Opening Statements of Committee Members

Opening Statement of Subcommittee Chairman Rod Grams (R-MN)

Hearing on "The Changing Face of Capital Markets
and the Impact of ECN's"
10:00 a.m., Wednesday, October 27, 1999

The hearing will come to order. This morning the Subcommittee is meeting to receive testimony on one of the most rapidly changing facets of the nation's capital markets - the increasing role of electronic communications networks (ECNs).

I urge members to pay special attention to Chairman Levitt's testimony. Because this is his first opportunity to testify before the Senate Banking Committee on changing market structure issues, Senator Dodd and I have invited the Chairman to addresses a broader series of issues than the topic of today's hearing.

Turning to the topic of today's hearing, although the first ECN was formed in the late 1960s, the explosion in ECN activity is a recent phenomenon. Following changes to the SEC's order handling rules in1996, ECNs have played an increasingly important role in our nation's markets. By providing a virtual central limit order book, the ECNs have provided greater transparency in the markets as well as an added source of liquidity. The entrepreneurial spirit which has led to these innovations should be encouraged and applauded.

However, as ECNs move further into the market mainstream, we as public policy makers must ensure that the consumer - whether it's an engineer at one of Minnesota's high tech companies who is investing for a downpayment on her first house, a mutual fund manager investing a young couple's savings for their new child's college education, or a pension fund manager working to ensure a safe retirement for his plan's participants - is our driving concern. To paraphrase Chairman Levitt, this goal of investor protection is achieved through faster execution, cheaper trades, greater transparency, best execution, and a commitment to the investor. Many of these goals are already being met by ECNs through faster execution, cheaper trades, and greater price discovery. We must remember, markets do not exist on their own: without consumers, there are no markets.

Due to the increasing reliance on technology, all market participants -- not just ECNs - must ensure that they have the technological capacity to handle high levels of activity over a sustained period of time. Also, if ECNs become exchanges -- as some have already pursued -- they must agree to enforce the same high code of conduct which the existing exchanges have been held to for over 200 years. Finally, ECNs must ensure that the information they generate provides the highest degree of market transparency achievable while eliminating market fragmentation.

I look forward to Chairman Levitt's perspective on these timely issues. Also, I look forward to the testimony of the other witnesses and the opportunity to discuss these issues with them.