U.S. GOVERNMENT PRINTING OFFICE

WASHINGTON : 

For sale by the Superintendent of Documents, U.S. Government Printing Office

Internet: bookstore.gpo.gov Phone: toll free (866) 512–1800; DC area (202) 512–1800

Fax: (202) 512–2104 Mail: Stop IDCC, Washington, DC 20402–0001

65–489 PDF 2011

COMPETITION AND CONSOLIDATION IN 

FINANCIAL MARKETS 

HEARING 

BEFORE THE

SUBCOMMITTEE ON 

INTELLECTUAL PROPERTY, 

COMPETITION, AND THE INTERNET 

OF THE

COMMITTEE ON THE JUDICIARY 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED TWELFTH CONGRESS 

FIRST SESSION 

APRIL 1, 2011 

Serial No. 112–24 

Printed for the use of the Committee on the Judiciary 

( 

Available via the World Wide Web: http://judiciary.house.gov 

(II) 

COMMITTEE ON THE JUDICIARY 

LAMAR SMITH, Texas, Chairman 

F. JAMES SENSENBRENNER, JR., 

Wisconsin 

HOWARD COBLE, North Carolina 

ELTON GALLEGLY, California 

BOB GOODLATTE, Virginia 

DANIEL E. LUNGREN, California 

STEVE CHABOT, Ohio 

DARRELL E. ISSA, California 

MIKE PENCE, Indiana 

J. RANDY FORBES, Virginia 

STEVE KING, Iowa 

TRENT FRANKS, Arizona 

LOUIE GOHMERT, Texas 

JIM JORDAN, Ohio 

TED POE, Texas 

JASON CHAFFETZ, Utah 

TOM REED, New York 

TIM GRIFFIN, Arkansas 

TOM MARINO, Pennsylvania 

TREY GOWDY, South Carolina 

DENNIS ROSS, Florida 

SANDY ADAMS, Florida 

BEN QUAYLE, Arizona 

JOHN CONYERS, JR., Michigan 

HOWARD L. BERMAN, California 

JERROLD NADLER, New York 

ROBERT C. ‘‘BOBBY’’ SCOTT, Virginia 

MELVIN L. WATT, North Carolina 

ZOE LOFGREN, California 

SHEILA JACKSON LEE, Texas 

MAXINE WATERS, California 

STEVE COHEN, Tennessee 

HENRY C. ‘‘HANK’’ JOHNSON, JR., 

Georgia 

PEDRO PIERLUISI, Puerto Rico 

MIKE QUIGLEY, Illinois 

JUDY CHU, California 

TED DEUTCH, Florida 

LINDA T. SA ́ NCHEZ, California 

DEBBIE WASSERMAN SCHULTZ, Florida 

SEAN MCLAUGHLIN, Majority Chief of Staff and General Counsel 

PERRY APELBAUM, Minority Staff Director and Chief Counsel 

SUBCOMMITTEE ON INTELLECTUAL PROPERTY, COMPETITION, AND THE INTERNET

BOB GOODLATTE, Virginia, Chairman 

BEN QUAYLE, Arizona, Vice-Chairman 

F. JAMES SENSENBRENNER, JR., 

Wisconsin 

HOWARD COBLE, North Carolina 

STEVE CHABOT, Ohio 

DARRELL E. ISSA, California 

MIKE PENCE, Indiana 

JIM JORDAN, Ohio 

TED POE, Texas 

JASON CHAFFETZ, Utah 

TOM REED, New York 

TIM GRIFFIN, Arkansas 

TOM MARINO, Pennsylvania 

SANDY ADAMS, Florida 

MELVIN L. WATT, North Carolina 

JOHN CONYERS, JR., Michigan 

HOWARD L. BERMAN, California 

JUDY CHU, California 

TED DEUTCH, Florida 

LINDA T. SA ́ NCHEZ, California 

DEBBIE WASSERMAN SCHULTZ, Florida 

JERROLD NADLER, New York 

ZOE LOFGREN, California 

SHEILA JACKSON LEE, Texas 

MAXINE WATERS, California 

BLAINE MERRITT, Chief Counsel 

STEPHANIE MOORE, Minority Counsel 

(III) 

C O N T E N T S 

APRIL 1, 2011 

Page 

OPENING STATEMENTS 

The Honorable Bob Goodlatte, a Representative in Congress from the State 

of Virginia, and Chairman, Subcommittee on Intellectual Property, Competition, and the Internet .................................................................................... 1 

The Honorable Melvin L. Watt, a Representative in Congress from the State 

of North Carolina, and Ranking Member, Subcommittee on Intellectual 

Property, Competition, and the Internet ............................................................ 2 

The Honorable John Conyers, Jr., a Representative in Congress from the 

State of Michigan, Ranking Member, Committee on the Judiciary, and 

Member, Subcommittee on Intellectual Property, Competition, and the 

Internet ................................................................................................................. 3 

WITNESSES 

Lawrence E. Harris, Fred V. Keenan Chair in Finance, Professor of Finance 

and Business Economics, Marshall School of Business, University of Southern California 

Oral Testimony ..................................................................................................... 5 

Prepared Statement ............................................................................................. 7 

Mercer E. Bullard, Associate Professor of Law, The University of Mississippi 

School of Law 

Oral Testimony ..................................................................................................... 15 

LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING 

Material submitted by the Honorable Sheila Jackson Lee, a Representative 

in Congress from the State of Texas, and Member, Subcommittee on Intellectual Property, Competition, and the Internet ............................................... 29 

Material submitted by the Honorable Sheila Jackson Lee, a Representative 

in Congress from the State of Texas, and Member, Subcommittee on Intellectual Property, Competition, and the Internet ............................................... 36 

(1) 

COMPETITION AND CONSOLIDATION IN 

FINANCIAL MARKETS 

FRIDAY, APRIL 1, 2011 

HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON INTELLECTUAL PROPERTY, COMPETITION, AND THE INTERNET, COMMITTEE ON THE JUDICIARY, Washington, DC. 

The Subcommittee met, pursuant to call, at 11:05 a.m., in room 

2141, Rayburn Office Building, the Honorable Bob Goodlatte 

(Chairman of the Subcommittee) presiding. 

Present: Representatives Goodlatte, Sensenbrenner, Chabot, 

Marino, Quayle, Watt, Conyers, Jackson Lee, and Waters. 

Staff present: (Majority) Holt Lackey, Counsel; Olivia Lee, Clerk; 

and Stephanie Moore, Minority Counsel. 

Mr. GOODLATTE. Good morning. The Subcommittee will come to 

order. And I will recognize myself for an opening statement. 

The complexion of this hearing has changed considerably in the 

last few hours. When we went to bed last night, the primary focus 

of the hearing was the proposed merger between the New York 

Stock Exchange Euronext, parent company of the New York Stock 

Exchange, and Deutsche Borse, a leading German-based securities 

and derivatives exchange company. Overnight, NASDAQ, OMX, 

and the IntercontinentalExchange announced a joint proposal to 

purchase NYSE Euronext. This Committee remains very interested 

in evaluating the competing bids by Deutsche Borse and NASDAQ, 

and their effects on competition and consumers. 

At this point, a proper evaluation of the competing bids demands 

a hearing at which the executives from the New York Stock Exchange, NASDAQ, and Deutsche Borse have an equal opportunity 

to debate the merits of the issue. 

This morning’s hearing was scheduled to include a witness from 

NYSE, but not from NASDAQ or Deutsche Borse. In consulting 

with representatives for all three companies this morning, it became clear that there was no possibility of having executives from 

all three testify today. In any case, testimony today would likely 

have been premature. 

At this point, it would not be appropriate to take testimony only 

from the New York Stock Exchange without giving the other companies an equal forum. For this reason, the Committee decided to 

cancel the appearance by the NYSE at this morning’s hearing, and 

we will hold a hearing soon at which we will take testimony from 

the interested companies and perhaps other witnesses. 

2 

This morning’s witness panel also included two expert witnesses, 

Professor Larry Harris of the University of Southern California, 

and Professor Mercer Bullard of the University of Mississippi. 

These distinguished professors have traveled across the country to 

assist the Committee in its evaluation of competition in financial 

markets. They are both ready and able to testify. This Committee 

and the public will benefit by the insight that they can shed on 

these important issues. We will, therefore, proceed today with what 

will now be part one of a two-part hearing on Competition and 

Consolidation in Financial Markets. 

Today’s hearing will take testimony from our two expert witnesses. A hearing in the near future will take testimony from executives of the three interested companies. 

It would be premature for anyone to draw definitive judgments 

about the newly-announced NASDAQ proposal or the relative merits of the two proposals, but it is appropriate to begin considering 

these profound issues without delay. The New York Stock Exchange sits near the center of the American economy; events on 

Wall Street ripple through our economy with profound effects for 

every American. The stock market crash of 1929 contributed to the 

Great Depression, the most harrowing and prolonged period of unemployment and economic instability in our Nation’s history. The 

crash of 2008 helped precipitate our current economic downturn, 

and unemployment remains around 9 percent. 

When he became CEO of the New York Stock Exchange in 2007, 

Duncan Niederauer said, ‘‘As NYSE Group reshapes its business 

model, it reshapes global finance.’’ I agree. The shape of the future 

of global finance is at stake. Congress and the Department of Justice must evaluate these proposed deals with the utmost diligence 

and fairness. The future of American business and jobs are inextricably tied to the future of the New York Stock Exchange. 

It is now my pleasure to recognize the Ranking Member of the 

Committee, the gentleman from North Carolina, Mr. Watt? 

Mr. WATT. Thank you, Mr. Chairman. 

I have scrapped my opening statement and will make a few observations off the cuff, which is always dangerous, but I think necessary under the circumstances. 

First of all, I want to applaud the Chair’s decision not to press 

to have the New York Stock Exchange represented here today. I 

am not sure that I am exactly in accord with where the Chair is 

leading us on the next stage of this because I have some reservations about whether it is this Committee’s or the government’s role 

to start to assess competing merger proposals or takeover proposals 

before there is a final agreement between parties, at which point 

our role obviously is to evaluate the antitrust or potential antitrust 

consequences of whatever agreement has been reached by the parties, not some theoretical possible agreement that might be reached 

by the parties. In other words, I am not sure I think it is appropriate for us to be putting our finger on the balance and tipping 

the scale either toward the NASDAQ merger or the other merger 

that was already out there. But that is a subject of another day, 

and I obviously do not want to have a public debate with my Chair 

about that today. 

3 

I do think it is important to have what we are about to have 

today, and that is an academic discussion about this question of 

concentration, the implications that it has, whether there are potential antitrust implications from the growing concentration in 

this area, as we have expressed concerns about concentration in 

other areas. And so, for that purpose I certainly welcome these two 

outstanding academicians to have an academic discussion because 

I think they are well equipped to guide us in that discussion. And 

what we learn from academic discussions educate us and allow us 

to make better decisions as we go forward, regardless of which direction we go forward in. 

So I welcome the witnesses. I thank them for the sacrifices they 

have made to be here. It would have been a shame to have you 

travel all this way and then not have your perspective on the concentration issues and the potential consequences of mergers. But I 

hope that we will not put you in the awkward position of trying 

to evaluate either one of these proposed mergers without enough 

detail about the real body of what the merger would look like or 

consist of. 

So, I welcome you and thank you for being here. 

And with that, Mr. Chairman, I yield back the balance of my 

time. 

Mr. GOODLATTE. I thank the gentleman for his very pertinent 

comments, and we certainly will take them into full consideration 

as we plan for that subsequent hearing. 

The Chair would ask the Ranking Member of the full Committee 

if he has any opening statement that he would like to make. 

Mr. CONYERS. Yes, sir. 

Mr. GOODLATTE. The Chair recognizes the gentleman from Michigan for 5 minutes? 

Mr. CONYERS. Thank you very much. I am delighted to be here 

and to have this hearing. We welcome our witnesses. 

But for the life of me, I do not see what has changed, outside of 

the fact that there is now a new bidder in this ballgame. What 

about next week when a fourth company comes in? We want to 

cancel another meeting? I do not think so. 

I want to just indicate we are in a wave of mergers that have 

only been slowed down by the fact that the American economy is 

in the worst circumstance since 1929. And so, for us to be concerned about every time a bunch of Wall Street actors decide that 

this is a ripe opportunity for them to take over something, or make 

yet another acquisition, that we have got to wait to see what happens then, to me is no reason for us to stop the examination of 

mergers and acquisitions that go on in this country. 

And while I am at it, we should take another good look at the 

title, ‘‘Competition and Consolidation in Financial Markets.’’ Guess 

what? Competition and consolidation are antithetical. You do not 

get the same results from both of them. And for us, it is important 

to me that our distinguished witnesses separate this out. What 

happens when consolidation keeps going on at the greatest wave of 

mergers that have occurred since the turn of the 20th century? And 

here we are again in the midst of another. 

And so, I just want you to know that the adjournment proposal 

is totally unacceptable to me. It would do the same thing that any 

4 

other merger would do in this financial area, a reduced consumer 

choice. It will cost us jobs and create a massive transnational regulatory issue in terms of how we can regulate such a global combined entity. 

But the latest offer is worse. Now we are talking about General 

Motors and Chrysler coming together as if that is going to help the 

automobile industry and job creation in Detroit and the United 

States. This is totally unacceptable. Oh, is there more being offered 

and put on the table, Chairman Emeritus? Yes, there is more being 

put on the table, but that does not make it any better. This would 

be another takeover within the United States. 

And so, I would like to revise and extend my remarks and wait 

for the comments of our two witnesses. And I thank them for their 

appearance. 

Mr. GOODLATTE. I thank the gentleman, and we have a diversity 

of views about the appropriate way to proceed here. And we will 

proceed by hearing from Professor Harris and Professor Bullard, 

but first we have a series of votes on the floor, and we will resume 

as soon as those votes have concluded. 

The Committee stands in recess. 

[Whereupon, at 11:18 a.m., the Subcommittee recessed, to reconvene at 1 p.m., the same day.] 

Mr. GOODLATTE. Before I introduce our witnesses, we would ask 

you both to stand and be sworn in. 

[Witnesses sworn.] 

Mr. GOODLATTE. Thank you, and be seated. 

You have little lights in front of you there which will turn on in 

just a minute, and they indicate the 5 minutes. We ask that you 

summarize your testimony in 5 minutes. When it gets to 1 minute 

remaining, a yellow light will come on, and then when the red light 

comes on, your 5 minutes are up. Your entire statement will be 

made a part of the record whether you verbally get it out here or 

not, so do not worry about that. And give us the best points. 

And we will start with Professor Harris, who is a scholar who literally wrote the book on trading and exchanges. His 2003 book titled, Trading and Exchanges: Market Microstructure for Practitioners, is widely regarded as a must read for entrance into the securities industry. 

From 2002 to 2004, Professor Harris served as the Chief Economist at the Securities and Exchange Commission. As Chief Economist, Harris was the primary advisor to the Commission on all economic issues. He contributed extensively to the development of regulations, implementing Sarbanes-Oxley, the resolution of the mutual fund timing crisis, the specification of regulation NMS, which 

stands for National Market System, the promotion of bond price 

transparency, and numerous legal cases. 

Professor Harris currently holds the Fred V. Keenan Chair in Finance at the University of Southern California, Marshall School of 

Business, where his research, teaching, and consulting focus on 

regulatory and practitioner issues in trading and in investment 

management. 

Professor Harris, welcome. 

5 

TESTIMONY OF LAWRENCE E. HARRIS, FRED V. KEENAN 

CHAIR IN FINANCE, PROFESSOR OF FINANCE AND BUSINESS 

ECONOMICS, MARSHALL SCHOOL OF BUSINESS, UNIVERSITY 

OF SOUTHERN CALIFORNIA 

Mr. HARRIS. Thank you very much, Mr. Chairman. 

Voice. Press that button there. There we go. 

Mr. HARRIS. Now does it work? 

Mr. GOODLATTE. Yes. 

Mr. HARRIS. Very good. 

Thank you, Mr. Chairman, Mr. Watt, and Members. Thank you 

for inviting me. 

A number of competition issues are coming before the country at 

this point in the area of market microstructure, which is the structure of how we organize our trading in the United States. I would 

like to highlight what the competitive issues are and then comment 

very briefly on the two proposed transactions that we have before 

us. 

First of all, within markets, we have a very strange situation 

that we do not see in other industries. We are all generally in favor 

of competition, but there actually are two competitions that take 

place in the marketplace for stocks or for bonds, options or futures, 

or even currencies. And the two competitions are these: 

The first competition is the competition among traders to find 

the best price. The buyers are looking for sellers, and the sellers 

are looking for buyers. The buyers, of course, want the lowest 

prices, and the sellers want the highest prices. 

The second competition is the competition among exchanges and 

other entities that behave like exchanges—dealers, brokers—to provide the forum for the first competition. So, the second competition 

is the New York Stock Exchange competing against NASDAQ, or 

the Chicago Mercantile Exchange competing against life in Europe. 

Now, it turns out that it is very difficult to be in favor of both 

of these competitions and still be consistent. To make it as easy as 

possible for a buyer to find a seller, we could just require that everybody come to a single exchange by putting them all in a single 

place and time, and it is very cheap for them to find each other. 

But in doing so, we eliminate the competition among exchanges. 

And the competition among exchanges is something we respect because it promotes low cost trading, innovation, and because, frankly, we are, as regulators, we would not be certain what the proper 

market structure is by letting the market or the marketplace discover for itself what is the best structure, whether trading should 

be—rewards should be given to people who arrive first or to large 

traders or to the traders who expose those orders. These are all 

issues that have to be decided by exchanges. 

Exchanges compete with each other to provide a set of trading 

rules that will be attractive to the traders, who themselves are 

competing among themselves to get the best price. So, there is this 

tension between the two types of trading, and when we talk about 

competition, we always have to be aware of that tension. 

Consolidation is good for the traders as long as the consolidation 

is through a market that they like. But consolidation is not good 

for the competition among marketplaces because it effectively creates monopolies. 

6 

So, those are things to keep in mind as we start thinking about 

transactions. 

Now, I would like to take a quick survey of the types of competition that we see among the exchanges as we consider the mergers 

that have been proposed by these three players, NYSE, Deutsche 

Borse, and NASDAQ. 

The first competition we have to think about is the competition 

to provide exchange services, a place where people trade. In the 

United States, we see these competitions in equities, futures, and 

options. And in the equities market, the market is extraordinarily 

complex—competitive. We have an awful lot of competition in that 

area. The mergers that we are seeing here are not going to affect 

it. Even a NASDAQ merger with the NYSE will not make much 

difference. 

In the futures markets, that is not an issue that is engaged here 

in the United States. There are some issues in Europe, but we will 

let the Europeans deal with it. I can comment about that later if 

you would like. 

In the options markets, we have presently nine options exchanges. Although those options exchanges are often—several of 

them are held by single entities. If the New York Stock Exchange 

were to merge with Deutsche Borse, one of the major entities, the 

International Stock Exchange—Securities Exchange, I forget— 

ISE—would then come under a common control and we would see 

more concentration. 

That said, it is very easy to start options exchanges in the United 

States. BATS just started an exchange, and the market share is 

growing rather quickly, so I am not particularly worried about any 

of these mergers with respect to options. 

Where I do have concerns is with respect to listings. A merger 

between NYSE and Deutsche Borse will not have much effect on 

the listing market in the United States, but a merger between 

NASDAQ and NYSE would concentrate virtually all the listings 

into a single market, and that would be quite problematic. 

[The prepared statement of Mr. Harris follows:] 

7 


Harris-1.eps
8 


Harris-2.eps
9 


Harris-3.eps
10 


Harris-4.eps
11 


Harris-5.eps
12 


Harris-6.eps
13 


Harris-7.eps
14 


Harris-8.eps
15 

Mr. GOODLATTE. Thank you, Professor Harris. 

Our second witness is Mercer Bullard, an Associate Professor of 

Law at the University of Mississippi. Professor Bullard focuses his 

scholarship and teaching on securities, banking, corporations, corporate finance, and law and economics. He is also the founder and 

president of Fund Democracy, an advocacy group for mutual fund 

shareholders, and a senior advisor with the wealth management 

firm Plan Corp, Incorporated. 

He currently serves as the Securities and Exchange Commission’s Investment Advisory Committee member and the Public Policy Council of the Certified Financial Planner Board of Standards. 

Before entering academia, Professor Bullard served as Assistant 

Chief Counsel at the Securities and Exchange Commission and 

practiced securities law at WilmerHale here in Washington, D.C. 

Professor Bullard, welcome. 

TESTIMONY OF MERCER E. BULLARD, ASSOCIATE PROFESSOR 

OF LAW, THE UNIVERSITY OF MISSISSIPPI SCHOOL OF LAW 

Mr. BULLARD. Thank you, Mr. Chairman. 

Chairman Goodlatte, Ranking Member Watt, Ranking Member 

Conyers, Members of the Committee, thank you for the opportunity 

to appear here today. 

Professor Harris, I think, has covered in his testimony and in his 

statement today some of the more specific antitrust issues. What 

I would like to talk about is something I refer to as the regulatory 

market, and although my discussion might seem a little bit securities law laden to you, I believe the regulatory market is really an 

integral part of any evaluation of the competitive effects of any 

kind of merger in this business. That is because financial exchanges are not simply markets for trading of financial instruments that are also regulatory markets. Exchanges establish listing rules that are in effect a form of regulation themselves. In the 

United States, for example, the rules of national securities exchanges are approved and reviewed by the SEC, so exchanges do 

not have complete freedom to choose their rules. But the rules reflect the exchanges’ general view of their position in this kind of 

regulatory market, and it is, to some extent, a private or privatelyordered regulatory market, the lines of which are drawn based 

somewhat on competitive forces, and not necessarily on state or 

Federal law. 

Exchanges are also subject to Federal rules. They have no authority over those rules. If they want to operate a securities or 

other financial market in the U.S., they must follow Federal law. 

Now this monopoly of Federal law has been possible because 

these financial markets have been manifested in tangible ways. 

They have trading floors. They have buildings for those trading 

floors. They used to trade actual stock certificates so they are even 

selling something that was arguably tangible itself. They had back 

offices where piles of trading slips accumulated over time. And essentially, there was something to regulate, and it was not easy for 

exchanges to go somewhere else. 

Well, exchanges could lobby for changes in these Federal rules. 

They could not change them, and they could not really go anywhere 

else. Perhaps more importantly, issuers are subject to the Federal 

16 

rules if they want to take advantage of these exchanges’ services. 

For example, public companies are subject to the Federal proxy 

rules and Federal tender offer rules that effectively cannot be escaped if the company wants to raise capital in U.S. markets. 

This monopoly has created a kind of regulatory equilibrium. Exchanges and issuers often lobby legislators and regulators in order 

to ease the burdens of regulation. Legislators and regulators sometimes create new rules and new burdens. 

For better or for worse, the evolution of modern exchanges, principally as a result of technology, is threatening that equilibrium. 

The operation of modern exchanges has shed the tangible context 

that enabled the Federal monopoly over rules governing the raising 

of capital. U.S. issuers can now raise capital overseas in foreign 

markets, while bypassing U.S. securities regulation. 

Now, only a small number of U.S. companies have gone public 

overseas, but that number is sure to rise, and the New York Stock 

Exchange/Deutsche Borse merger or, what I think are inevitably 

going to be more transnational mergers, is likely to accelerate that 

process of even U.S.-based companies doing IPOs and seeking capital overseas. 

Now, is this kind of regulatory arbitrage a positive development? 

Well, that depends on your faith in free markets. Rest free markets, if left alone, will arrive in an equilibrium that results in the 

most efficient allocation of capital. If they do not, however, there 

will be no supranational overseer to set them straight. If they create systemic risk that threatens U.S. interests, it will be up to the 

host nation to take action. 

The structure of corporate law provides an illustration of this dynamic. Some commentators consider the ability of corporations to 

choose the state laws under which they operate to create a kind of 

regulatory market. But it truly is not free. There is only a free 

market to the extents that Congress allows such a free market. 

Federal law can trump law, and often does. 

Now, in the case of free international regulatory markets, there 

is no such parental oversight. No entity currently has the authority 

to step in and impose rules. This might not be a significant risk 

for the regulatory arbitrage that is going on between countries with 

highly-developed business regulatory regimes. However, Congress 

needs to think about this risk as the globalization of financial exchanges expands to less developed countries. 

A parallel concern is the expansion of the self-regulatory state. 

Self-regulatory organizations may seek transnational regulatory 

authority to resolve the issue of parental supervision and oversight. 

They may have the flexibility and the resources to be quite successful; however, Congress should consider the implications that further derogation of administrative authority could have for broader 

national interests. 

Transnational SRO is no longer a national SRO. The Supreme 

Court recently expressed concern that the constitutionality of SROs 

are already two steps removed from the authority of elected government officials. The transnational SRO structure will hardly 

mitigate that concern. 

Congress should also consider ways to address the risk created 

by transnational exchanges and transnational regulatory arbitrage. 

17 

The multiplication of exchanges will increase the likelihood that 

U.S. retail investors will purchase securities in foreign markets 

without the protection of fundamental investor and shareholder 

rights that apply in the United States. This may militate for reforms to our regulation to the point of sale; and that is, at the 

broker-dealer or at the advisor point of sale, contact with the customer. And this is an illustration of how in some cases freeing up 

the regulatory marketplace in one area, for example, exchanges, 

can sometimes be balanced by adjustments in other areas, such as 

with respect to the duties of brokers, dealers, and other salespersons and advisors. 

In conclusion, we could also look inward at our own private markets as potential outlets for a more flexible regulatory market. The 

current private offering rules, like the regulation of exchanges, 

have been overwhelmed by technological advances. Facebook’s 

failed private offering in the United States illustrates the incompatibility of modern communications and the Securities Act’s restriction on offers. 

Congress should consider reforming restrictions on offers so that 

private markets can provide a more feasible escape valve for 

issuers that seek capital and more regulatory freedom. 

So, the New York Stock Exchange/Deutsche Borse merger will 

take us another step down the road to free regulatory markets for 

financial exchanges. I strongly encourage Congress to look carefully 

down this road and think hard about where it is taking us. 

Thank you again for the opportunity to appear before you today, 

and I will do the best I can to answer any questions you might 

have. 

Mr. GOODLATTE. Thank you both. Those are both very instructive 

statements. 

Professor Harris focused on the issue of competition amongst the 

companies that may want to list their securities on exchanges and 

the consumers, and how they might be affected by these mergers, 

and expressed concern that maybe two domestic mergers might reduce that more than the international. And you addressed an issue 

that I was going to ask you about, and you pretty much addressed 

it, in terms of the concern that I have had in the—how do we handle, in our responsibility of putting forth laws that are then translated into regulations, and not keep people from taking these transactions outside the United States to the lowest common denominator? 

So, I am going to ask you to flip. I want you to comment on Professor Harris’ observations about the competition from the standpoint of the consumer and from the companies being listed on these 

exchanges. And I will come back to Professor Harris and ask him 

to comment on your observations. 

So, Professor Bullard, I will let you start with that. 

Mr. BULLARD. I would be happy to. It is quite a challenge and 

a little bit intimidating. 

But what I hear when I listen to a kind of antitrust analysis is, 

what is the demand side of the market, because that what is I have 

generally focused on, and that is what is the type of investor? What 

18 

is the most efficient regulatory regime for that investor? And what 

I would like to see is an analysis that thinks about what is the appropriate role for individual retail investors, and how will these exchange mergers affect them? And what is the overarching U.S. policy as to how it wants to regulate those investors? That is really 

a separate question from the exchange mergers as such, but it is 

one that really stands behind them because I think Congress needs 

to decide where it wants to be with respect to retail investors going 

forward. 

There are some proposals that have talked about some of the 

issues I discussed, and that is how you deal with this kind of 

transnational, super national law. The source of that law is intended to deal with investors as individuals who should be able to 

go out and choose whatever regulatory regime they want. Without 

those fundamental investor protections, they can opt for the antifraud rules of Germany, if they wish, as opposed to the SEC, and 

then buy German stocks on U.S. exchanges. Then I think Congress 

needs to decide it wants to go that way, and then the answer to 

the antitrust question would clearly be affected by that because 

some of these regulatory decisions will drive, to some extent, the 

antitrust issues. 

If, on the other hand, Congress is committed to the structures 

that we have for the last 80 years, which is where we essentially 

draw a line—we decide what is at least a close approximation of 

a kind of investor with respect to which we want to have different 

rules, and it is clearly a paternalistic regime, but it is one that 

nonetheless has created the most liquid, deepest, most successful 

capital markets in the world, then that really goes right to your 

concern. In that case, the model that we would follow to deal with 

these issues and these antitrust concerns would be very different. 

And we need to think about issues, such as how do we really 

want retail investors to be accessing the marketplace? If we are 

going to oversee the way they do so, there are serious questions 

about what role individual retail investors have buying stocks directly in the first place, not to mention buying stocks on overseas 

exchange perhaps where you have got fundamentally different investor and shareholder protections. 

Mr. GOODLATTE. Thank you. 

Professor Harris, you make a very valid point in creating this 

tension, or observing this tension, that exists between the two levels of competition that we are inviting with these exchanges, that 

it is perhaps easier to regulate the fewer the exchanges there are 

because there are fewer opportunities for people to go elsewhere. 

We would bring everybody together, and you have more competition at that lower level. 

On the other hand, I would like you to address what Professor 

Bullard talked about in terms of the fact that it is not easier to regulate if they all escape to Europe or some other exchange that can 

be formed elsewhere, that it constitutes a race to the lowest common denominator. 

Mr. HARRIS. Professor Bullard raises some very interesting 

issues that trouble all of us. I want to distinguish between the 

problems that we presently encounter and those problems that we 

have not yet encountered and may never encounter. 

19 

First of all, with respect to the transactions that we have seen 

already and that are proposed in the last few weeks, these are 

transactions that involve the ownership of regulated exchanges. 

The owners are not the ones that are primarily regulated; it is the 

exchanges themselves. So, the New York Stock Exchange, whether 

it is owned by New York Stock Exchange Euronext or whether it 

is owned by some consortium involving Deutsche Borse or 

NASDAQ, will continue to be regulated by the SEC. And all trading at the New York Stock Exchange will be under the same arrangement. So, the notion that we have these transnational combinations raising regulatory problems is, at this point, premature. 

Now, one of the potential benefits of having these transnational 

combinations is that in some distant future, it might be possible 

with changes in the regulatory environment to allow German investors and U.S. investors to trade these same securities in the 

same trading system so that a buyer could easily find a seller regardless of whether they are in Germany or in America. And that 

would be very advantageous both for the American traders and for 

the German traders, making the market much more liquid. 

But to get to that point, we would have to have a regulatory 

agreement between the regulators of those two exchanges to allow 

the merger of their order books and of their trading systems, at 

which point, of course, there would be some sort of negotiation, and 

we would have a strong arm in that negotiation because we could 

always say it should not happen. 

Now, that said, the attraction of that is that you would now have 

a market that would operate maybe for 12 or 14 hours and would 

be liquid during that entire period. And the implication of that 

might be that, or the extension of that would be that they would 

bring in somebody in the Far East, and they have a 24-hour market. 

But running against that is the fact that we already have 24- 

hour markets in many instruments, particularly the futures contracts, and we have markets that are moving toward 24 hours in 

the individual securities equities and whatnot. Those markets operate out of a single exchange, and, of course, we would like those 

exchanges to be U.S. domiciled, and often they are, but maybe they 

are not. 

Presently in the United States, if you want to trade in a European exchange, you go through an American broker. The broker 

has a responsibility to you that is governed by regulations that are 

domiciled here in the United States. And so your relationship to 

the broker is governed by U.S. regulations, and that broker then 

takes you to the foreign market either through that broker subsidiary in the foreign market or through a correspondent relationship where the broker is responsible ultimately for your relationship to that market, subject to our laws. And so, we really have not 

lost that much control at this point over Americans who would be 

trading either in the United States or elsewhere. 

So, those are things that are current and potentially future. 

I want to address two, or at least one other quick point. People 

often speak about the loss of the IPOs in the United States, that 

this represents some sort of problem. And, in fact, the press releases that we saw this morning from NASDAQ referred to IPOs 

20 

going abroad. So, the fact that IPOs are going abroad should be of 

concern to all of us, but we should also be mature about what it 

is happening. It could be happening for two reasons. 

It could be happening because somehow we have failed and we 

have imposed significant costs on firms here in the United States, 

and we are driving them away. But the other reason, and a very 

likely reason, in my opinion, is that the other markets have simply 

become more mature. There is more liquidity in those markets, 

there is more financial sophistication, and they have simply become 

better competitors. 

There was a time when an Israeli firm or a European firm in a 

smaller place would do its IPO in the United States simply because 

it had to because there were no good markets in Europe. As the 

Europeans have become more financially sophisticated and wealthier, and this is true also in Asia, they are doing more IPOs. And 

so, the fact that we do fewer IPOs is disappointing to us, but not 

necessarily a reflection of our regulations. It may be a reflection of 

the increasing sophistication and power from competitors that we 

see elsewhere. 

Now, that is disappointing to us because we would like to have 

all of the business, but we also recognize that these people are our 

partners. We are all better off when everybody is wealthy. I would 

like to have more of that wealth here, but I am not going to cry 

too much about it. 

Mr. GOODLATTE. Thank you. My time has expired. I anticipate 

we may do a second round, but we will now go to the Ranking 

Member, the gentleman from North Carolina, Mr. Watt? 

Mr. WATT. Thank you, Mr. Chairman. 

Professor Harris, Professor Bullard, thank you for being here, 

and thank you for being patient while we were over booting. It has 

been a kind of a choppy experience for us this morning. 

I perhaps have a little bias here because I serve not only on the 

Judiciary Committee, but on the Financial Services Committee. 

And it seems to me that most of what you all have talked about 

here, both the things that Professor Harris and the things that 

Professor Bullard addressed, we have been trying to deal with appropriately in the Financial Services Committee. The regulatory 

framework that Professor Harris just outlined very cogently is one 

that we have been working on aggressively in Financial Services to 

bulk up the Securities and Exchange Commission, bulk up the protections for individual investors, unsophisticated investors who 

might be investing either domestically or in foreign markets. 

The issues that Professor Bullard talked about, we have been aggressively working on because we have been trying to harmonize 

the standards that are applicable worldwide in this global market 

in which we are operating. 

What is surprising is that neither one of you has addressed what 

I was expecting us to address this morning in this Committee, 

which is the antitrust aspects of this. And it seems to me that I 

would have expected some discussion of what is driving us toward 

this greater concentration of ownerships, which, from my perspective, is cost and the drive for cost savings, and the drive for greater 

profits, or to minimize losses, whichever way you want to look at 

that—flip sides of the same coin. 

21 

And the mix of things that are going on on these exchanges now, 

as I understand it, we would be hard pressed to make a case that 

either of these mergers—well, I have not looked at NASDAQ quite 

as closely, but certainly the first one has substantial antitrust implications for stock ownership, stock transfers, because the New 

York Stock Exchange apparently has gone from trading 70 percent 

or 69 percent of trading to down to like 24 percent now. And most 

of the trading is taking place on smaller platforms electronically 

outside any kind of exchange. 

What at least one writer has suggesting is that this is being driven by the concentration of trading derivatives, which contributed, 

according to that writer, 40 percent of the profits of the New York 

Stock Exchange. And if you put the derivatives that the New York 

Stock Exchange is controlling and derivatives that the German Exchange is controlling together, then you have got potentially an 

antitrust concern. 

So, I guess my question is, let us talk about what this Committee 

has jurisdiction over, which is the antitrust aspects of this. Do either one of you see any particular antitrust concerns about either 

the prospect that the New York Stock Exchange will either merge 

with German Exchange or the NASDAQ domestic exchange? Do 

you see any adverse consequences from the control or administration of derivatives from either one of these kind of mergers taking 

place? That is what I want to hear because, I mean, at the end of 

the day, our jurisdiction in this Committee—I mean, I might invite 

you back to talk about all the things you all talked about in the 

Financial Services Committee, although I cannot invite you for 

that. I cannot invite you over here. I am not in control. We are not 

in the majority any more. 

So, but it seems to me that most of what you have talked about 

are subjects that we are dealing with in the other Committee. I 

want to hear your perspective, if I can get it, on the antitrust aspects of this. Are there any antitrust implications, and are they 

driven more by the monopoly that we are creating about transfer 

of stocks, or is it being driven more by the monopoly or movement 

toward a monopoly that we may be creating in the control of trading of derivatives? That is a long question. I am sorry. 

Mr. GOODLATTE. I will give you both a chance to answer. 

Mr. HARRIS. May I answer first? 

Mr. WATT. Sure. 

Mr. HARRIS. There are two places where I see antitrust problems. 

One is in front of us and the other one is not in front of us. 

The one that is in front of us is with respect to listings. If the 

NASDAQ is able to purchase the New York Stock Exchange, we 

will have one entity that will be responsible for the vast majority— 

virtually all listings in the United States. 

Now coincidentally—I presume it is coincidental, but I do not 

know—the BATS Exchange just announced on Tuesday that they 

wanted to enter the listing business. The listing business is an extremely difficult business to penetrate because a listing is a brand; 

it is association with a brand. And the New York Stock Exchange 

and NASDAQ both have strong brands that took a long time to develop. BATS does not presently have a brand. They might in the 

future, but I suspect that if a listing is valuable to a company, that 

22 

the BATS brand will have a challenge getting started up. So, to put 

all the listings into a single entity seems somewhat problematic to 

me. So, that is the area where there is—— 

Mr. WATT. Even if those listings are going to be allowed to be 

traded by different platforms? Is it the listing that is troubling you, 

or is it the trading that is troubling you? 

Mr. HARRIS. No. It is the listing itself. 

Mr. WATT. Okay. 

Mr. HARRIS. The trading is subject to all the different platforms, 

and we have no problem there. There is very, very competitive 

markets in the equities space. But the listings are associated with 

control over governance, control over capital structure, and control 

over disclosure. And one might argue that it is best to put that 

under one entity so that the SEC can control all of it in a single 

place. But if we do believe that exchanges should be allowed to appeal to different clienteles among their issuers, then we basically 

preclude a significant competition by allowing this type of merger. 

The other place where I have significant concern is not in front 

of us, but it is worth discussing. You spoke about the derivatives 

and the profitability in the derivatives. The profitability in derivatives has to do with the clearing houses and the fact that the clearing houses are vertically integrated with the exchanges that feed 

contracts to them. It is a simply a felony in the United States for 

us to trade a futures contract off an exchange, whereas you and I, 

if we wanted to right now, could trade IBM among us. We might 

have difficulty settling it, but that would just be a practical problem; it would not be a felony. 

The exchanges and their clearing houses effectively have extraordinary market power in their successful contracts. And that is a 

fact already, and the aggregation of various contracts under a single holding company does not change that fact. So, if the New York 

Stock Exchange Euronext merges with Deutsche Borse, then we 

will see a lot more futures contracts aggregated under a single umbrella, but each one of those presently operates, by and large, with 

an awful lot of market power. It would make it very difficult for 

any competitor to open up a similar contract and try to trade 

against them. 

So, the market power is already there. The notion that these exchanges are buying or merging to acquire that market power seems 

wrong to me. It is already there, and they are undoubtedly paying 

for it. So that cannot be the source of value from these transactions. The source of value is that they hope to substantially reduce their expenditures on information technologies. 

Exchange platforms are essentially the same whether you are 

trading equities, futures, options. They are all about the same. 

They are electronic databases, in effect, and they have pretty much 

become a commodity. But to maintain two when they are both 

identical is very expensive, so if you combine the two into one entity, you have a great cost savings. 

Mr. WATT. Let me quickly get Mr. Bullard’s reaction, because my 

time has long since expired. 

Mr. BULLARD. I think I agree with the point about the brands. 

The way I would see it is that listing requirements are essentially 

the set of rules that are imposed in order to list with that exVerDate Aug 31 2005 09:43 May 24, 2011 Jkt 000000 PO 00000 Frm 00026 Fmt 6633 Sfmt 6601 H:\WORK\IP\040111\65489.000 HJUD1 PsN: 65489
23 

change. You can go trade on another exchange, but where it is listed is what determines what the rules are. And those are very much 

kind of corporate governance type rules in many cases. And to see 

the merger of those two sets of rules into one set of rules is not 

consistent, in my mind, with the kind of useful free market in regulatory approaches that we would like to see because that has the 

kind of super national oversight to make sure things do not get out 

of hand. And that is essentially today the SEC and the CFTC. 

As to the international issue, you know, even though, as Professor Harris has pointed out, some of these have not come to pass 

yet, although, of course, NYSE itself exists because of the merger 

with a transnational set of exchanges. I think we need to look forward to what I think is a real serious antitrust problem, and that 

is that you will have the primary regulator of competition among 

exchanges missing from the picture to the extent you have the 

kinds of transactions Professor Harris described going on where a 

U.S. retail investor is buying securities traded under a German 

listing. Now, I do not have particular concerns with respect to German listings and German corporate requirements; in fact, they are 

a lot more stringent and a lot more burdensome than SarbanesOxley if you actually look at them. But I do have a concern as we 

go down the road that we will see other jurisdictions where we will 

not be comfortable, and we will need to have some kind of umbrella 

oversight mechanism in place, or we will not have a regulator as 

to the competitive aspects of these exchanges. 

And the inverse of our system where you have orders trading 

through different exchanges, and you have, as he pointed out, a lot 

of competition, is the more European approach where they do not 

push so hard for that, and where you have exchanges able to act 

opportunistically by having essentially sold trading privileges. And, 

you know, that is the kind of development that I ask who is going 

to be overseeing that when we have these transnational types of 

transactions. 

Mr. WATT. Thank you, Mr. Chairman. I yield back. 

Mr. GOODLATTE. I thank the gentleman. 

The gentleman from Michigan, Mr. Conyers, is recognized for 5 

minutes? 

Mr. CONYERS. Thank you. 

Professor Bullard, what is your law student organization like 

doing in this related activities at this time? 

Mr. BULLARD. Well, as we were discussing before the hearing, 

there is another related SRO issue, and that is whether FINRA’s 

authority would be extended to allow them to regulate investment 

advisors. And there are a number of investment advisors in the 

United States who would like to be regulated by a separate entity, 

and students at University of Mississippi, and not just the University of Mississippi. We have students in Ohio, Alabama, California, 

New York, Kentucky, Florida, and California—we have not heard 

from Michigan yet—that are all working on this project to develop 

a structure whereby if Congress authorizes the creation of an SRO 

for advisors, there would then be one ready to apply with the SEC 

to provide that for investment advisors. 

And it is not directly relevant here, but it is structurally relevant 

in that the principle purpose that these students see this serving 

24 

is to establish a different brand, a different set of regulatory requirements, where the SOROYA, as we are calling it, could compete with FINRA and offer different options. 

The idea that exchanges might coalesce and thereby eliminate 

that kind of regulatory marketplace in a way is nearer in the SRO 

world, and there are lots of different SRO type organizations. In 

the United States, you have, for example, the Municipals Securities 

Rulemaking Board, which interestingly has essentially rulemaking 

promulgation authority, but then leaves examinations and enforcement to others. You have FINRA, on the other hand, which really 

captures the whole mix and does just about everything, including 

arbitration or private disputes. 

So there are a lot of different models and there are lot of different models on an international scale. One model for some kind 

of super national authority might be IOSCO, which is the existing 

long-standing international group for securities regulators. Another 

would be something structured perhaps along the lines of the 

World Trade Organization. So, there are a lot of different models 

in which what we are seeing is the development of NGOs, the administrative state coming in and serving roles that are problematic 

under a constitutional authority, but are particularly problematic 

in deciding how are U.S. interests being protected abroad as we 

move into more formal transnational relationships in a lot of different areas. 

Mr. CONYERS. Professor Harris, have there been any kind of student law school combinations of activities going on at the University of Southern California? 

Mr. HARRIS. None in this area. 

Mr. CONYERS. In any area. 

Mr. HARRIS. I believe so. I know that we have students in the 

two schools working together on issues involving, I believe, venture 

capital and also, I believe, involving distressed workout situations. 

Mr. CONYERS. Professor Bullard, has the antitrust division been 

dormant here for several Administrations? 

Mr. BULLARD. I am sorry? Has the antitrust—— 

Mr. CONYERS. Division of the Department of Justice—— 

Voice. He said dormant. 

Mr. CONYERS. Dormant. 

Mr. BULLARD. Dormant? I cannot really speak to that. It is not 

an area that I follow closely enough. But in the world of exchanges, 

especially as a securities lawyer, I generally view antitrust activities as being a securities regulation issue. And I would say that the 

SEC has been dormant on a number of fronts increasingly in the 

time preceding Mary Schapiro’s tenure. And I think that in the respect of regulating investment banks, for example, and other aspects of SEC oversight, you have seen some of those problems bearing fruit today. 

Mr. CONYERS. Professor Harris, do you think there are things we 

could do to improve DoJ and SEC in terms of oversight and enforcement? 

Mr. HARRIS. Certainly having two agencies who can reasonably 

believe that they have jurisdiction over similar issues is potentially 

problematic. The SEC, of course, has more expertise with respect 

to the financial markets. DoJ, when it is paying attention, potenVerDate Aug 31 2005 09:43 May 24, 2011 Jkt 000000 PO 00000 Frm 00028 Fmt 6633 Sfmt 6601 H:\WORK\IP\040111\65489.000 HJUD1 PsN: 65489
25 

tially has more expertise over antitrust issues. And we would, of 

course, like to see the two of them cooperate. 

I will note that the SEC, in my opinion, has actually been pretty 

pro-competitive in the last decade. In particular, regulation NMS 

is the reason why we see so much competition now among the equities markets because we basically allowed those equity markets to 

become electronic and compete. And electronic competition has just 

vastly opened the marketplace for low-cost competitors who are 

providing really great service. 

But to your question of how they get along, they have different 

perspectives. I have a particular fear here in the options markets. 

The options markets now have a common clearing corporation 

called OCC, the Options Clearing Corp., which operates as an industry utility, and it serves the nine different exchanges that trade 

options. Those nine different exchanges are in a vicious competition 

with each other for order flow, and it is only because they are all 

served by the same clearing corp., the implication of which is that 

you can buy a contract at one exchange and sell the same contract 

in another exchange, which is a tremendous benefit to consumers. 

Now if we see substantial consolidation in the option space under 

the control of, say, two or three different entities that own these 

nine exchanges, and if that consolidation leads to substantial power 

over this OCC—and I frankly do not know the governance structure there—if that were to result, then the options markets will 

start looking a lot more like the futures markets. Futures markets 

produce an incredible amount of revenue for the clearing houses 

and the exchanges that own them in this vertical structure, a 

structure that, of course, the Department of Justice might more 

readily recognize than perhaps the CFTC. 

So, I would think that this would be an unattractive outcome if, 

as a result of mergers like this, the independence of the Options 

Clearing Corp. were in some way challenged. 

Mr. CONYERS. Thank you, Chairman. 

Mr. GOODLATTE. I thank the gentleman. 

The gentlewoman from Texas, Ms. Jackson Lee, is recognized for 

5 minutes? 

Ms. JACKSON LEE. Mr. Chairman, let me thank you very much. 

I had engaged the Chairman of the full Committee and the Ranking Member of this full Committee on the importance of having a 

hearing on this proposed purchase really by Deutsch Bank initially 

with German shareholders, to hold such a hearing as quickly as 

possible. And I thank the Chairman of the Subcommittee and the 

Ranking Member of this Committee. 

And let me express amazement and dismay because it looks as 

if we are tool-less. And I must place on the record, Mr. Chairman, 

my concern that the chief operating officer, Mr. Leibowitz, is not 

here. And I am disappointed that a short trip from New York City 

prevented him from being here. I can just well assume that the 

next trip from Germany might be even more challenging. 

So, I would like to raise these questions with you, and as I do 

that, I am interested in the antitrust issues, but I am just going 

to put the information on the record so that both professors can 

speak from your level of expertise. If it happens to be antitrust, so 

be it. 

26 

But we have a very good memorandum that is prepared for us. 

And when you look to the issue of the Hart-Scott-Rodino review 

processes—7A Clayton—let me say that initially Teddy Roosevelt 

got it right to break up these large monopolies, to increase competitiveness, and for the 20th century it worked. And I understand 

that we may have to assess, but just listen to what the Justice Department has to do when there is this merger. The parties must 

notify the Federal Government, send them a note, or maybe you 

send them an e-mail, or you Twitter to them, while you are continuing to negotiate and get ready to sign the deal. Then the parties must then wait for a specified period of time, simply 30 days. 

That is the average. That can go in the flick of a hand—30 days 

to look at a complex merger such as the one before us or NASDAQ. 

Then after—let’s see. The parties then wait a period of time, determine through a clearance process established by the Congress. 

The two agencies that have to be involved decides whether to clear 

the merger, after which it may be consummated. So, it could be 30 

days plus one, and then maybe if they are a little challenged, they 

can issue a second level of information. They cannot stop it. They 

cannot enjoin it. And only after all of that and they feel that there’s 

comfort, they can go into the courthouse that has already narrowed 

the interpretation of the Clayton Act. 

Literally America’s hands are tied, and I have been asking, and 

I think it is important, for all the case law to go back and look at 

Section 7, to give us something to talk about with all these mergers, whether it is securities, whether it is automobile industry, 

whether it is TV, whatever it happens to be. It is because of the 

lack of teeth that we have in this particular legislation that is on 

antitrust. 

But let me go to you, Professor Bullard, and just ask a question, 

and I think you were saying about the race to the bottom for the 

financial markets premised on these mergers. Is there some truth 

to that kind of analysis, and expand on your issue of the potential 

lack of oversight of the securities and exchange market, I think is 

truly one that I would be concerned about. 

Mr. Harris, with this economy percolating and the global economy making some efforts, we saw job creation today increase, I believe. We see the efforts that were made, funding, stimulus dollars, 

American Reinvestment and Recovery Act, which is really putting 

this market in a direction where it is making a profit. But years 

past, as you well know, we moved the market from a little club of 

bankers and others, and shareholders are there, and it is the argument that the leaders of the stock exchange will say, which is, we 

need to make money. And these mergers help make money for the 

general public, the shareholders. 

So, my question to Professor Bullard, speak to me about a race 

to the bottom. And what should we be looking at when we assess 

whether this is a right approach and whether it is anti-competitive, 

worry about whether we have a Clayton Act. And, two, Professor 

Harris, how does this skew the markets for the common man when 

we are talking about these kinds of mergers? 

Professor Bullard first, please. 

Mr. BULLARD. I should probably warn you I have a bit of a different view of the common popular theory of the race to the bottom, 

27 

which is usually used to describe state corporate law, and the theory that companies will go to the state with the worst regulation. 

I think that the idea of a race only makes sense when there is 

no higher authority that can ultimately place a check on that kind 

of race. And that is precisely what the Federal Government does. 

That is precisely what it has done repeatedly over the last 10 

years. And to give you a concrete example, one of the provisions of 

Sarbanes-Oxley prohibits loans to executives by companies. That is 

precisely the kind of thing that no state law prohibited. The Federal Government stepped in because of the WorldCom scandal and 

decided to make that a minimum floor below which states could not 

drop. 

Ms. JACKSON LEE. Right. 

Mr. BULLARD. So in that sense, if you have that strong centralized Federal regulator, I am not concerned personally with the race 

to the bottom because structurally to me it just does not—— 

Ms. JACKSON LEE. But if your entity moves off shore—— 

Mr. BULLARD. I was going to add, in the national context, if the 

SEC continues to have both a doubling of its burdens and a having 

of its budget, you are no longer going to have that oversight in the 

U.S.. And then the race to the bottom will be a serious issue because securities regulation does supplement and, in many cases, 

supplant state law. If you do not have an agency, such as the SEC, 

that can carry out its enforcement responsibilities, then you really 

do have a race to the bottom. And I think that is what would happen. 

Ms. JACKSON LEE. And mergers do not help the situation. 

Mr. BULLARD. And in addition to that, it is a given structurally 

that if you go abroad, you are going to have a race to the bottom 

because, again, you have no formal mechanism that can impose requirements in order to constrain the competition that will exist if 

you do not have that oversight. 

Ms. JACKSON LEE. Professor Harris. Thank you. 

Mr. HARRIS. These mergers will reduce the cost to the companies 

who are providing their services because they reduce duplicative 

processes. 

To the extent that they can reduce the costs if the firms remain 

in competition with other firms, those benefits will be passed 

through to the public, and that will be for the best, both for Americans and for others who use these markets, whether they are here 

or abroad. 

Now, with respect to regulation, I think it is important to recognize that the need for regulation has changed substantially with 

electronic trading. So, we regulate in several different areas. We 

regulate trading practices. We regulate brokers and their relations 

with their clients. And we regulate issuers and their capital structure and their governance. 

With respect to trading practices in electronic systems, there is 

hardly any need to regulate anymore because those computers simply do not break the rules. We still need to regulate the brokers, 

but the brokers are locally domiciled, and we have control over 

that, which brings us back to the listing issue. 

So, we regulate listings or listings agencies, which are the NYSE 

and NASDAQ, regulate the issuers through their listing standards, 

28 

with some input from the SEC. And, of course, these issues are all 

states’ rights issues by and large. Those are places where we may 

have some concern with these transactions. 

Ms. JACKSON LEE. Mr. Chairman, if I could ask unanimous consent to put into the record From Shame to Antitrust: New York 

Stock Exchange and NASDAQ/ICE Merger, and—— 

Mr. GOODLATTE. Let me interrupt the gentle lady. Her time has 

expired. We are going to do a second round, and we will return to 

you in a—— 

Ms. JACKSON LEE. I am just asking to enter into the record—— 

Mr. GOODLATTE. Without objection. 

[The information referred to follows:] 

29 


65489A-1.eps
30 

Ms. JACKSON LEE. And I would just make an inquiry to you, and 

I know we are doing a second round, but it is just an inquiry. I 

do appreciate being informed that the COO is not here because of 

the potential NASDAQ/ICE merger. Since I happen to question 

that potential merger and am opposed to it, I am still disappointed 

that he is not here. But I would just make the inquiry, Mr. Chairman, will he be able to come back sooner rather than later? Will 

this Committee reconvene for the opportunity for us to hear him? 


65489A-2.eps
31 

Mr. GOODLATTE. Well, I thank you for raising that point because 

we, at the outset of the hearing, made clear that his presence here 

was not, in my opinion, to be characterized as ducking the hearing. 

The Committee made the determination that because Mr. 

Leibowitz was confronted last night with a sudden development involving another major competing bid for the acquisition of the 

NYSE Euronext, that it would be inappropriate to call him to testify today. It was the Committee’s decision to do so. I also announced that we would hold another hearing on the issue. The 

exact timing of that will depend upon a number of variables, including the Committee’s schedule. But it is our hope that we will 

be able to accomplish that, and I will work with the Chairman of 

the full Committee to accomplish that. 

Ms. JACKSON LEE. Thank you, Mr. Chairman. It is a very important issue. Thank you. 

Mr. GOODLATTE. I recognize myself for some additional questions, 

and then I will recognize other Members who may wish to ask 

some questions as well. I have several, so I would ask you to keep 

your answers as brief as possible, although I know some of these 

are not easy to answer briefly. 

First of all, I would ask both of you, why is it that the New York 

Stock Exchange, which is the world’s largest exchange by trading 

volume, has a relatively small market capitalization? Do either of 

you know the answer to that? 

Mr. HARRIS. I believe I—— 

Mr. GOODLATTE. Professor Harris? 

Mr. HARRIS. The New York Stock Exchange market share has 

dropped very substantially as it competes with other electronic entities that have provided high quality service. Has been very attractive to brokers and to traders. So where the New York Stock 

Exchange used to have a market share in excess of 90 percent at 

one time, it has now dropped into the 20’s. And with that and all 

that competition, they have had to reduce fees very substantially, 

and as a consequence, the market capitalization is much lower. 

Mr. GOODLATTE. It is lower because the profitability of the entity 

is much lower. 

Mr. HARRIS. The electronic trading has substantially reduced the 

costs of providing service in this area, and as a consequence, the 

business is less profitable. 

Mr. GOODLATTE. In your testimony, you reflect that technology 

and regulations have made securities markets far more competitive 

in the past 15 years. And according to some estimates, this competition has shrunk the New York Stock Exchange share of the securities market from over 70 percent to under 30 percent since 

1996. How has this competition affected ordinary investors, and 

how has it affected small and developing companies that are seeking capital? How has it affected established listing companies? Has 

it been a plus or a minus for each of those three areas? And I will 

start with you, and then go to Professor Bullard. 

Mr. HARRIS. I recently did a study on the quality of markets over 

the last 20 years. Market quality has increased very substantially. 

Those spreads have gotten smaller for large companies and small 

companies. The aggregate sizes on the bids and the offers have increased over time. Just about every measure of market quality has 

32 

improved. The public is being served by much better markets now 

than they used to be. And it is, I think, pretty easy to understand 

that the entities that are now providing service to the public are 

largely computers and not people. And it is not that we do not like 

the people, but the computers just work a whole lot cheaper. They 

are more reliable. They are certainly more trustworthy in the sense 

that they never break the rules. And they are, of course, governed 

by people who are trying to use them to make profits. But they are 

only able to make profits within the narrow confines of electronic 

exchanges where the rules are well defined and completely enforced. 

In that environment where people can instantly move from one 

market to another looking for liquidity, it is very easy to find the 

other side, even when the markets are broken up and fragmented. 

And that indeed is what is happening. So, I believe that at least 

with respect to exchange services, the public and the small investors and small issuers have never been better served. 

Mr. GOODLATTE. Thank you. Professor Bullard? Turn the microphone on. 

Mr. BULLARD. I would echo that in that that is directly felt by 

retail investors, for example, through mutual funds who are now 

trading at small fractions of the cost of trading that existed 20 or 

25 years ago. And the same indirect benefits accrue to issuers on 

those markets, including small issuers. 

Mr. GOODLATTE. Sal Amuk, AMUK, an institutional broker at 

Themis Trading, has questioned the for-profit exchange model and 

argued that exchanges should be utilities that look after their customers and the markets rather than for-profit businesses that ‘‘act 

like bonus-seeking bankers.’’ What are the advantages of the forprofit exchange model? Professor Harris? 

Mr. HARRIS. The for-profit exchange model, when the for-profit 

exchange is in competition with many other exchanges, tends to innovate a lot faster than does the mutual model, and it tends to 

lower costs much more aggressively. 

The mutual model has its advantages in that you don’t have a 

conflict of interest between the interest of the shareholders and the 

interest of the customers. In the mutual model, if the directors of 

the exchange are looking out for the interests of the customers, 

then, of course, the customer comes first, although quite frequently 

in the mutual model, the directors are looking out for the members, 

in which case you have a conflict between the members and their 

customers. 

Mr. GOODLATTE. And are there examples of the mutual exchange 

model? Are there any operating entities? 

Mr. HARRIS. Over the last 10 years, almost all exchanges that 

used to be mutual model exchanges have converted to public equity 

exchanges. 

Mr. GOODLATTE. For-profit exchanges. 

Mr. HARRIS. For-profit, yes. 

Mr. GOODLATTE. All right. 

Mr. HARRIS. Undoubtedly, there are some left somewhere, but I 

frankly do not know which ones they would be. 

Mr. GOODLATTE. Professor Bullard, do you have any comment on 

that? 

33 

Mr. BULLARD. The essential difference between a mutual model 

and a for-profit model is that one is answerable to the members— 

traders—who use the services on the exchange, and the other being 

shareholders. Shareholders have no loyalty other than to their company as a profit-making concern. So, there are necessarily going to 

be far fewer responsibilities of shareholders as such to other types 

of relationships that members have in the mutual context. Members of the New York Stock Exchange, for example, are directly 

regulated by the SEC, and that puts a significant crimp in their 

ability to act solely not only in the interest of making profits for 

the New York Stock Exchange, it also puts a serious crimp in their 

ability to run contrary to what might be U.S. policy in the securities markets. On the other hand, when you have got public shareholders who can be anyone around the world essentially, so I think 

there may be some limits on share ownership with exchanges. They 

are looking for one thing, and that is profits. And as much as you 

may hear those talking about mergers, hoping that they will be in 

the best interests of the United States, you know, I consider that 

nothing more than diplomacy. They are out there doing one thing, 

and that is trying to maximize value for their shareholders. And 

if it means going abroad, that is where they will go. If it means 

staying in the U.S., they will stay. 

Mr. GOODLATTE. Thank you. Two more questions I will direct 

each of you. Do you believe that the Deutsche Borse merger will 

enhance or reduce New York City’s role as a global financial center? 

Mr. HARRIS. I do not think it will have any difference at all. The 

trading of securities now is not a major issue within financial markets. The financial markets, the intelligence, the where the money 

is made, the where the difficulties are, have to do with raising capital. They have to do with structuring transactions. They have to 

do with recognizing where value lies. 

The actual trading in the securities and electronic markets is a 

commodity business, could take place anywhere. There is not a lot 

of money to be made in it. And, frankly, that is the reason why we 

are seeing these mergers is because they are trying to reduce those 

costs. 

Mr. GOODLATTE. Thank you. Professor Bullard? 

Mr. BULLARD. I just do not know the answer to that question. 

Mr. GOODLATTE. Okay, very good. 

Mr. BULLARD. We do not say that very often. 

Mr. GOODLATTE. We certainly understand. There are questions 

like that out there. 

And the last question I have is, some, such as Grant Thornton 

Senior Advisor David Weild, argue that the technological and regulatory changes that have increased competition for exchanges have 

helped to drive spreads and fees so low that exchanges focus on 

generating trading volume with large-cap companies rather than 

helping small- and mid-cap companies access capital. Do you agree 

with his analysis? Professor Harris? 

Mr. HARRIS. No, I do not. 

Mr. GOODLATTE. Can you explain? 

Mr. HARRIS. I just do not see any evidence of it. The exchanges 

are actively looking for listings, both for large firms and small 

34 

firms. There might be some basis in the argument on the sense 

that in the past, the exchanges tried to encourage dealers to subsidize the trading in the smaller firms by charging wider spreads, 

but standing present in the event that somebody needed to trade. 

It is harder to do that in an electronic environment, but that subsidy was, in some sense, a false subsidy. It was damaging traders 

or hurting traders when trading was normal, and it was helping 

only the dealers’ friends when the liquidity was really necessary. 

It represented a regulatory problem that, frankly, I think has gone 

away, and I welcome that we do not face it anymore. 

Mr. GOODLATTE. Thank you. Professor Bullard? 

Mr. BULLARD. You know, I do not have an opinion on that issue. 

Mr. GOODLATTE. Thank you. 

Gentleman from North Carolina, Mr. Watt? 

Mr. WATT. Mr. Chairman, I think I will pass on this round. 

Mr. GOODLATTE. The gentlewoman from California, Ms. Waters. 

Are you ready to ask questions? 

Ms. WATERS. Thank you very much, Mr. Chairman. Sorry I could 

not be here during the entire hearing. 

And I suppose I am wondering, as many others are, about this 

NASDAQ/New York Stock Exchange merger. What are the implications of this merger? Are there some anti-competitive aspects of 

this that we should be concerned about? I suppose that is on 

everybody’s minds, so I would appreciate any thoughts on that. 

Mr. GOODLATTE. I thank the—go ahead. 

Mr. BULLARD. I could repeat Professor Harris’ comments, and he 

could repeat mine. Earlier we had a discussion about some potential impacts, and we talked about how there does not seem to be 

much market benefit to merging the two primary brands in U.S. 

markets. And that with respect to trading, where you have a system where trades can really find their best execution, to a great extent, under current SEC rules, that is an area where there is probably less of a concern, although I also noted at the time that, you 

know, it concerns me as to whether you will have on an ongoing 

basis the kind of oversight of that kind of enforced competition if 

the SEC continues to see restrictions on its ability to provide that 

degree of oversight. 

Mr. HARRIS. I will introduce a new observation without commenting much on it. 

The NASDAQ used to have market share approaching 80 percent 

in its securities. It was eroded by competition from Island and 

InstaNet and other ECMs. NASDAQ bought those entities in an attempt to acquire their technology and restored their market share 

only to see the market share drop to new entities, like Direct Edge 

and BATS. And now once again, NASDAQ’s market share is on the 

order of 20 or 30 percent, I believe. Maybe it is 40 percent, I am 

not sure. 

So, now they propose to buy the New York Stock Exchange, 

hopefully with a different outcome. And I do not want to comment 

on it; it has other dimensions, including the fact that now they will 

control listings if the transaction works—the control listings for 

both markets, and essentially be the exclusive listing agent, except 

perhaps for a new entrant in BATS that was just announced on 

Tuesday. 

35 

But I do wonder whether the continual combination is just a denial of what is ultimately true, which is that this is a commodity 

business in which people with computers can buy software off the 

shelf, open up an exchange that provides excellent service to everybody. How can you compete well against that model? And the answer is it is very difficult, but that is great for the consumer because they are getting pretty good service. 

There are market fragmentation concerns by having so many 

competitors where, you know, there is a buyer in one market and 

a seller in another market. How do they ever find each other? But 

the answer is, there are electronic mechanisms that connect them. 

Many of those mechanisms are operated by the so-called high frequency traders who are in the business of basically connecting a 

buyer in one market to a seller in another market. And they do 

earn some profit from it, but in the end the consumer is better off 

because it is so cheap to trade. 

In a world where we had perfect, perfect foresight, we might construct a single exchange that in some way would hopefully serve 

everybody’s interests perfectly, which is impossible because people 

have different interests. And then it would be really easy for the 

buyer to find the seller. But there we would have a problem with, 

what about the tension between well-informed traders and large institutions? Large institutions often represent pensioners. They are 

often not particularly well informed, and they do not like to lose 

to well-informed traders. So, they patronize dark pools, these socalled hidden order systems, where they actually obtain much better executions because they do not display their orders. If they display the orders, there are a variety of strategies that allow other 

people to become parasites off of these institutions and ultimately 

hurt pensioners. 

So, we have a diversity of market structures that appeal to the 

diverse needs of different types of traders, and to force them all 

into a single structure would seem pretty unwise to me. 

Ms. WATERS. Well, I certainly thank you for that answer. You 

have certainly provided me with more information than I can digest or comprehend at this time. Thank you very much. 

Mr. GOODLATTE. I thank the gentlewoman. 

The gentlewoman from Texas, Ms. Jackson Lee, is recognized for 

5 minutes? 

Ms. JACKSON LEE. Thank you very much, Mr. Chairman. 

I indicated to you that I wanted to submit into the record the article that I believe is CNN. But anyhow, just the headline, From 

Shame to Anti-Trust. And then I have one from Financial 

Times.com, and they have a very good sentence here. ‘‘The move’’— 

and this is about NASDAQ—‘‘is a sign that a wave of exchange 

consolidation triggered 5 months ago has become a battle between 

the world’s biggest entities for poll position in an industry pressured by competition.’’ What an irony that we have now tried to demonize competition and find a way to swallow up, to consume anyone or any entity that poses a competitive edge, or allows there to 

be some tension in the industry, tension in the media industry, 

good tension in the airline industry. And so, besides the board of 

directors and the shareholders, the CEO apparently gets brownie 

points for coming and saying, here is our next opportunity for makVerDate Aug 31 2005 09:43 May 24, 2011 Jkt 000000 PO 00000 Frm 00039 Fmt 6633 Sfmt 6601 H:\WORK\IP\040111\65489.000 HJUD1 PsN: 65489
36 

ing money. You are not making a product. You are not creating 

more jobs. But the way to make more money is let us, you know, 

just consume—put a little salt on it, a little pepper—the competitor. 

[The information referred to follows:] 


65489B-1.eps
37 


65489B-2.eps
38 

Ms. JACKSON LEE. I do not get it, I really do not. And so, my 

question, since we are in the midst of job surging and job creating, 

it is just a simple question. Will these mergers—and I know these 

are the financial markets—lead to further job creation for Americans? Do they have any impact on reversing job growth trends that 

we are experiencing—good news that we are experiencing? Americans need jobs, and obviously this is financial markets and very 

technical. Most Americans do not understand. 


65489B-3.eps
39 

But let me add to that that if there was a merger, does that 

mean that the special, talented guys and ladies that I have come 

to know and being on the floor of the New York Stock Exchange, 

and paper falling all over everywhere—they have gotten a little bit 

more sophisticated. Do they get slashed in the hand? Do you cut 

them? Professor Harris, you talked about technology, but when you 

go to the stock exchange, there are still a bunch of folk running 

around—quite a number of jobs and also jobs that provide a good 

income. 

And let me add this point to my inquiry. Is there any precedent—and obviously I am answering my own question, but I want 

to hear from you—for these types of mergers? And what have you 

seen, and what results have you seen with respect to these types 

of mergers? And I do not know whether you would assume that the 

bank mergers equal that, but I sort of separate out the bank mergers from the exchange. But if you can deal with this question of job 

creation. Can we go back and say this is really a good initiative for 

job creation? Are we going to see the cutting of personnel at the 

New York Stock Exchange? And what impact have you seen on 

mergers similar to this kind of financial merger? 

Professor Harris and then Professor Bullard. Thank you. 

Mr. HARRIS. First, let us put things into perspective. The exchange services industry is really a very small industry. There is 

not a lot of employment here, and, of course, employment has been 

dropping as computers are doing the work more effectively. 

Before the New York Stock Exchange used to be a much, much 

busier place than it presently is, and it has gotten much less busy 

because they are using computers increasingly. And it will get less 

busy in the future undoubtedly. 

The vast majority of the people who trade on the floor of the exchange are honest people and always have been. But there are unfortunately a good number of them who were not honest. We had 

scandals with the specialists. We had scandals with brokers. We 

had people who were violating rules because we could not see that 

they were violating the rules. That does not happen with computers anymore, and that is a good thing. 

So, to be concerned about their jobs, absolutely. There are people 

about whom we should be concerned. But at the same time, we do 

not want people to be plowing our fields behind oxen because that 

is the way they always did it. There have been changes that allow 

us to be far more productive, and we feed far more people now because we use powered machines to plow our fields. In the same 

way, we are able to do far more in the exchange services arena 

using computers. 

Now, with respect to job creation in general, there is basically 

within the Western world a single market for capital. Capital 

moves quite easily among countries, and while we would like to 

have the managers of that capital to be working in the United 

States, the sources of capital are all over the place. And they will 

serve up capital to people who have good ideas regardless of how 

the financial system is organized. 

So, we need to do things to make it possible for those transactions that take place here to support jobs in this country. But the 

big story, will capital go to the best ideas, that is going to happen 

40 

no matter what. And getting capital to the best ideas is the way 

we get the most jobs in the United States. 

Within the exchange services industry, we would like to see a 

very strong industry that is reliable, safe, that does provide sensible employment where it is possible. And for that we just need 

to have well-educated people who can manage money and who 

know how to connect the buyers and sellers, the savers to the investors. 

Ms. JACKSON LEE. Professor Bullard? 

Mr. BULLARD. I think I would largely echo virtually all of that. 

I think just more bluntly, in the short term, there is no question 

there will be job lost, and there will be jobs lost in New York. 

Whatever merger happens, the CEOs will ensure that the promise 

of savings happens, and it will be in the form of some job losses. 

In theory, what happens to those people is then they find jobs with 

the new competitors of this new entity, and they continue to thrive 

and—— 

Ms. JACKSON LEE. Maybe. 

Mr. BULLARD [continuing]. Engage in competition, in theory. 

As to job creation going forward, I think that is a function of 

whether the United States is producing the bodies that are going 

to be paid these higher incomes for providing this high-end, very 

sophisticated service, which is setting up the kinds of exchanges 

that do the best job for the markets. And all you have to look at 

is just the training and testing scores that you see in the United 

States to make judgments about where we are in that competition. 

I think some of the news is good and some of the news is bad, but 

I think that is really where you are going to find the answers. 

Whether in the long term, the bottom line is whether those exchanges are going to be paying U.S. people or are they going to be 

paying other people. 

Mr. GOODLATTE. The time of the gentlewoman has expired. 

Ms. JACKSON LEE. I thank the gentleman. 

Mr. GOODLATTE. The gentleman from Ohio, Mr. Chabot, is recognized for 5 minutes? 

Mr. CHABOT. Thank you, Mr. Chairman. I will not take up the 

5 minutes. It was just a point that I wanted to make, or at least 

ask a question related to the questioning and the answers that we 

just heard. 

Professor, you had mentioned that there were fewer people working on the floor of the Stock Exchange nowadays, and that we have 

computers that have replaced some of those folks. And obviously, 

if you are one of those folks, that is very unfortunate. 

But what has it done relative to the, say, the per cost transaction 

to the consumer, the person that is either buying or selling stocks? 

What has been the trend over time, even though we have fewer 

people there? 

Mr. HARRIS. The trend has been extremely obvious and in one direction. The cost of trading to individuals and institutions has 

dropped very significantly. We see this both in bid out spreads that 

have dropped from—it used to be a quarter, 25 cents; it is now 

typically one penny or two pennies. 

We also see it in the form of much lower commissions. Now, this 

is in the brokerage industry, not in the exchange services industry. 

41 

But it is an allied industry subject to the same technological innovations. Brokerage commissions have dropped very substantially, 

both for institutions and for individuals, where individuals now can 

trade essentially as much as they want for about $10. It used to 

cost them $150 or more. Institutions used to pay 5, 7, 10 cents a 

share; now they are typically paying 1 and a half to 3 cents, and 

they can pay and get excellent quality service for less than a 

penny. 

Mr. CHABOT. And so, the consumer, small investors—and would 

it be accurate to say that nowadays, other than after the meltdown, 

in which case I am guessing that a lot of small consumers either 

got out or were scared out of the market or whatever. But the 

trends other than that, more and more people are investing, I 

would say, on their own and in larger percentages of the population 

than in the past? Would that be accurate? 

Mr. HARRIS. That certainly has been the trend since World War 

II, and I believe it continues. 

Mr. CHABOT. And so, the consumer—if the consumer is the person who buys and sells stock, especially the small consumer, they 

would be making more money in each transaction because they are 

paying out less costs, or at least the expenses are lower to them. 

Is that correct? 

Mr. HARRIS. Yes. Any time the expenses are lower, the trading 

activity is more profitable or, alternatively, less costly. 

What we hope by this is that if the consumer believes that they 

can use the markets to move their money from the present to the 

future so that they can retire, or move money from the present to 

the future so that their children can go to a university, if they can 

do that more cheaply than they otherwise could do it, then they 

will save their money in the markets, and that will make money 

available to companies who hopefully have good ideas and generate 

more employment. 

Mr. CHABOT. Thank you very much, Professor. 

Professor Bullard, I do not know if you—— 

Mr. BULLARD. When you were talking about there are more direct investors, I think there has actually been declining direct investment in equities as opposed to investment through other collective investment vehicles. These savings—— 

Mr. CHABOT. Do you mean mutual funds in particular? Do you 

mean—— 

Mr. BULLARD. Mutual funds, but there you have seen equally 

drastic reduction in trading costs as well. So, investors are benefitting in that context just as well. 

Mr. CHABOT. Okay, very good. Thank you very much. I yield 

back, Mr. Chairman. 

Mr. GOODLATTE. I thank the gentleman. 

I would like to thank both of our witnesses for their testimony. 

They have made, I think, an important contribution to our understanding of competition in this market. And as I noted at the outset, because of the rapid developments that have occurred within 

the last now 15 hours, we will revisit this issue at the appropriate 

time with the appropriate witnesses and taking heed of the concerns raised by the Ranking Member, Mr. Watt, that the Subcommittee do so with the fairness that one would expect of us. 

42 

So without objection, all Members will have 5 legislative days to 

submit to the Chair additional written questions for the witnesses, 

which we will forward and ask the witnesses to respond as promptly as they can so that their answers may be made a part of the 

record. 

Without objection, all Members will have 5 legislative days to 

submit any additional materials for inclusion in the record. 

And with that, I, again, thank the witnesses and declare the 

hearing adjourned. 

Mr. HARRIS. Thank you. 

Mr. BULLARD. Thank you. 

[Whereupon, at 2:22 p.m., the Subcommittee was adjourned.] 

Æ