SEC and Securities Exchanges

  Monday's Wall Street Journal contained a must read editorial for all those interested in the structure of the Unites States securities trading markets.  Meyer Frucher, the Chairman and CEO of the Philadelphia Stock Exchange, wrote a very measured but very clear editorial on the effect of new SEC Regulation NMS on the country's six regional stock exchanges.  I will state what Mr. Frucher politely implied;  Regulation NMS puts the nation's six regional stock exchanges on a death watch.  How?  The Regulation increases regulatory costs that are more easily borne by the bigger exchanges (the costs impose a regressive tax on the business of operating an exchange).  Moreover, the SEC has created a data monopoly (on stock trades and on open prices)and divides up the spoils (the revenue is divided up by formula and reduces the regional exhanges percentage of the revenue).  Do we want the SEC to structure the American markets?  No, but that is what they are doing.  Mr. Frucher asks the critical question:  "Where will the next Arca or Instinet come from?"  These are the market innovators that were borne in an open competition with the established markets.  By cutting off competitors to the established trading centers we are cutting off an important source of trading market innovation.