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Washington, D.C. – U.S. Senator Mike Enzi, R-Wyo., chairperson of the Senate Subcommittee on Securities and Investments, held a hearing today to address the future of the securities markets.

Securities and Exchange Commission (SEC) Chairman William Donaldson testified at the hearing.

Enzi's statement follows.

Statement by Senator Michael B. Enzi
"The Future of the Securities Markets"
Subcommittee on Securities and Investment
Committee on Banking, Housing, and Urban Affairs
October 15, 2003



There is no doubt that the securities markets of the United States are the best in the world. Over the years, our competitive market system has brought the best of the floor-base and electronic markets to the forefront. The laws that are the underpinning of the structure of our securities markets, the Securities Exchange Act of 1934 and the provisions of the Securities Acts Amendments of 1975 that created the National Market System, have held up fairly well in the face of constant change. One of the things that have set our markets apart from international markets has been our ability to foster innovation and technology. Maintaining that competitive edge is an absolute priority.

Several year ago, the securities markets saw unprecedented change - the bull market of the 1990s retreated, the arrival of trading in decimals forever changed the markets, and the events of 9/11 put tremendous stress on the system. Then the accounting issues a year and a half ago also added stress and as a result, the system that we have today appears to be at a crossroads.

The Securities and Exchange Commission has recognized that the changes in the market have caused issues of market structure to become more complex and intertwined. In 2000, the Commission created an Advisory Committee on Market Information. In addition, it was exactly a year ago that Commissioner Glassman chaired a series of Commission hearings on market structure.

Just a few of the issues facing our markets include: 1) whether to update the Intermarket Trading System established by the 1975 Act; 2) whether to change the collection and distribution of market data fees; and 3) whether there currently exists fair and equitable access to trading venues.

With respect to modernizing the Intermarket Trading System, both traders on the floor-based and electronic markets have concerns with System and in particular with its trade-through rule. When the Intermarket Trading System was implemented in 1978, no one could have predicted the level and speed of trading done today. Unfortunately, the national market linkage that it was suppose to achieve has come to represent the great divide between our competing market structures and the diverse trading venues available to investors. Clearly, fixing the system needs to be a priority.

With regard to market data fees, again the system as originally intended was to fairly and equitably collect and distribute monies to facilitate market data to investors and to finance the regulation of the markets. Over the years, the fees have been subject to a number of factors including being tied to incentives for trading platforms and to elements to boost market shares. While the underlying goal of the fees is to create market data that is accurate, uniform, and available in real-time to investors, the fees also must ensure a strong regulatory environment. Today, I believe that the system is not operating as it was intended.

On a related matter, the access to and the trading on the various trading venues and markets also must be done in a fair and equitable manner. Our current system has brought about innovation and change to the market, however, as our markets continue to evolve and mature level playing fields are harder to achieve. It has become even harder for market participants to act in the best interests of their investors. Should all fees and charges involved in a securities purchase be fully taken into account toward the price of the securities, or should investors be given more comprehensive information on how the markets perform prior to placing an order are but two of the many questions that need to be addressed to determine whether we have fair and equitable markets.

In addition to these issues, we also must address whether the self-regulatory structure that we rely upon for oversight of the markets is in need of change. Recent events have shown significant strains and weaknesses on that structure. I will be interested to hear how the reforms that you implemented over the summer are proceeding and what additional reforms will be necessary.

With any review of the future of the securities markets, we should take a look back to how our markets have evolved over the past 20 to 30 years. The tremendous changes to the markets are due in large part to how technology and innovation has transformed not only our markets but also our economy. For example, the Nasdaq Stock Market was transformed by the technology boom of Silicon Valley. As venture capitalists invested money into the high technology companies, they needed a way to "cash out" their investments through initial public offerings on Nasdaq. Today, the testaments to the high technology market are household names.

Not only are our securities markets at a crossroads but also our economy is at a crossroads. Recently, numerous articles have appeared in the news stating that many of the high technology jobs are being transferred overseas. In addition, one article discussed how many countries, including China, are spending lots of money to create their own Silicon Valleys. While the U.S. initial public offerings (IPOs) were at a standstill for the first six months of this year, the Asian stock markets dominated the number of IPOs. Will overseas venture capitalists and investment bankers transfer foreign securities markets to facilitate the high technology industries in a similar manner that happened with Nasdaq? Time can only tell.

However, we must ensure that our securities markets remain the best in the world. In doing so, we must ensure that technology and innovation are key to our evolving stock markets. Currently, market participants are unwilling to invest in infrastructure and technology without clear guidance from the Securities and Exchange Commission of where the markets are headed. If the securities markets are at a crossroads then they are looking to the Securities and Exchange Commission for guidance.

Chairman Donaldson, thank you again for being with us today. I must commend you for doing an excellent job in your very short time at the Commission. There have been a lot of issues vying for your attention during these past few months. Also sitting at the table with you today is Annette Nazareth, Director of the Division of Market Regulation. Welcome to both of you. I look forward to your testimony.