FOR IMMEDIATE RELEASE                                       97-33

Securities and Exchange Commission Releases Report
                       on Preferencing

     Washington, DC, April 14, 1997 --  The Securities and
Exchange Commission today announced the release of a study on the
practice of preferencing in the securities markets.  The National
Securities Markets Improvement Act of 1996 directed the
Commission to conduct the study. "Preferencing" refers to the
practice in which a broker-dealer can trade with its customers as
dealer by routing customer orders to the firm's affiliated
exchange specialist.  In particular, the rules of the Cincinnati
Stock Exchange allow a firm to preference orders to its
affiliated specialist regardless of the quotes of competing
specialists on the exchange.  In doing this, firms are thereby
able to avoid the traditional priorities that govern the handling
of orders on an exchange.  The Boston Stock Exchange also
operates a preferencing-type specialist program.

     The Commission's study concluded that preferencing is but
one method for broker-dealers to internalize order flow (i.e.,
trade with their customers as principal), a practice that exists
on all markets in various forms.  Broker-dealers frequently route
their retail order flow to their affiliated specialists, whether
at preferencing exchanges or non-preferencing exchanges.  In
addition, a number of firms internalize their customer orders at
their market making desks, both for exchange-listed and OTC
stocks.  

     Based on an economic analysis of market data, the Commission
has found that, to date, preferencing has not had a negative
effect on the national market system.  It has not diminished
market quality for preferencing exchanges, and has furthered the
preferencing exchanges' ability to compete for order flow. 
Furthermore, the Commission has concluded that while preferencing
raises concerns, if the appropriate protections are in place and
the broker meets its best execution obligations, preferencing
should be no more disadvantageous to customers than the dealer
activities of the traditional specialist. Nevertheless, broker-
dealers participating in preferencing programs need to regularly
and rigorously evaluate the quality of executions received by
customers whose orders are preferenced.

     The Commission will continue to review the effects of the
practice of preferencing on the national market system to ensure
that this practice is consistent with the maintenance of fair and
orderly markets, the protection both of investors and the public
interest, and the furthering of the national market system goals
of Section 11A of the Exchange Act.


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