Heads of major brokerage firms testified Tuesday on the importance of ensuring that U.S. securities markets remain the world's best.
Lawmakers did not need much convincing.
"If we want the goose that routinely lays the golden egg in America we've got to try to provide an environment that will enhance it staying there," said Senate Banking Committee Chairman Phil Gramm. The Texas Republican stressed that the committee's two days of hearings in New York this week are only the beginning. Senate Banking will discuss similar issues at an upcoming meeting in Chicago.
The congressional interest comes amid the long-running bull market, increased investing by individuals, and the proliferation of non-traditional trading networks. These three factors have sparked concerns by securities regulators and industry members over a host of issues including liquidity, competition, and price transparency.
"The question is, as we enter the 21st century, are U.S. markets the most efficient, the most fair, the most able to compete?" asked Sen. Charles Schumer, D-N.Y.
Those are issues the Securities and Exchange Commission is studying. Last week the SEC put out for public comment six proposals for overhauling the securities markets. One would create a nationally linked market that would force all investors' orders to interact, with execution priority given by price and time.
That particular proposal was the subject of much discussion at Tuesday's hearing, where top executives from Charles Schwab & Co., Merrill Lynch & Co., Morgan Stanley Dean Witter & Co., and Goldman, Sachs & Co. testified.
Some brokerage heads and Senate Banking members said they favored a system in which individual markets would co-exist, but would be electronically linked to allow investors access to the best available prices in all markets.
Such market-wide linkage would promote competition and better prices, and eliminate "fragmented pools of liquidity," said David H. Komansky, chairman and chief executive of Merrill Lynch.
Sen. Schumer said investors would benefit from knowing that they were getting the best price available in all markets, be it the New York Stock Exchange, the Nasdaq, or an electronic communications network. "Sunlight is the great disinfectant," he said.
There was, however, some disagreement over the definition of a centralized market. Sen. Gramm and Charles Schwab, chairman and chief executive of the company that bears his name, were concerned that all orders would be have to be executed on one market, which could stifle competition.
Meanwhile, technology is moving at a rapid pace, making it all the more important for new regulations to be implemented on a timely basis. "Regulation has to catch up [with technology] or we are in danger of losing market preeminence," said Henry M. Paulson Jr., chairman of Goldman, Sachs &Co.