(March 1) – “The debate over the future of United States securities markets entered high gear yesterday as Wall Street’s top executives told Senators that the current system is sometimes unfair to investors and could cost the United States its position as the world’s financial capital,” writes Alex Berenson in The New York Times today.

“At a packed hearing of the Senate Banking Committee in the New York financial district, with an armed guard posted at the door, the executives urged the government to force competing stock markets to work more closely together. Their goal, they said, is to ensure that investors both large and small get the best price when they trade stocks. ‘I never thought I’d see the day I was arguing for regulation,’ Henry M. Paulson, the chairman of the Goldman Sachs Group, told Phil Gramm, the Texas Republican who heads the committee.

“Mr. Paulson said the New York Stock Exchange and the Nasdaq stock market, the world’s two largest stock markets, must move quickly to open their systems to new electronic exchanges that give investors the chance to trade directly with each other. That move will lower trading costs for investors and ensure that most trading continues to take place in the United States, under the eye of the Securities and Exchange Commission, he said. The chairmen of Merrill Lynch, Morgan Stanley Dean Witter and Credit Suisse First Boston shared that view. But Richard A. Grasso, the chairman and chief executive of the New York Stock Exchange, which has the most to lose from a radical revamping of the current system, counseled the committee against intervening.

“The exchange’s system already offers investors the best deal when they trade stocks, and the exchange is moving quickly to cut costs and increase trade speed, he said. Still, Mr. Grasso acknowledged that his exchange ‘is facing the most challenging competitive environment in its 208-year history.’ Frank G. Zarb, the chairman of the National Association of Securities Dealers, which is the parent of the Nasdaq market, told the committee that Nasdaq is working on an improved trading system that should alleviate most of the panel’s concerns. Nasdaq is building a stock market that will eventually connect investors around the world with around-the-clock trading, he said.

“Charles Schwab, the chairman of the Charles Schwab Corporation, the San Francisco-based brokerage firm that has grown into a giant by catering to individual investors, also disagreed with Mr. Paulson. The proposal championed by Goldman and the other banks will “never be as efficient as truly competitive markets,” Mr. Schwab said.
Behind the dispute is a sudden proliferation in the ways that investors can buy or sell stocks in the United States.