[Congressional Record Volume 142, Number 92 (Thursday, June 20, 1996)]
[Extensions of Remarks]
[Page E1143]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                      SECURITY AMENDMENTS OF 1996

                                 ______


                               speech of

                          HON. ELIOT L. ENGEL

                              of new york

                    in the house of representatives

                         Tuesday, June 18, 1996

  Mr. ENGEL. Mr. Speaker, on May 9, 1996, 19 of my colleagues wrote to 
the SEC regarding the agency's approval of a preferencing program on 
the Cincinnati Stock Exchange [CSE]. I share the concerns expressed in 
that letter. Among other things, the letter expressed concern that the 
Commission did not adequately examine how preferencing affects the 
quality of trade prices received by small retail investors.
  Preferencing enables a broker to direct its customer orders to buy or 
sell stock to itself, acting as dealer. On the CSE, in those stocks 
where preferencing dealers trade exclusively, 95 percent of the 
transactions are executed by dealers simply matching or pairing their 
own orders with those of their customers. The overwhelming majority of 
trades executed on the CSE are for small retail orders. Indeed, 70 
percent of CSE trades are for 500 shares or less, and 97 percent are 
for less than 2,000 shares. Very few institutional traders have their 
trades preferenced on the CSE.
  The SEC order granting approval to the CSE preferencing program left 
many important questions unanswered. Among these questions is why only 
small retail orders are executed under the CSE's preferencing rules, 
and whether these orders are receiving the same opportunity for price 
improvement as they would on the primary market.
  Mr. Speaker, today we take up H.R. 3005, the Securities Amendments of 
1996. This legislation does not address the issue of preferencing but I 
understand that similar legislation in the other body may contain a 
provision directing the SEC to undertake a detailed study of 
preferencing on exchange markets. Such a study would provide more 
information about how preferencing affects small retail investors. 
Unless such a study concludes that there are tangible benefits to 
investors, including small investors, and to the capital formation 
process from this practice, I would support efforts to move swiftly to 
ban preferencing on exchanges.

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