Last year, it was September 28 at the NYU School of Business and Law. The topic was earnings management. This year, it was September 23 at the Columbia Law School. The topic was the structure of capital markets. Both were major policy speeches by SEC Chair Arthur Levitt. Last year, the issue was financial reporting, including the involvement of independent auditors, audit committees, and the stock exchanges. This year, the issue was the transparency of the securities markets in an environment of change and fierce competition. Levitt is concerned about the possible effects on investor information and competitive pricing of three likely developments: the major stock exchanges going public, the emergence of electronic communication networks as mini-stock exchanges, and changes to the securities options markets.
Levitt, as is his style, is looking for self-regulatory solutions to these issues. At the heart of it in Levitt's mind is linkage and centrality. "Central markets have always had an allure. Basic economics tells us that the greater supply and demand that congregate in one place, the more efficient the price-setting mechanism," Levitt said. He continued, "Now, more than ever, is the time to revisit the historic conflict between competition and centrality.
"Tonight, I call upon the leaders of the securities markets, particularly the public representatives on exchange boards--to begin a public dialogue on whether technology offers ways to garner the benefits of centrality without stifling competition. The guiding principles are clear: Price discovery and best execution should be enhanced; liquidity should be fostered; interaction between institutional and retail trading should be maintained; market innovation should be encouraged; and competition among market centers, above all else, should remain vigorous and dynamic.
"Now, more than ever, is the time for thoughtful, constructive, and far-reaching thinking," Levitt added. "Neither our markets nor our investors can afford today's opportunity for change to be dominated by parochialism. The public spirit must reign." *
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