FOR IMMEDIATE RELEASE                                  99-146

     Chairman Arthur Levitt Stresses Need for Best Execution
          in Light of Findings From Ongoing SEC Review
                                
      Calls on Brokers To Improve Practices and Disclosure;
                Asks Media To Help Educate Public
                                
     Boca Raton, Florida, November 4, 1999 -- As part of his
continuing discussion of the great technological, competitive,
and structural changes sweeping the securities markets,
Securities and Exchange Commission Chairman Arthur Levitt today
stressed the importance of best order execution and called on
brokers to improve their order execution practices and
disclosure.  The Chairman's remarks were delivered at the
Securities Industry Association's annual meeting in Boca Raton,
Florida.

     Chairman Levitt said that best execution is part of the four-
pronged framework that has guided the securities markets since
1975 and will help to achieve a true National Market System.  The
other three elements are:  competition among markets;
transparency of pricing; and linkages between market centers.

     Chairman Levitt commended those brokers who strive to ensure
that their customers receive quality execution.  "However," he
said, "the duty of best execution is being neglected by those who
fail to carefully review their order routing arrangements.  I
worry that best execution may be compromised by payment for order
flow, internalization, and certain other practices that can
present conflicts between the interests of brokers and their
customers."

Chairman Levitt made the following key points:

*    SEC review of best execution finds that payment for order
  flow is affecting which markets orders are sent to;
*    Payment for order flow disclosure is not helpful for
investors;
*    Best execution must be a priority as options markets link;
*    Nasdaq unified opening is both possible and long overdue to
  avoid scattered pricing;
*    Decimalization will create profound challenges to best
execution;
*    Improved dialogue and disclosure needed;
*    Financial news media can help inform investors on firms'
  order execution quality; and
*    SEC issues best execution guidance to investors on website.

What is Best Execution?

     Best execution encompasses a number of factors starting with
the price of the execution and the opportunity for price
improvement.  Other factors include speed and likelihood of
execution.  For institutional investors, anonymity and liquidity
might be overriding concerns.  To discharge in a meaningfully way
its best execution obligation, a firm must consider and analyze
execution alternatives without regard to the firm's own economic
self-interest.

Best Execution Review Findings Are Troubling

     Chairman Levitt said he was troubled by some of the
preliminary findings from an SEC review of how firms are
complying with their best execution obligations.  He said that
while payment for order flow is legal, some firms appear to be
allowing such payments or other inducements to affect which
markets they send their orders to -- at the expense of quality
executions.

     Chairman Levitt said, "Some firms, for example, have told us
that execution speed is the most important factor in their
routing decisions.  But some of these firms have not conducted a
regular and rigorous review of execution alternatives -- reviews
to determine whether there are other places that offer faster
executions, or executions that are just as fast but with a
greater likelihood for price improvement.  These firms also offer
no support for their belief that their customers prefer speedy
execution above all else.  Sometimes, the invocation of speed
rings as a hollow rationalization for selling order flow or
capturing the spread on internally executed orders."

     The SEC review also found encouraging practices, including
firms that ask the different market centers for execution quality
statistics, including speed of execution and percentage of price
improvement, and firms that route "test trades" to gather the
same data.

Payment for Order Flow Disclosure Is Not Helpful for Investors

     In 1995, the Commission decided to require disclosure of
payment for order flow rather than prohibit it.  Upon request, an
investor has a right to know how his broker is typically paid for
executing a trade; to know whether his broker receives a payment
for sending an order to a certain exchange; and to know if his
broker has a profit sharing arrangement with a market center.

     Chairman Levitt said, "Unfortunately, today's payment for
order flow disclosure, while factually accurate, is just not
clear to investors.  The typical disclosure does nothing more
than list the variety of compensation arrangements that may
result when a broker is paid for customer orders... It's like
turning to a weatherman and having him tell you it may rain
today, but then again, it may not."  He added, "The potential
harm of conflicts between the interests of brokers and customers
extends beyond the broker-customer relationship.  Whether it's
payment for order flow, internalization, reciprocal arrangements
of any kind, rebates, or discounts, all of us must insist on the
best possible execution of a customer's trade.  Anything less
undermines the power of competition -- the backbone of vibrant
markets."




Best Execution Must Be Priority as Options Markets Link

     Chairman Levitt said that increased competition in the
options markets has made the duty of best execution even more
critical.  He said, "Linkages, designed and implemented to
facilitate best execution, must be these exchanges' foremost
priority.  Swift and certain progress towards the establishment
of trade rules preventing inferior executions, and the prompt
display of limit orders, are immediate necessities."
     Chairman Levitt also sounded a note of caution about
troubling signals coming from the options markets.  He said,
"Some seem intent on introducing externalities -- payment for
order flow and internalization -- into the options markets.  I
see the reports of joint ventures between options order flow
providers and options specialists where profits on order flow are
to be shared.  Rest assured, we will guard the promise of a
competitive, free and fair options marketplace."

Execution Quality at the Market Level

     Chairman Levitt noted that market centers -- including ECNs
-- also have a responsibility to monitor their price setting
functions.  He said, "The NYSE, in many respects, has been and
remains a standard setter in the area of price improvement.  And
currently Nasdaq is exploring promising ways to promote greater
interaction among customer orders."

     He continued, "But there is room for improvement.  One
example comes to mind: Nasdaq's opening period.  Today, widely
disparate prices sometimes prevail during this period,
compromising the quality of executions that some investors
receive.

     Chairman Levitt said that a unified opening on Nasdaq is
both possible and long overdue.  He said, "I am happy to report
to you today that the NASD has committed to address this problem
recently.  The Quality of Markets Committee has made this a top
priority.  We will hold them to this pledge. All markets must
continue to guard the integrity, and continually enhance the
technology of their pricing mechanisms."

Decimalization Will Create Profound Challenges

     Chairman Levitt said that best execution will be reshaped by
the advent of decimal pricing. "As spreads narrow, some are
asking whether searching for a penny of price improvement serves
the average retail investor's interest?  Will the significance of
price improvement increasingly depend on the size of the trade or
the spread involved?  Should the notion of materiality serve as
the touchstone for brokers as they evaluate customer preferences?
Should brokers be able to step ahead of a customer's order with a
penny's price improvement and, if so, will this reduce the
incentive to enter limit orders?"

     Chairman Levitt added, "Now is the time for all market
participants to contemplate, to consider, to prepare as best we
can for the impact that decimalization will have on our markets."




Better Dialogue and Disclosure Needed, Not Rulemaking

     Chairman Levitt said that the many complaints and questions
the SEC receives from investors regarding execution quality
demonstrates the need for better dialogue and disclosure.  But,
he said, "Now is not the time for rulemaking regarding order
execution.  We must not enter the millennium handcuffed by
potentially cumbersome, and perhaps even soon outdated
restrictions.  But future uncertainties should not put the duty
of best execution on hold."

     The Chairman asked the firms to take several steps: begin a
more meaningful dialogue with their customers about the execution
of their orders; think about distributing voluntary, plain
English reports to customers illustrating their track records for
execution in a quantifiable and meaningful way; make execution
protocols -- standards for handling customer orders -- available
to the public; and let investors know what is emphasized -- speed
certainty, the opportunity for price improvement, or something
else.

Financial Media Needed to Help Educate Investors

     Chairman Levitt called on the financial news media to help
educate investors about best execution by including execution
quality in reviews of retail brokerage services.  He said, "Best
execution is every bit as important as commission rates.  Most
firms already track their average speed of execution and average
percentage of price improvement.  A simple, comparative analysis
of these factors, along with a description of competing firms'
execution protocols, is an easy and important first step."

Best Execution Guidance on SEC Website

     Chairman Levitt said, "The appetite of retail investors for
financial information has far surpassed what any of us in this
room would have predicted just a few years ago.  Let's not
squelch that appetite for information -- let's help feed it."  To
that end, the Chairman announced that the Commission published on
its web-site today guidance that explains the basics of order
routing, payment for order flow, and internalization.  The
Commission's web site is www.sec.gov.  He also encouraged
investors to look beyond commission costs and ask their brokers
for the details of any payment for order flow arrangements.

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