Statement No. 190

For information contact:

Marshall Blume
(215) 898-7616
Hal S. Scott
(617) 495-4590
Peter J. Wallison
(202) 862-5864

Institutional investors in the United States are constantly trying to reduce their trading costs, which are a direct drag on performance. The Securities and Exchange Commission should encourage any innovation that may reduce these costs. Most innovations fail, but if they succeed, U.S. investors benefit.

In the U.S., institutional investors routinely utilize electronic access to the Electronic Communications Networks and other trading venues when such access can reduce trading costs. U.S. institutional investors do not currently have similar electronic access to foreign markets.

Foreign trading venues encounter some legal risk if they permit direct electronic access to U.S. investors without prior SEC approval. The SEC has taken the position that any foreign trading venue that provides electronic assess to a U.S. institutional investor, as distinct from telephonic access through U.S. registered broker-dealer, may be subject to U.S. regulation. In the rapidly changing world of telecommunications, the differences among methods of communication between the U.S. and foreign countries should not determine whether access is permissible, and it is time that the SEC clarify how U.S. institutional investors can link themselves with foreign trading venues.

To facilitate the development and availability of new foreign trading venues to U.S. institutional investors in non-U.S. equities, the Shadow Financial Regulatory Committee urges the SEC to publish conditions under which a foreign trading venue can provide electronic access to U.S. institutional investors. Providing criteria for electronic access will reduce the regulatory risk of foreign venues associated with allowing electronic access by U.S. institutional investors. The availability of such access may reduce the trading costs of U.S. institutional investors, which will benefit, among others, individual investors in mutual funds.