Financial-Revamp Bill To Ease Exchanges' Rule-Making Process

By Jacob Bunge

Of DOW JONES NEWSWIRES

The financial-revamp legislation signed Wednesday by President Barack Obama will make it easier for financial exchanges to make new rules for their markets and tweak trading fees.

A provision in the 2,300-page bill tightens up the timeline for regulators to approve or deny rule filings by self-regulatory organizations, like exchanges, and is expected to let market operators move more quickly to match rivals' moves on fees.

Exchanges sought the new guidelines after being frustrated by the sometimes lengthy process of getting new trading rules approved by the Securities and Exchange Commission, which oversees U.S. securities and options markets.

With Obama's signature of the Wall Street Reform Act on Wednesday, the agency is gearing up to make more than 500 new rules over the next two and a half years, alongside dozens of reports and studies. This week SEC Chairman Mary Schapiro said the SEC will need 800 more employees to handle the task.

CBOE Holdings Inc. (CBOE), the parent of the Chicago Board Options Exchange, pushed for the new guidelines alongside Nasdaq OMX Group Inc. (NDAQ) and the International Securities Exchange, a unit of Deutsche Boerse AG (DB1.XE).

"With the new framework, ISE and the other exchanges expect to have a clear timeline for introducing new products and functionality to the market that will help us to deliver greater innovation to investors," said Gary Katz, chief executive of the ISE.

The new guidelines allow exchanges to publish new rules to their websites, which starts the clock for the SEC to review the rule and any comments to be filed. In the past, rules had to be published to the Federal Register for the process to begin.

If regulators don't object to a new rule upon its posting to the Web, it must be sent to the Federal Register within 15 days, at which point the SEC has another month to approve it or begin disapproval proceedings.

Should the SEC not publish the rule within 15 days, the process moves ahead anyway, with the clock starting on the date the exchange posted the rule to its website.

Market operators will also be able to immediately implement fee changes affecting non-members of exchanges, after filing with the SEC.

"With this change, exchanges will be able to move more quickly on fees in response to competitive developments, as long as fee changes meet the criteria of being reasonable and fair," said a spokeswoman for BATS Global Markets.

The Securities Industry and Financial Markets Association, representing securities trading firms, raised concerns that the provision could remove important regulatory checks on what exchanges charge their customers.

"We believe that allowing certain rule filings to go effective immediately upon filing goes against a well-established notice and comment process that contributes to better rulemaking and fewer unintended consequences for our markets and investors," said a SIFMA spokesman.

Chester Spatt, professor of finance at Carnegie Mellon University, said that the SEC could ultimately hold up filings with "boilerplate objections," changing little about the process.

"The question is what's going to constitute an objection," he said.

-By Jacob Bunge, Dow Jones Newswires; (312) 750 4117; jacob.bunge@dowjones.com