Hearing on the "Financial Marketplace of the Future"

Prepared Testimony of Mr. Charles Schwab
Charles Schwab & Company

9:30 a.m., Tuesday, February 29, 2000
13th Floor Conference Room - Securities and Exchange Commission Offices
7 World Trade Center, New York, NY


Thank you for this opportunity to testify before the Committee. My name is Charles Schwab. I am Chairman and Co-CEO of Charles Schwab & Co., Inc., which I founded in 1975 to serve the investment needs of the ordinary investor. Today, Schwab has 6.5 million individual investor accounts in every state of the Union. I'm here today to speak for them.

I have spent forty years in the investment business. My views about investing and the financial services industry have been shaped by my experiences in this business and by learning directly from customers.

From the outset, my goal was to provide customers with the most useful and ethical financial services in the world. In pursuing that goal, I have always tried to level the playing field for the ordinary investor. I have always believed that if you give customers the tools and the best information and help them learn, they can learn invest, save, and plan for the future.

In my view, the U.S. financial services industry has been rapidly evolving to give more and more power to the ordinary, self-directed investor. As I will try to explain in this testimony, the Internet and online trading are just the latest advances in this exciting process. I expect to see more changes in the future - changes that will continue to bring immense benefits to consumers.

Based on my long experience in the markets, I continue to believe that the responsibility of Congress and federal regulators ought to be enhancing the dynamic and competitive qualities of our financial markets. Competition, and the innovation that stems from it, helps create more informed and better served investors. We all want these trends to continue.


I don't think there has ever been a better period in our history for investors. These are good economic times and good times for capital formation. But these are also exciting times because of the opportunities that the retail investor now has to participate directly in the market.

As we started the nineties, the talk was about the growing institutionalization of our markets. Retail investors accounted for less than half of all trading, and we heard serious concerns raised about the implications of a market dominated mostly by big institutions. But technology is the great equalizer, and we saw an interesting thing happen with the growth and success of the Internet. Technology suddenly made the markets accessible to the average investor and gave them the tools they needed to compete in the market. Armed with the trading tools, information, and research previously available only to professionals, these customers have turned to the markets in record numbers. Where retail trades (if we use orders of 1000 shares and under as a proxy) accounted for 18% of shares and 74% of orders in 1994, today retail trades account for 33% of shares and 87% of orders.

Never before have investors had so much information and so many choices at their disposal. These choices represent a triumph for the retail customer, and it's a direct result of the many changes we've seen in financial services: the proliferation of new markets; the arrival of new entrants; the spread of financial information over the Internet; the array of new and more efficient ways to buy and sell securities.

These changes have given the ordinary investor new power, and have been altering the traditional balance of power in the market in their favor. We see this, for example, in the market share that institutional firms have ceded to those ECNs and market makers that represent retail customers. We see it in the ability of retail customers to influence market prices, undermining the traditional pricing power of the institutional firms. And we see it in the increasing demand by issuers for retail participation in their IPOs, at the expense of institutions.

I welcome these changes, but as you know, not everyone shares my enthusiasm. Change creates discomfort. Perhaps that is why some observers greet these changes with reservation, even alarm. I believe their fears are unwarranted. I believe they misunderstand this new financial world. I believe that the future of our stock markets - and our economy - depends on more competition, more choices, and more empowerment for the retail market. That's exactly what the changes we see today are bringing.


I have spent most of my professional life trying to empower customers. Over the last twenty five years, I have seen tremendous changes in the relationship between individual customers and our financial markets. All of these changes have forced us to think about investing in a new way. All of them have expanded choices. And all of them have created a more educated, more self-reliant customer. Let me try to illustrate what I mean with two examples, both drawn from my own experience in this business.

The first goes back to May 1, 1975, the day Congress & the SEC deregulated commissions. It was our "Big Bang." Before then, all brokerages charged the same prices according to a fixed schedule. Price competition didn't really exist, particularly for the small investor.

At the time, there was a great deal of hand wringing on Wall Street. Critics charged that deregulation would ruin the business. It would be the end of the New York Stock Exchange, some said. It would create a fragmented market.

Today, no one would dispute that Congress and the SEC did the right thing in liberating the market. The average daily volume on the New York Stock Exchange has grown from 20 million shares to almost 1 billion. And, of course, fees have fallen dramatically. Prior to 1975, 1,000 shares of AT&T would have cost $800 in commissions. Today, the commission for 1,000 shares bought online through Schwab costs $29.95.

That would not have happened without deregulation. It was the critical step in bringing ordinary citizens, regardless of their wealth, into the market place. I also think it was the beginning of the great capital expansion that we are still enjoying today.

A second story of change comes from November 4, 1980, Election Day. Some of you will recall that, back then, markets and brokerage houses were traditionally closed on election days. But I thought: maybe we should keep our offices open. By the early afternoon, as the first news of Ronald Reagan's landslide started to seep out, our offices were flooded with business. It continued like that all week.

There was optimism about the new direction of the economy. People, quite reasonably, wanted to invest in the future. So why not make it easier for them? Why should customers have to restrict their investment time to fit Wall Street's schedule? Customers wanted "customer hours." So shortly after the election, we became the first brokerage to offer 24-hour service.

I mention these stories because I believe the changes we are seeing today are just the logical extension of what the market has already witnessed. Last year, the talk was about online trading, declining fees, instantly available research, and CNBC on every television. Today it's ECNs, extended-hour trading, public exchanges going private and private exchanges going public. Twenty years since Schwab decided to offer 24-hour service, we are still debating whether it is wise to extend the trading day from six and a half hours to 'round the clock.

To some it's market fragmentation. I prefer to call it market democracy. It's a new democracy that's furiously creating fresh opportunities for investors and entrepreneurs. And in every case, this new market democracy is leveling the playing field. It is erasing the differences between the self-directed, educated customer and the so-called market professional.


Despite these tremendous gains, we see a number of areas where retail investors continue to be at a disadvantage to institutional firms. The biggest of these disadvantages is informational: while institutions have cheap, real-time access to the latest prices available on the exchange floor or the upstairs trading desk, think about what is available to the average investor. The quotes available on most web sites are at least 15 minutes old, and although the exchanges mete out real time quotes for a fee, the level of price information is far less extensive and useful than what is readily available on a more cost effective basis to the professionals. Information about prices is critical to any investor's trading decision. Regulation prevents the retail customer from accessing this information on the same terms, impeding market transparency.

In the 1960's and 70's, it was a violation of the NASD's rules for an NASD member to provide a customer with an actual quote; instead, member firms were only allowed to divulge a representative quote of the approximate market price. Professionals, however, could readily obtain the actual market quote. Ironically, that's the situation we find ourselves in today with an antiquated regulatory regime that imposes information barriers and price schedules that make it harder for retail investors to access critical market information. By the way, that regime was originally created with the best of intentions to modernize the markets.

Retail customers are already disadvantaged by rules that allow special exemptions and priorities for larger-sized institutional orders. For example, on the exchange floor large institutional orders can be entitled to priority over smaller-sized retail orders at the same price. And while retail trading interest is revealed in the public quotes, institutional trading interest is often held close to the vest by floor brokers and specialists, in much the same way that institutions conceal their trading interest on upstairs trading desks or in the hidden "reserve books" of ECNs. These advantages leave retail investors shut out of the clubby world where winks and nods, physical or virtual, between brokers and specialists and institutions convey valuable information about trading activity in the market. Denying retail investors equivalent access to the same public real-time market information available to the professionals only reinforces the professional's advantage.

Initial public offerings are another area where outdated rules impede transparency and deny retail investors the opportunity to participate on the same footing as institutions. Recognizing the benefits of having a strong base of retail shareholders, issuers are demanding greater access to retail distribution of their securities offerings. At the same time, however, retail investors interested in researching an issuer are frustrated by antiquated, paternalistic regulations that prevent them from viewing the issuer's roadshow and informing themselves about the merits of an offering. Retail investors have also been disadvantaged by a regulatory regime that has permitted companies to share earnings updates and sales figures privately with institutions and analysts (although there is hope that the SEC will soon be addressing this practice). Regulation is preventing retail customers from accessing important issuer information that's necessary for an informed investment decision, creating a market that is decidedly less transparent for the ordinary investor. Why shouldn't the small investor seeking access to the same investment opportunities as the big institutions have access to the same information?

Regulators are in the difficult position of having to balance the often competing interests of different market participants. That is what the discussion is about here today. To some degree, there is always a tension between what works best for institutional firms and what is in the best interest of the retail investor. In my experience, however, a transparent market that treats retail investors fairly and offers maximum incentives for the little guy to participate is a market that will be more efficient for all investors.


We hear a lot of talk these days about the fragmentation that has resulted from the proliferation in competition I mentioned earlier. The fact is that with the SEC's Order Handling Rules and consolidation of the ECNs with other market prices, the markets are less fragmented than ever before. That's not to say that there aren't occasional inefficiencies. But our markets are constantly evolving, and a robust competitive market ensures that inefficiencies are only temporary. Multiple markets and better technology are the best solution for getting a customer the lowest price.

Indeed, experience has repeatedly shown that in a competitive market, private vendors will respond to perceived inefficiencies with a market-based solution. Fragmentation is no exception. A variety of ECNs and other trading systems have responded with systems that consolidate and provide efficient access to the best prices among competing markets. Likewise, when the current Nasdaq linkage (SelectNet) proved too expensive and inefficient to handle today's record volumes, market participants forged links with one another to create trading networks that bypass SelectNet for faster and more reliable access to the best market prices. Not to be outdone, the Nasdaq Stock Market, with its SuperMontage proposal, is now responding with its own virtual system to consolidate and route trading interest among competing markets. The technology of today makes a centralized market unnecessary. Imagine the opportunities the technology of tomorrow will bring.

Nevertheless, there are those with less confidence in the ingenuity and resourcefulness of the market who continue to express concerns about the potential inefficiencies that can arise when trading is spread across multiple competing markets. Unfortunately, I think some of the proposed "reforms" we hear about would only make things worse. One of these ideas is the utopian vision of centralizing all trading in one system (what is sometimes referred to as a time-priority central limit order book, or "CLOB"). By no means a new concept, the vision of transforming our markets into a single "black box" has been debated off and on by academics and regulators for thirty years and eventually discarded each time as a bad idea.

The notion behind the black box is that if you employ technology to centralize orders in one place, maximum order interaction and perhaps even better prices might be achieved. But this theoretical improvement in market efficiency comes at a high price: what many call fragmentation of the market is really a pejorative word for competition and a proliferation of new competitors. I worry that if you replace these many competitors with a black box, you will lose the innovation that has made our markets so successful. This essential quality of competition is not restricted to the financial services industry. No one would argue, for example, that a proliferation of competitors among phone companies or supermarkets is bad for consumers.

Competition may not be perfect or elegant, but a competitive market responds quickly to address inefficiencies. In contrast, any centrally planned structure, no matter how brilliant its architects, will invariably be obsolete by the time it is built. Without market incentives to upgrade and innovate, a centrally planned market will inevitably be slower and more cumbersome than the ever evolving state-of-the-art. Worse yet, because it is a centralized structure, a black box precludes private firms from developing innovative new ways to market and execute orders. ITS, the system linking our stock exchanges, is the perfect example: its technology is old and creaky; it has its own bureaucracy that blocks change; and because it is protected by regulation, it effectively prevents private vendors from developing faster, more efficient alternatives.

Forcing all trading activity into a black box market would also undermine the tremendous transparency gains we have achieved in our market as a result of the SEC's Order Handling Rules in 1996. Those rules opened up competition in the marketplace by empowering retail investors with the opportunity to display orders in the markets directly, whether in a specialist or market maker's quote, or through an ECN. Significantly, those rules struck an important balance between encouraging maximum transparency and not forcing customers to reveal their trading interest at prices away from the market. Customer choice was the key: there are frequently situations where a customer seeking to avoid telegraphing trading interest to the market would not want their order displayed; and while this may seem more obvious for the institution with a 20,000 share order, it is just as true for the 20 retail customers when their individual 1,000 share orders get aggregated and displayed.

Retail investors are already at a major informational disadvantage to institutional customers in terms of access to market information. Forcing retail orders, which have no place else to go, into a black box will put the ordinary investor at a further disadvantage to the institutions and professionals who hold back the bulk of their trading interest upstairs. In the markets, we call the professional's edge the "time and place advantage." In contrast to the individual who enters their order and goes back to work, the professional's proximity and ability to closely monitor trading activity allows them to pick off retail orders just as the market starts moving against them, to step ahead of retail orders when the market starts moving in their favor (an advantage that will only get worse with decimals and the ability to step ahead of retail orders by bidding only a penny more), and to pick and choose when they want their own orders displayed. A black box won't increase transparency - it will only discourage retail customers from using limit orders to avoid getting picked off. Regulators should encourage maximum transparency by giving ordinary investors access to market information on the same terms as professionals. Regulators should be skeptical of proposals that force retail customers to tip their hands while allowing the professionals to play their cards upstairs and close to the vest.


It's also worth spending a few moments on the concept of time priority, that is, the idea that as between two markets that are quoting the same price, the market that was first to quote at that price is first in line to execute incoming orders. This is a corollary of the CLOB theory which has been dredged up from the 1970's and readily adopted by proponents of the black box. First-in-time, first-in-right is how trading is processed when all orders are centralized in a CLOB. But black box enthusiasts argue that time priority can also be imposed on competing markets, that is, by forcing all trading through a computerized message switch that monitors the timing of quote updates and routes orders accordingly. Of course, centralizing trading through a time-priority message switch raises all the same issues as centralizing trading in a central limit order book in that it requires expensive new infrastructure and bureaucracy, precludes competition and innovation and leaves the market dependent on a government-imposed technology.

As with any centralized market, a time-priority message switch also introduces a single point of failure: instead of six competing exchanges that can continue trading when the seventh goes down, all exchanges become dependent on the technology in the central linkage. Are we confident that a government designed technology will have sufficient capacity and reliability to withstand the multi-billion share volumes and enormous volatility we see each day? When is such a government designed system most likely to fail? When volumes are heaviest and alternative markets are needed most?

All other industries in this country, from utilities to telephony, are deregulating and moving away from centralized structures. Centralized structures are also antithetical to the architecture the U.S. and the rest of the world are adopting in terms of computer protocols and networks. Successful state-of-the-art telecommunications systems such as the Internet and the telephone system rely on networked webs of multiple private competing linkages, rather than a single monopoly channel. These webs not only encourage innovation, but also are more reliable because they are not disabled by any single hardware problem or software error.

Another concern with time priority is that it prevents competition on factors other than price. In other words, the market that's first in line gets the order, regardless of whether other markets offer enhanced liquidity, faster or more reliable systems, lower rates of failed trades, or better credit, to name a few of the many factors on which markets compete today. Why should the market for stocks be any different from the retail market for televisions, for example, where one competitor is not precluded from matching another competitor's price cut and beating out the other guy with such value-added benefits as better service or a longer warranty? Of course, weak competitors like time priority because it guarantees them a certain amount of business even if they can't offer a competitive product.

Advocates for time priority also fail to anticipate the tremendous change that decimals will have on our markets. In fact, the concept of time priority was originally conceived of by ivory tower academics as a way to enhance quote competition in a market where the minimum tick of an eighth made it relatively expensive for traders to outbid one another. Recognizing that price priority (highest bidder gets the orders) was hard to achieve when the cost of outbidding the next trader was 12.5 cents, they devised the concept of time priority as a way to incent traders to quote more aggressively (first trader at the quote gets the orders). Of course, in the real world competition is a difficult thing to legislate, and there is no evidence that time priority would lead traders to quote better prices than in a competitive market where supply and demand determine prices. In any event, this entire academic debate becomes moot when our markets convert to full decimal pricing, at which point it will be relatively inexpensive for traders to establish price priority (by offering to pay a penny more than the next trader).

To the extent that the market perceives that aggressive quote competition is important, one would expect the market to respond with a market-based solution, which is in fact what we're seeing today with the next generation of order routing technology. Various firms, including one we bought earlier this month, have developed routing technologies (message switches) that send orders to the market that quotes most aggressively. (Indeed, the ingenuity of these private vendors takes this technology one step further, considering not only which market was first to quote the best price, but also which market has been the most aggressive in quoting the best price throughout the trading day.) If customers perceive a need, this technology will become more widely available and we'll see more routing along these lines, thereby incenting more aggressive quote competition.


Government imposed centralization will cost all investors in terms of less competition, less choice, and ultimately less efficiency. The expensive new infrastructure and bureaucracy required to support a centralized black box and message switch will also impose significant costs on the market (and ultimately issuers, through higher costs of raising capital.) However, perhaps most important of all to the customer, government-imposed centralization of orders would translate directly into worse prices for ordinary retail investors.

The fact is, the retail customer currently gets a better deal in the market than is available to anyone else. Specialists and market makers on the exchanges and Nasdaq effectively offer retail investors a better price quote on average than the one-size-fits-all price they charge the rest of the world. It's basic economics: like the insurance company that charges lower premiums for safe drivers, the specialist or market maker is willing to offer the less risky retail customer a better price (what we call "price improvement") than the prevailing quotes he charges the broader market, which might include institutions, hedge funds, and other professional traders who might have better information about where a stock is heading.

This practice of routing retail orders to specialists and market makers for special handling is often referred to as "internalization" or "preferencing". It's no different from the customer segmentation we see in other industries that results in lower prices for the least risky and least expensive customer: insurance companies offer lower premiums for lower actuarial risks, banks offer lower interest rates for lower credit risks, and so on. We hear a lot of talk about how internalization supposedly reduces efficiency for the overall market (read institutional and professional traders) on the theory that all orders are not interacting in a central place. However, from the perspective of the retail customer, the important thing is that they're getting a better price than if their orders were consolidated with the riskier (and thus more expensive) institutional and professional orders.

For a firm entrusted with hundreds of thousands of orders each day, internalization is one of the most effective ways to ensure our customers get reliable, high quality executions. Our proprietary technology is one of the major advantages. Schwab has consistently been at the forefront of developing new trading platforms to serve its customers. Executing orders through our own specialists and market makers allows us to use state-of-the-art technology we develop, ensures that our customers get attentive service, and allows us to offer customers value-added benefits such as stop order protection, price improvement and automatic execution guarantees that are not always available in other markets. As part of our commitment to execution quality, and to ensure the availability of multiple execution channels, we send orders to all of the various markets that make up the national market system. Schwab has long been a proponent of this network of competing markets that over the years has fostered competition and innovation and resulted in faster turnaround times, lower execution costs and reduced fees. In any event, regardless of whether orders are routed to our own specialists and market makers or to unaffiliated markets, we constantly monitor the quality of executions provided by these different venues to ensure that our customers are receiving the best executions possible.

The amount of price improvement available in different markets is obviously an important factor in this equation. Recently, the NYSE and SEC proposed a rule that would prohibit specialists or market makers in any market from internalizing and executing orders unless they provided a certain form of price improvement. Naturally, we support new ways to get better prices for customers, but this should be achieved through competition, not legislation. More importantly, we caution against adoption of a single structure or price improvement formula at the expense of competition and innovative alternatives. For example, there are a variety of ways to give customers a better price than the quoted market - for example, getting a sixteenth or eighth more for the customer's sell order, or perhaps executing a 2000 share order at the market quote when the quote was only good for 500 shares (sometimes referred to as "liquidity enhancement"). The NYSE proposal focuses on one form of price improvement, but other exchanges and firms offer their own ways of price improving orders, and regulation should not be used to favor the interests of one competitor over another.


As with internalization, the practice of payment for order flow arises because orders from retail investors are less risky and specialists and market makers are therefore willing to pay rebates of maybe a penny or two per share to brokerage firms to attract these types of orders. The practice is so widespread that just about every retail brokerage firm on the Street receives some form of payment or reciprocal order flow for its customer orders, and even the NASD pays for order flow in one form or another.

Of course, there's a lot of concern that these rebates can pose a conflict for brokers. I worry too about payment for order flow. If you'll remember, Schwab took a strong stand a few years ago and tried to lead the way to eliminate the practice. Unfortunately, competition forced us to back off. However, to ensure that the potential conflict doesn't undermine our goal of getting best execution for customers, firms like ours go to extraordinary lengths to measure and compare execution quality among the various markets to ensure that orders are routed to markets that offer the best executions, regardless of whether they offer rebates. Execution quality is what drives order routing decisions, and our customers would not have it any other way. Indeed, our customers are some of the most educated and sophisticated around, and use their access to real-time quotes, "time and sales" information and other market tools to keenly scrutinize the executions they receive.

Several years ago, the SEC considered the practice of payment for order flow and determined that as long as brokers were providing their customers with best execution and as long as the practice was adequately disclosed, the practice could actually lead to more competition in the market.

It's also important to point out that the rebates we receive from payment for order flow help lower our costs, and we pass these savings back to customers. Firms like ours use cost savings and rebates and even trading profits from executing customer orders to expand the menu of services we offer customers and to lower the prices we charge them. For example, new rebates and cost savings on various exchanges recently enabled us to lower commissions for active traders. And in the options market, specialist firms have started to offer payment for order flow for retail orders; as a result, it's likely we will soon be offering lower commissions for certain options trades.


Ours is one of the most heavily regulated industries, and while some of this regulation works to the investor's benefit by reinforcing market fairness and integrity, market structure regulation is too often characterized by outdated impediments and bureaucracies that reinforce traditional monopolies and protect parochial interests. Our paramount goal should be a competitive, transparent market that treats the customer fairly. Rather than erecting expensive new infrastructures and bureaucracies, regulators should be eliminating regulation that impedes competition among markets, prevents transparency of critical market information and information about issuers, and puts the ordinary investor at a disadvantage.

Regulators need to ensure maximum opportunity and incentives for innovation of new systems for handling orders. Regulators should eliminate information barriers and price schedules that impede transparency and make it harder for retail investors to access critical market information. Regulators should review paternalistic regulation that prevents retail investors from getting the necessary information to participate in IPOs and make informed investment decisions. Regulators should address selective disclosure practices in which companies leak important information to Wall Street analysts and institutional investors. At the same time, regulators need to respect the market and avoid the creation of costly new bureaucracies and infrastructure. Like the physician's oath, first do no harm.

Vibrant competition has produced a diversity of firms and services catering to the retail investor. The United States is unique in this regard. Most overseas markets are generally dominated by institutions, with little if any retail participation. The U.S. alone puts a premium on creating opportunities for individual investors. Not coincidentally, these overseas markets are nowhere near as efficient and liquid as our own. Anyone who wants to move to these overseas models is not doing so on behalf of the individual investor. Our markets are the envy of the world. Can anyone really claim that our markets are inferior in any way to the smaller, institutional markets in Europe and Asia? No, our markets are the fairest, deepest and most liquid, and I believe that competition and innovation are the principal reasons.

European and Asian economies should not be our model. These countries have a predilection toward centralized government-sponsored structures and parastatal industries, with markets typically characterized by centralized structures. They have a lot less experience with dynamic, competitive markets. After years of languishing in technological obsolescence because of the lack of competitive pressure, a number of these countries have recently adopted centralized black box structures and we are now hearing about the alleged efficiencies of their advanced technology. Nonetheless, the reforms in these markets have been designed for the benefit of institutional investors, and have been far less responsive to the interests of ordinary customers. On the technology front, it is the U.S. that's been exporting the technology that runs the markets, that takes the orders and clears the trades. Likewise, Congress should help us continue to export our unique brand of market democracy.


I believe that the more choices consumers have, the better. Take after hours trading. For years, we had asked the major markets to extend their hours, in part so that the trading day for the West Coast customer would not end at 1:00 p.m. We were met repeatedly with blank refusals. As retail participation in after hours trading became possible with the emergence of ECNs and the Internet, critics warned that fragmentation would be especially rife in the hours after the exchanges close, and that without the protections of the major markets, customers might not be getting the best prices available. We agreed that the after hours market would be riskier, but customers expressed strong interest in this service. So we initiated an extensive education campaign to inform customers about the special risks, and we pushed for a number of protections to help get customers the best prices.

We pushed for Nasdaq and the exchanges to consolidate quotes, and for Nasdaq to run its SelectNet linkage, allowing customers to access better prices in another market or ECN. We pushed a number of the big ECNs to link with one another so that any better prices in one ECN would be available to investors trading through another ECN. And we partnered with other major retail firms to create a large pool of liquidity for after hours orders. It's not perfect by any means, but what's the alternative? For years retail customers were prevented from trading on news released after hours, forced to sit on the sidelines while institutions got a jump on trading activity as the market digested the news. The major markets still have not extended their hours, and yet the retail after hours market has grown to 10 million shares per day, with match rates (percentage of orders executed) sometimes exceeding 70 percent.

After hours trading, ECNs, private exchanges: this sort of evolutionary change isn't new. Let's remember, it wasn't that long ago that I was called before the ethics committee of the Pacific Stock Exchange to discuss how we could allow customers to make a trade without the advice of a commissioned broker. When buying a mutual fund or opening an IRA meant paying a hefty up-front fee. When the only way to learn about the market from one day to the next was to wait for the next morning's newspaper.

Investors, not Congress and not the SEC, helped bring about these changes. Investor demand is still driving these changes today. We should be skeptical of anything that discourages that process, of anything that seeks to turn back the clock, whether to recreate the old New York Stock Exchange with its windows painted black to prevent information from leaking out, or to the black box, so aptly named. No one is smart enough to design the markets of the future; they will be designed by the forces of competition finding opportunity and creating value for individual investors.

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