NYSE Rejects Proposal for Centralized Network

FRAMINGHAM (04/10/2000) - The New York Stock Exchange board of directors last week rejected a proposal to create a central clearinghouse for stock prices - and instead endorsed a multiplatform structure that they said would allow more customer choice.

A report issued by the NYSE's Special Committee on Market Structure, Governance and Ownership - and endorsed by the board of directors on Thursday - said that a central limit-order book (CLOB) would hurt competition and that existing technology can provide more efficient access to the markets.

The committee recommended that the NYSE continue to develop its electronic trading systems toward a structure that allows traders their choice of trading platforms.

"With our board's endorsement, the report gives us an important blueprint for building Network NYSE - a market built on customers' choice in how they access and utilize the unparalleled liquidity, transparency and depth of the New York Stock Exchange," said NYSE Chairman and CEO Richard A. Grasso in a statement issued Thursday.

Opposed to the ITS

The report also called for a replacement of the Intermarket Trading System (ITS), a 22-year-old system that links the nation's stock markets.

"The committee believes that advances in communications technology have introduced more direct and efficient means of routing orders among markets than intermarket linkages," the report said, suggesting that broker/dealers use their own information and order-routing systems instead of the ITS.

The board's decision goes directly against the recommendations of the nation's largest brokerages, which argued in favor of a CLOB at a meeting earlier this month.

"In our experience, the more customer order flow meets in one central place, the more trading spreads narrow, prices improve and liquidity increases," said Merrill Lynch & Co. CEO David Komansky in written testimony in which he argued in favor of a marketwide mechanism for displaying and accessing the best possible bid or offer.

According to Dana Stiffler, an analyst at Newton, Massachusetts-based Meridien Research Inc., a central clearinghouse would raise costs for discount brokers, which currently keep prices low by keeping trades in-house, while at the same time reducing the pre-eminence of the NYSE.

"A CLOB would dilute its power," she said. "As it stands, they're still the most respected equity marketplace."

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