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that the issue in the case was really about electronic account opening and not electronic trading. Then a second judge asked why it was legal for Paine Webber to have electronic access but not the plumber. |
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In retrospect, I would say that the SEC experiences in Timpinaro and the withdrawal of the PTA rule was the turning point of the DAET/SOES legacy. |
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Selective Refusal To Trade |
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Certain market makers have backed away from orders presented to them by firms that the market makers "disliked" or perceived to be overly competitive. Some market makers preferred not to trade with firms that they considered to be "professional traders," such as SOES firms. The evidence before the SEC indicated that some market makers wanted to avoid trading with such firms because the trading styles of such firms may have left market makers at a disadvantage. For instance, some market makers had testified that they believed that these firms would "front-run" market makers' orders or "pick off'' market makers who were slow to update their quotes following news announcements. In this context, the term front running is used to describe a practice of entering orders immediately after learning information that could affect the market for a given security. Such practices between market makers are considered unprofessional or unethical and are discouraged within the market-maker community. |
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The SEC found that the selective refusal of certain market makers to trade with these firms further eroded the underpinnings of the firm quote rule, and was unfair and inconsistent with the concept of a free and open market. It also hindered the development of the national market system. The firm quote rule was weakened if market makers could pick and choose the parties with whom they would trade. Refusals to trade contributed to market fragmentation, and thereby impaired pricing efficiency and fairness to investors. |
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