too, will monitoring capabilities. Currently, all transactions executed in the over-the-counter markets must be reported through the NASD's transaction reporting system, thus creating in the over-the-counter markets an audit trail of the same quality as the NYSE is able to produce. The proposed OATS system which would monitor orders from submission to execution (or cancellation) ultimately would improve dramatically the market's monitoring capabilities. While these developments may be good for market participants, they have hurt the NYSE by eliminating the NYSE's historic "franchise" in the field of monitoring services. Id.
269. One example of change is the fact that as of January 25, 1999, "roughly 5 million amateur investors . . . do their occasional trading on the Internet . . . ." Day Traders Under Close Eye of Regulators Series: Money Monday, FLA. TODAY, Jan. 25, 1999, at 02E.
270. Big-time investors, such as institutions, execute post-closing trades among themselves through the use of electronic trading systems. See Online Firms Want to Trade Stocks Around the Clock: the surge in individual investors and frequent trading helps fuel the after-hours trend, BLOOMBERG NEWS, OMAHA WORLD-HERALD, Feb. 8, 1999, at 12 [hereinafter Online Firms].
271. See Greg Ip, Soon, Online Investors May be 'All-Day' Traders, WALL ST. J., Feb. 10, 1999, at C1.
272. See id.
273. See id.
274. See Online Firms, supra note 249, at 12. "An after-hours market would help individual investors trade on news that breaks after the stock market closes. Many companies such as Intel Corp. release earnings after the market closes at 4 p.m. New York time." Id.
275. Because of this disadvantage, online investors who wanted to buy after 4 p.m. are able only to place their orders with online brokers such as Charles Schwab Corp. and E*Trade Group Inc. In turn, the orders are executed only "at the next day's opening -one of the causes of the burst of activity that occurs then." Ip, supra note 250, at C1.
276. Robin Goldwyn Blumenthal, ed., Reviews and Previews: Trading, BARRON'S, Aug. 23, 1999 at 12 (emphasis added). See also Extension of NASDAQ Trade Reporting and Quote Dissemination Systems Also Approved (Oct. 14, 1999) 〈http://www.sec.gov/news/ chxhars.html〉 (announcing the SECs approval of "two pilot programs that would allow after-hours trading by the Chicago Stock Exchange (CHX) and extend the NASDAQ Stock Markets (NASDAQ) trade reporting and quote dissemination systems").
277. Robin Goldwyn Blumenthal, ed., Reviews and Previews: Trading, BARRON'S, Aug. 23, 1999 at 12 (emphasis added). See also Extension of NASDAQ Trade Reporting and Quote Dissemination Systems Also Approved (Oct. 14, 1999) 〈http://www.sec.gov/news/ chxhars.html〉 (announcing the SECs approval of "two pilot programs that would allow after-hours trading by the Chicago Stock Exchange (CHX) and extend the NASDAQ Stock Markets (NASDAQ) trade reporting and quote dissemination systems").
278. Ip, supra note 250, at C1.
279. Blumenthal, supra note 255, at 12.
280. REDI Book ECN Announces After-Hours Links, Buy-Side Connections, PRNewswire (Feb. 3, 2000) 〈http://www.prnewswire.com/cgi-bin/ . . . Y=www/stay/02-03-2000/0001132041. REDI Book executes an average of 70 million shares a day. See id.
281. REDI Book ECN Announces After-Hours Links, Buy-Side Connections, PRNewswire (Feb. 3, 2000) 〈http://www.prnewswire.com/cgi-bin/ . . . Y=www/stay/02-03- 2000/0001132041. REDI Book executes an average of 70 million shares a day. See id.
282. "John Markese, president of the Chicago-based American Association of Individual Investors, said individuals may be trading without advantages that some big investors may have, such as company conference calls. 'After hours, who gets the information first? My guess is it's still institutions.'" See Ip, supra note 250, at C1.
283. See id. The greater the number of system participants, the greater the liquidity of the market. While it has been argued that liquidity does not necessarily equal stability (see note 78 for Benn Steil's argument regarding the relationship between liquidity and safety), many believe a wider pool of investors will help toward the success of Wit.
284. See Welcome to Wit Capital 〈http://www.witcapital.com/company/ comp_toc.jsp〉.
285. Online Firms, supra note 249, at 12 (quoting Bill Burnham, "who follows on-line companies for Credit Suisse First Boston Corp.").
286. See id. This is due to the increasing interest in trading online and even after-hours.
287. See supra text accompanying note 259 ("A study by Burnham found that on-line stock trading rose 122 percent in the fourth quarter of 1998 from the same period a year earlier. One in seven trades took place over the Web in the 1998 quarter, he said."). Id. See also Ip, supra note 250, at C1: "After-hours trading seems a natural service to offer to the mushrooming population of online investors who often buy and sell a stock in as little as a day (a practice called day trading)." Id.
288. About 15 percent of the securities brokerage commissions generated last year resulted from discount brokerage transactions. Increasingly, this business has gone online. And a number of financial service companies operating here have sought to capitalize on the trend. A Credit Suisse First Boston report said 222,000 securities trades per day were executed during the second quarter of [1998] by about 80 'online broker' computer stock-trading services, such as ETrade, Accutrade, Ameritrade and Datek Online. Volume soared from 117,600 trades in 1997 second quarter, on the strength of general stock market activity and because 'new customers have continued to stream into the industry,' said Bill Burnham, who prepared the report. Contributing to the trend are Internet growth and the fact that 'employers are essentially forcing their employees to become self-directed investors,' he said. In the past, many corporations offered defined benefit pension plans, guaranteed monthly payments based on salary and years of service. But today, most firms have shifted to defined contribution plans, such as 401(k) plans, which depend on employees to decide how much to invest and where to put their money, he said. Doug LeDuc, More U.S. Amateur Investors Trade Stocks Over Internet, KNIGHT-RIDDER TRIB. BUS. NEWS, Sept. 23, 1998, available in 1998 WL 16338550.
289. Ip, supra note 250, at C1. At the time of this comment, the company was called Eclipse Trading. Since that time, it has renamed itself MarketXT. Citigroup Unit Will Offer After-Hours Stock Trading, WALL ST. J., Sept. 2, 1999, at C15. On February 10, 2000, Tradescape.com Inc. announced its purchase of MarketXT for $100 million in private stock. Tradescape.com plans on increasing the ECN's trading hours and hopefully making the system more competitive with systems such as Charles Schwab Corp. Greg Ip, Deals & Deal Makers: Tradescape.com to Acquire Market XT for Private Stock Valued at $100 Million, WALL ST. J., Feb. 10, 2000, at C22.
290. Ip, supra note 250, at C1. At the time of this comment, the company was called Eclipse Trading. Since that time, it has renamed itself MarketXT. Citigroup Unit Will Offer After-Hours Stock Trading, WALL ST. J., Sept. 2, 1999, at C15. On February 10, 2000, Tradescape.com Inc. announced its purchase of MarketXT for $100 million in private stock. Tradescape.com plans on increasing the ECN's trading hours and hopefully making the system more competitive with systems such as Charles Schwab Corp. Greg Ip, Deals & Deal Makers: Tradescape.com to Acquire Market XT for Private Stock Valued at $100 Million, WALL ST. J., Feb. 10, 2000, at C22.
291. Id.
292. A potential result of an unlimited market is that "an investor . . . can end up paying more or getting far less than expected for a stock." Id.
293. Amy Feldman, Schwab Web Trades Soar, N.Y. DAILY NEWS, Feb. 17, 1999, at 29.
294. Id. Michael Schroeder & Greg Ip, Levitt Urges Central Market to Price Stocks, WALL ST. J., Sept. 24, 1999, at C1 (describing that while 30% of NASDAQ's trading volume has been taken by ECNs, "an insignificant share of Big Board trading" is executed by these entities "because of rules limiting trading Big Board away from a 'stock exchange'").
295. See Online Trading Hits Snag at Schwab: Computer Problem Shut Down System for an Hour, KANS/CITY STAR, Aug. 31, 1999, at D34 (stating that as of August 1999, Schwab was handling approximately "147,700 online trades a day for its 6.2 million active investor accounts").
296. See id.
297. Robert MacMillan, NASAA Accidently Spams Tipsters, NEWSBYTES NEWS NETWORK, Oct. 30, 1998, at 1998 WL 20718237.
298. Id.
299. Id.
300. E*Trade is the second ranked "online trading shop." Charles Schwab is the number one online firm. On February 16, 1999, E*Trade announced that "it got approval from securities regulators to begin selling mutual funds and money market accounts over the Internet." Feldman, supra note 269, at 29.
301. Stephanie Stahl, Cutting-Edge IT Can't Guarantee Perfection, INFORMATIONWEEK, Feb. 8, 1999, at 181 ("Those few hours of instability were enough to enrage many customers and cast doubt on E*Trade's ability to handle spikes in transactions.").
302. The malfunction involved a 90 minute crash on February 3, 1999 and a two
303. One explanation for problems in online trading is that "the incredible pace of change in markets, business, and technology, combined with technical complexity, often make all of this difficult to manage. E*Trade's problems are proof that even the most prepared and cutting-edge companies are susceptible to the vagaries of the unknown." Stahl, supra note 277, at 181.
304. See E*Trade Delays Spark Inquiry (The Online Securities Trader's System Problems), PC WEEK, Feb. 8, 1999, at 1999 WL 9711389, (discussing how "[a] series of network failures . . . put E*Trade, the online stock trading company, in hot water with both users and securities regulators").
305. Stahl, supra note 277, at 181. New York attorney general Eliot Spitzer addressed the complaints of online investors by "probing online trading firms this month." Feldman, supra note 269, at 29. See also E*Trade Delays Spark Inquiry, supra note 280, at 1999 WL 9711389 (discussing that "New York officials said they were going to take a hard look at the online stock trading industry after three days' worth of problems prevented online traders from conducting transactions through the E*Trade Web site.").
306. Stahl, supra note 277, at 181. New York attorney general Eliot Spitzer addressed the complaints of online investors by "probing online trading firms this month." Feldman, supra note 269, at 29. See also E*Trade Delays Spark Inquiry, supra note 280, at 1999 WL 9711389 (discussing that "New York officials said they were going to take a hard look at the online stock trading industry after three days' worth of problems prevented online traders from conducting transactions through the E*Trade Web site.").
307. Stahl, supra note 277, at 181. New York attorney general Eliot Spitzer addressed the complaints of online investors by "probing online trading firms this month." Feldman, supra note 269, at 29. See also E*Trade Delays Spark Inquiry, supra note 280, at 1999 WL 9711389 (discussing that "New York officials said they were going to take a hard look at the online stock trading industry after three days' worth of problems prevented online traders from conducting transactions through the E*Trade Web site.").
308. Predictions as to the growth of on-line investing are universal. "A survey last year by Jupiter Communications, for example, forecasts that discount brokerages would control more than 50 percent of personal finance activity online by 2002 and that online trading would be carried out by 31 percent of the entire investing market. In addition, the investment bank Piper Jaffray, a leading industry tracker, predicted that online trading volumes would amount to more than 27 percent of all retail trades by the end of 1998, compared with 17 percent in 1997. Piper Jaffray also reported that the top ten online brokerages had 5.8 million accounts between them at September 1998, more than double the figure of one year earlier." The Widening Web (Part 1 of 2), FUNDS INT'L., Feb. 1, 1999, at 8.
309. One commentator remarked that ". . . it raises concerns that online trading, risky enough for unsophisticated individuals, could be riskier still in the relatively murky, lightly traveled after-hours market." Ip, supra note 250, at C1. In addition, most every-day investors probably won't be looking to invest heavily in British stocks.
310. In addition to the on-line systems already discussed, other new formats are now being suggested. For example, W-Trade, GTE Financial Services Group and Reality Online are "offering systems that allow their brokerage clients' retail customers to trade securities via cellular phones and other portable handheld devices." Edward Kountz, Reality Online Unveils Wireless Net Trading System, SECS. INDUSTRY NEWS, Oct. 19, 1998, at 17 [hereinafter Kountz 1]; Edward Kountz, First Wireless Options Trading System on Deck, SECS. INDUSTRY NEWS, Sept. 21, 1998, at 1 [hereinafter Kountz 2]; Edward Kountz, GTE Gets Unwired, Too; Launches Wireless Trading System, SECS. INDUSTRY NEWS, Oct. 5, 1998, at 11 [hereinafter Kountz 3]. W-Trade's Wireless Internet Trading System, the industry's first wireless trading system, used by InvesTrade, employs AT&T's Pocket Net Wireless service to deliver its Internet trading capability via Palmpilots, smart cellular phones and other devices . . . . Customer trades go through W-Trade's computer servers, from where they are routed to InvestTrade's trading system and, eventually, to InvestTrade's clearing agent, the BHC Securities unit of Fiserv. Kountz 2, supra, at 1. GTE, which "unveiled what observers say is the securities industry's second wireless Internet-based trading system," "builds on GTE's previous wireless experience, including development of wireless trading technology now in use on the floor of the New York Stock Exchange . . . ." Kountz 3, supra, at 11. "Like W-Trade's creation, GTE's Wireless Trader allows retail clients of the e-brokerage community to trade, receive alerts and tap stock quotes via portable cellular phones called 'smart' phones." Kountz 3, supra, at 11. Reality, combines with "wireless computing middleware developed by Aether Technologies." "The Reality/Aether wireless system allows investors to enter and execute orders, retrieve real-time quotes and news and query their account data via hand-held computers, digital assistants and so-called smart phones." Kountz 1, supra, at 17.
311. In addition to the on-line systems already discussed, other new formats are now being suggested. For example, W-Trade, GTE Financial Services Group and Reality Online are "offering systems that allow their brokerage clients' retail customers to trade securities via cellular phones and other portable handheld devices." Edward Kountz, Reality Online Unveils Wireless Net Trading System, SECS. INDUSTRY NEWS, Oct. 19, 1998, at 17 [hereinafter Kountz 1]; Edward Kountz, First Wireless Options Trading System on Deck, SECS. INDUSTRY NEWS, Sept. 21, 1998, at 1 [hereinafter Kountz 2]; Edward Kountz, GTE Gets Unwired, Too; Launches Wireless Trading System, SECS. INDUSTRY NEWS, Oct. 5, 1998, at 11 [hereinafter Kountz 3]. W-Trade's Wireless Internet Trading System, the industry's first wireless trading system, used by InvesTrade, employs AT&T's Pocket Net Wireless service to deliver its Internet trading capability via Palmpilots, smart cellular phones and other devices . . . . Customer trades go through W-Trade's computer servers, from where they are routed to InvestTrade's trading system and, eventually, to InvestTrade's clearing agent, the BHC Securities unit of Fiserv. Kountz 2, supra, at 1. GTE, which "unveiled what observers say is the securities industry's second wireless Internet-based trading system," "builds on GTE's previous wireless experience, including development of wireless trading technology now in use on the floor of the New York Stock Exchange . . . ." Kountz 3, supra, at 11. "Like W-Trade's creation, GTE's Wireless Trader allows retail clients of the e-brokerage community to trade, receive alerts and tap stock quotes via portable cellular phones called 'smart' phones." Kountz 3, supra, at 11. Reality, combines with "wireless computing middleware developed by Aether Technologies." "The Reality/Aether wireless system allows investors to enter and execute orders, retrieve real-time quotes and news and query their account data via hand-held computers, digital assistants and so-called smart phones." Kountz 1, supra, at 17.
312. In addition to the on-line systems already discussed, other new formats are now being suggested. For example, W-Trade, GTE Financial Services Group and Reality Online are "offering systems that allow their brokerage clients' retail customers to trade securities via cellular phones and other portable handheld devices." Edward Kountz, Reality Online Unveils Wireless Net Trading System, SECS. INDUSTRY NEWS, Oct. 19, 1998, at 17 [hereinafter Kountz 1]; Edward Kountz, First Wireless Options Trading System on Deck, SECS. INDUSTRY NEWS, Sept. 21, 1998, at 1 [hereinafter Kountz 2]; Edward Kountz, GTE Gets Unwired, Too; Launches Wireless Trading System, SECS. INDUSTRY NEWS, Oct. 5, 1998, at 11 [hereinafter Kountz 3]. W-Trade's Wireless Internet Trading System, the industry's first wireless trading system, used by InvesTrade, employs AT&T's Pocket Net Wireless service to deliver its Internet trading capability via Palmpilots, smart cellular phones and other devices . . . . Customer trades go through W-Trade's computer servers, from where they are routed to InvestTrade's trading system and, eventually, to InvestTrade's clearing agent, the BHC Securities unit of Fiserv. Kountz 2, supra, at 1. GTE, which "unveiled what observers say is the securities industry's second wireless Internet-based trading system," "builds on GTE's previous wireless experience, including development of wireless trading technology now in use on the floor of the New York Stock Exchange . . . ." Kountz 3, supra, at 11. "Like W-Trade's creation, GTE's Wireless Trader allows retail clients of the e-brokerage community to trade, receive alerts and tap stock quotes via portable cellular phones called 'smart' phones." Kountz 3, supra, at 11. Reality, combines with "wireless computing middleware developed by Aether Technologies." "The Reality/Aether wireless system allows investors to enter and execute orders, retrieve real-time quotes and news and query their account data via hand-held computers, digital assistants and so-called smart phones." Kountz 1, supra, at 17.
313. In addition to the on-line systems already discussed, other new formats are now being suggested. For example, W-Trade, GTE Financial Services Group and Reality Online are "offering systems that allow their brokerage clients' retail customers to trade securities via cellular phones and other portable handheld devices." Edward Kountz, Reality Online Unveils Wireless Net Trading System, SECS. INDUSTRY NEWS, Oct. 19, 1998, at 17 [hereinafter Kountz 1]; Edward Kountz, First Wireless Options Trading System on Deck, SECS. INDUSTRY NEWS, Sept. 21, 1998, at 1 [hereinafter Kountz 2]; Edward Kountz, GTE Gets Unwired, Too; Launches Wireless Trading System, SECS. INDUSTRY NEWS, Oct. 5, 1998, at 11 [hereinafter Kountz 3]. W-Trade's Wireless Internet Trading System, the industry's first wireless trading system, used by InvesTrade, employs AT&T's Pocket Net Wireless service to deliver its Internet trading capability via Palmpilots, smart cellular phones and other devices . . . . Customer trades go through W-Trade's computer servers, from where they are routed to InvestTrade's trading system and, eventually, to InvestTrade's clearing agent, the BHC Securities unit of Fiserv. Kountz 2, supra, at 1. GTE, which "unveiled what observers say is the securities industry's second wireless Internet-based trading system," "builds on GTE's previous wireless experience, including development of wireless trading technology now in use on the floor of the New York Stock Exchange . . . ." Kountz 3, supra, at 11. "Like W-Trade's creation, GTE's Wireless Trader allows retail clients of the e-brokerage community to trade, receive alerts and tap stock quotes via portable cellular phones called 'smart' phones." Kountz 3, supra, at 11. Reality, combines with "wireless computing middleware developed by Aether Technologies." "The Reality/Aether wireless system allows investors to enter and execute orders, retrieve real-time quotes and news and query their account data via hand-held computers, digital assistants and so-called smart phones." Kountz 1, supra, at 17.
314. In addition to the on-line systems already discussed, other new formats are now being suggested. For example, W-Trade, GTE Financial Services Group and Reality Online are "offering systems that allow their brokerage clients' retail customers to trade securities via cellular phones and other portable handheld devices." Edward Kountz, Reality Online Unveils Wireless Net Trading System, SECS. INDUSTRY NEWS, Oct. 19, 1998, at 17 [hereinafter Kountz 1]; Edward Kountz, First Wireless Options Trading System on Deck, SECS. INDUSTRY NEWS, Sept. 21, 1998, at 1 [hereinafter Kountz 2]; Edward Kountz, GTE Gets Unwired, Too; Launches Wireless Trading System, SECS. INDUSTRY NEWS, Oct. 5, 1998, at 11 [hereinafter Kountz 3]. W-Trade's Wireless Internet Trading System, the industry's first wireless trading system, used by InvesTrade, employs AT&T's Pocket Net Wireless service to deliver its Internet trading capability via Palmpilots, smart cellular phones and other devices . . . . Customer trades go through W-Trade's computer servers, from where they are routed to InvestTrade's trading system and, eventually, to InvestTrade's clearing agent, the BHC Securities unit of Fiserv. Kountz 2, supra, at 1. GTE, which "unveiled what observers say is the securities industry's second wireless Internet-based trading system," "builds on GTE's previous wireless experience, including development of wireless trading technology now in use on the floor of the New York Stock Exchange . . . ." Kountz 3, supra, at 11. "Like W-Trade's creation, GTE's Wireless Trader allows retail clients of the e-brokerage community to trade, receive alerts and tap stock quotes via portable cellular phones called 'smart' phones." Kountz 3, supra, at 11. Reality, combines with "wireless computing middleware developed by Aether Technologies." "The Reality/Aether wireless system allows investors to enter and execute orders, retrieve real-time quotes and news and query their account data via hand-held computers, digital assistants and so-called smart phones." Kountz 1, supra, at 17.
315. In addition to the on-line systems already discussed, other new formats are now being suggested. For example, W-Trade, GTE Financial Services Group and Reality Online are "offering systems that allow their brokerage clients' retail customers to trade securities via cellular phones and other portable handheld devices." Edward Kountz, Reality Online Unveils Wireless Net Trading System, SECS. INDUSTRY NEWS, Oct. 19, 1998, at 17 [hereinafter Kountz 1]; Edward Kountz, First Wireless Options Trading System on Deck, SECS. INDUSTRY NEWS, Sept. 21, 1998, at 1 [hereinafter Kountz 2]; Edward Kountz, GTE Gets Unwired, Too; Launches Wireless Trading System, SECS. INDUSTRY NEWS, Oct. 5, 1998, at 11 [hereinafter Kountz 3]. W-Trade's Wireless Internet Trading System, the industry's first wireless trading system, used by InvesTrade, employs AT&T's Pocket Net Wireless service to deliver its Internet trading capability via Palmpilots, smart cellular phones and other devices . . . . Customer trades go through W-Trade's computer servers, from where they are routed to InvestTrade's trading system and, eventually, to InvestTrade's clearing agent, the BHC Securities unit of Fiserv. Kountz 2, supra, at 1. GTE, which "unveiled what observers say is the securities industry's second wireless Internet-based trading system," "builds on GTE's previous wireless experience, including development of wireless trading technology now in use on the floor of the New York Stock Exchange . . . ." Kountz 3, supra, at 11. "Like W-Trade's creation, GTE's Wireless Trader allows retail clients of the e-brokerage community to trade, receive alerts and tap stock quotes via portable cellular phones called 'smart' phones." Kountz 3, supra, at 11. Reality, combines with "wireless computing middleware developed by Aether Technologies." "The Reality/Aether wireless system allows investors to enter and execute orders, retrieve real-time quotes and news and query their account data via hand-held computers, digital assistants and so-called smart phones." Kountz 1, supra, at 17.
316. In addition to the on-line systems already discussed, other new formats are now being suggested. For example, W-Trade, GTE Financial Services Group and Reality Online are "offering systems that allow their brokerage clients' retail customers to trade securities via cellular phones and other portable handheld devices." Edward Kountz, Reality Online Unveils Wireless Net Trading System, SECS. INDUSTRY NEWS, Oct. 19, 1998, at 17 [hereinafter Kountz 1]; Edward Kountz, First Wireless Options Trading System on Deck, SECS. INDUSTRY NEWS, Sept. 21, 1998, at 1 [hereinafter Kountz 2]; Edward Kountz, GTE Gets Unwired, Too; Launches Wireless Trading System, SECS. INDUSTRY NEWS, Oct. 5, 1998, at 11 [hereinafter Kountz 3]. W-Trade's Wireless Internet Trading System, the industry's first wireless trading system, used by InvesTrade, employs AT&T's Pocket Net Wireless service to deliver its Internet trading capability via Palmpilots, smart cellular phones and other devices . . . . Customer trades go through W-Trade's computer servers, from where they are routed to InvestTrade's trading system and, eventually, to InvestTrade's clearing agent, the BHC Securities unit of Fiserv. Kountz 2, supra, at 1. GTE, which "unveiled what observers say is the securities industry's second wireless Internet-based trading system," "builds on GTE's previous wireless experience, including development of wireless trading technology now in use on the floor of the New York Stock Exchange . . . ." Kountz 3, supra, at 11. "Like W-Trade's creation, GTE's Wireless Trader allows retail clients of the e-brokerage community to trade, receive alerts and tap stock quotes via portable cellular phones called 'smart' phones." Kountz 3, supra, at 11. Reality, combines with "wireless computing middleware developed by Aether Technologies." "The Reality/Aether wireless system allows investors to enter and execute orders, retrieve real-time quotes and news and query their account data via hand-held computers, digital assistants and so-called smart phones." Kountz 1, supra, at 17.
317. In an effort to respond to what the Securities and Exchange Commission has identified as an increase in fraud concerning online investing, the Commission "has created the Office of Internet Enforcement." Internet Enforcement, FLORIDA TODAY, July 29, 1998, at 10C. Provisions such as these are positive steps in the SEC's move to adapt to the changing needs of the securities industry. The Office of Internet Enforcement will enable the SEC to address the specific and unique issues of the Internet while maintaining its broader goal of investor protection.
318. See Securities Exchange Act of 1934, § 6(d) (1999). If it appears to the Commission that the exchange applying for registration is so organized as to be able to comply with the provisions of this title and the rules and regulations thereunder and that the rules of the exchange are just and adequate to insure fair dealing and to protect investors, the Commission shall cause such exchange to be registered as a national securities exchange.
319. See Macey & O'Hara, supra note 49. Macey and O'Hara commented that "special exemptive treatment for alternative trading mechanisms that are of low volume" would be illogical as it "would simply allow competitors to avoid burdensome regulation by remaining small. The sheer number of alternative trading systems would proliferate . . ." for non-demand related reasons. Id.
320. The theory that monopolies deter innovation is a common one. See Scott McNealy, What Constitutes a Monopoly? Software Serenade Before the Courts, WASH. TIMES, Jan. 17, 1999, at B3 (discussing the Microsoft suit, stating that "[a]s history shows, when the government has moved against monopolies, innovation and competition have flourished.") See also Andrew J. Glass, Economist Says Microsoft is Guilty, ATLANTA CONST., Jan. 6, 1999, at D11 (quoting Massachusetts Institute of Technology Professor Franklin Fisher's comment regarding the Microsoft situation: "If software developers believe that Microsoft will engage in anti-competitive acts to impede any innovation that threatens its monopoly, they will have substantially reduced incentives to innovate in competition with Microsoft.") For a more relevant example of this monopoly concern, Bloomberg suggested that "[i]f the Commission were to adopt its proposal to establish NASDAQ as the market center and sole source of executions, the chances of NASDAQ voluntarily upgrading its technology in the future become slim." Letter from Bloomberg, supra note 28, at 7. This is usually true since there is no incentive to improve one's capabilities when there is no competitor lurking around the corner, looking to take away one's market share. Of course, there are exceptions to the rule. Take for instance, "government-granted monopolies (patents)" that "spur innovation" in the prescription drug industry. This does not "interfere with the free market" according to this article's authors, due to the fact that there is no free market for prescription drugs. Alan Sager & Deborah Socolar, A Fairer Prescription Plan, BOSTON GLOBE, Jan. 26, 1999, at A19.
321. The theory that monopolies deter innovation is a common one. See Scott McNealy, What Constitutes a Monopoly? Software Serenade Before the Courts, WASH. TIMES, Jan. 17, 1999, at B3 (discussing the Microsoft suit, stating that "[a]s history shows, when the government has moved against monopolies, innovation and competition have flourished.") See also Andrew J. Glass, Economist Says Microsoft is Guilty, ATLANTA CONST., Jan. 6, 1999, at D11 (quoting Massachusetts Institute of Technology Professor Franklin Fisher's comment regarding the Microsoft situation: "If software developers believe that Microsoft will engage in anti-competitive acts to impede any innovation that threatens its monopoly, they will have substantially reduced incentives to innovate in competition with Microsoft.") For a more relevant example of this monopoly concern, Bloomberg suggested that "[i]f the Commission were to adopt its proposal to establish NASDAQ as the market center and sole source of executions, the chances of NASDAQ voluntarily upgrading its technology in the future become slim." Letter from Bloomberg, supra note 28, at 7. This is usually true since there is no incentive to improve one's capabilities when there is no competitor lurking around the corner, looking to take away one's market share. Of course, there are exceptions to the rule. Take for instance, "government-granted monopolies (patents)" that "spur innovation" in the prescription drug industry. This does not "interfere with the free market" according to this article's authors, due to the fact that there is no free market for prescription drugs. Alan Sager & Deborah Socolar, A Fairer Prescription Plan, BOSTON GLOBE, Jan. 26, 1999, at A19.
322. The theory that monopolies deter innovation is a common one. See Scott McNealy, What Constitutes a Monopoly? Software Serenade Before the Courts, WASH. TIMES, Jan. 17, 1999, at B3 (discussing the Microsoft suit, stating that "[a]s history shows, when the government has moved against monopolies, innovation and competition have flourished.") See also Andrew J. Glass, Economist Says Microsoft is Guilty, ATLANTA CONST., Jan. 6, 1999, at D11 (quoting Massachusetts Institute of Technology Professor Franklin Fisher's comment regarding the Microsoft situation: "If software developers believe that Microsoft will engage in anti-competitive acts to impede any innovation that threatens its monopoly, they will have substantially reduced incentives to innovate in competition with Microsoft.") For a more relevant example of this monopoly concern, Bloomberg suggested that "[i]f the Commission were to adopt its proposal to establish NASDAQ as the market center and sole source of executions, the chances of NASDAQ voluntarily upgrading its technology in the future become slim." Letter from Bloomberg, supra note 28, at 7. This is usually true since there is no incentive to improve one's capabilities when there is no competitor lurking around the corner, looking to take away one's market share. Of course, there are exceptions to the rule. Take for instance, "government-granted monopolies (patents)" that "spur innovation" in the prescription drug industry. This does not "interfere with the free market" according to this article's authors, due to the fact that there is no free market for prescription drugs. Alan Sager & Deborah Socolar, A Fairer Prescription Plan, BOSTON GLOBE, Jan. 26, 1999, at A19.
323. The theory that monopolies deter innovation is a common one. See Scott McNealy, What Constitutes a Monopoly? Software Serenade Before the Courts, WASH. TIMES, Jan. 17, 1999, at B3 (discussing the Microsoft suit, stating that "[a]s history shows, when the government has moved against monopolies, innovation and competition have flourished.") See also Andrew J. Glass, Economist Says Microsoft is Guilty, ATLANTA CONST., Jan. 6, 1999, at D11 (quoting Massachusetts Institute of Technology Professor Franklin Fisher's comment regarding the Microsoft situation: "If software developers believe that Microsoft will engage in anti-competitive acts to impede any innovation that threatens its monopoly, they will have substantially reduced incentives to innovate in competition with Microsoft.") For a more relevant example of this monopoly concern, Bloomberg suggested that "[i]f the Commission were to adopt its proposal to establish NASDAQ as the market center and sole source of executions, the chances of NASDAQ voluntarily upgrading its technology in the future become slim." Letter from Bloomberg, supra note 28, at 7. This is usually true since there is no incentive to improve one's capabilities when there is no competitor lurking around the corner, looking to take away one's market share. Of course, there are exceptions to the rule. Take for instance, "government-granted monopolies (patents)" that "spur innovation" in the prescription drug industry. This does not "interfere with the free market" according to this article's authors, due to the fact that there is no free market for prescription drugs. Alan Sager & Deborah Socolar, A Fairer Prescription Plan, BOSTON GLOBE, Jan. 26, 1999, at A19.
324. See SEC Release No. 34-40760, supra note 13, at 70846. In order to achieve the "benefits of both market centralization - deep, liquid markets - and competition" the national market system "has maintained equally regulated, individual markets, which are linked together to make their best prices publicly known and accessible." However, because "[a]lternative trading systems have remained largely outside the national market system," the SEC is concerned about the lack of duty the ATSs owe to their investors. Id. at 70845. This Release discusses the system's lack of obligation to provide fairness to investors as well as their vulnerability to manipulation and fraud.
325. Id.
326. The last major reform of the London Stock Exchange, commonly referred to as the "Big Bang," took place on October 27, 1986. It was on this day that a formal agreement was made regarding the reformation of the Exchange. The reforms mainly centered around negotiated rates by class of security, commissions, and discount rates. Cecil Parkinson, Trade Secretary, was the individual who sparked this movement when he asked the LSE to prepare reform proposals in July of 1983. After much debate, variations of the changes were put into place. See IAN M. KERR, BIG BANG 32-34 (1986).
327. Glasgow, supra note 159, at 58. This anonymity is a key element of the Tradepoint system.
328. One must remember that Tradepoint currently offers trading only in securities listed on the London Stock Exchange, not in securities of other more unstable nations. While there is most definitely risk involved in the trading of U.K. stocks, the relative stability of the United Kingdom contributes to the lesser level of concern regarding turbulent side effects of direct U.S. access to these securities. This is not to say, however, that if a large increase in the investing of British stocks were to occur, and the United Kingdom were to subsequently undergo a major crisis, that there would be no ripple effect. The Asian crisis of 1998 is evidence of what can occur. "When Asian markets slumped last year, most U.S. businesses denied it would have much of an impact on the American economy. Only recently have we felt the extent to which Asian economic woes affect us directly. Failure in one part of a system always exposes the levels of interconnectedness that otherwise go unnoticed - we suddenly see how our fates are linked together. We see how much we are participating with one another, sustaining one another." John J. Petersen, Margaret Wheatley, Myron Kellner-Rogers, Computers and the Years 2000: What Will Happen?, CURRENT, Jan. 1, 1999, at 3. Yet, if a slump in the U.K. were to occur, and an impact in the United States were to be felt, the source of the impact would not be Tradepoint. This is because the institutions that will trade on the system already are trading these British securities, simply through an extra intermediary. Additionally, without grossly oversimplifying the situation, the Asian market crisis did not solely affect those trading Asian securities; but rather it was the economic crisis of the entire region that consequently affected exports, markets, etc.
329. Tradepoint Financial Networks PLC (last modified June 15, 1999) 〈http:// www.tradepoint.co.uk/news_bestexec.html〉.
330. See id. In a speech given at Columbia Law School on September 23, 1999, Arthur Levitt ". . . expressed fears that technological developments may also lead to market fragmentation so that investors are not sure they are getting the best price when they buy and sell." Siegel, supra note 70, at A34.
331. See id. In a speech given at Columbia Law School on September 23, 1999, Arthur Levitt ". . . expressed fears that technological developments may also lead to market fragmentation so that investors are not sure they are getting the best price when they buy and sell." Siegel, supra note 70, at A34.
332. See Tradepoint Financial Networks PLC, supra note 294.
333. Tradepoint's proposed solution for the best execution rule was: When considering Best Execution, regulated entities should: have access to all relevant publicly available information as well as taking reasonable care to solicit private information from intermediaries, deal (or instruct their agents to deal) in such a way as to gain the best advantage for their clients, consider the commission costs, spread costs and market impact costs, consider the cost of immediate execution relative to patient execution as well as the risks involved in price movement, consider the existence or otherwise of conflicts of interest when choosing agents, especially where the order concerned is not being executed directly, through a public limit order system. Id. Additionally, Tradepoint proposes an analogous structure to the U.S.: an inter-market trading system combined with a consolidated ticker. This would have a number of highly beneficial effects: It would make compliance with the improved Best Execution rule, by brokers, much more straightforward; it would reduce the costs of dealing to investors; and by encouraging the provision of liquidity, it would improve the quality and liquidity of the UK equity market. Id.
334. SEC Press Release 97-43, supra note 133, at 1.