Richard R. Lindsey 
                         OPENING STATEMENT

                           May 23, 1997

                CONCEPT RELEASE ON EXCHANGE REGULATION AND
                FOREIGN MARKET ACCESS TO THE UNITED STATES


  Thank you, Mr. Chairman.

  The Buttonwood Agreement, which has always been considered the birth 
of the U.S. securities markets, was signed over 200 years ago last week.  
It is amazing to think how far markets have come since that day.  The 
original signatories to that Agreement would hardly recognize our securities 
markets as their descendant.  Nevertheless, securities markets continue to 
have the same basic goal -- to provide a forum for buyers and sellers of 
securities to meet and trade.  Today, the Division is proposing a concept 
release which is intended to solicit comments on a reevaluation of how 
the Commission regulates securities 
markets.

  Over the past two decades, technology has revolutionized the way in which 
our securities markets operate.  Securities transactions that were once slow 
and costly,  dependent on long paper trails and intensive human labor, have 
become instantaneous and inexpensive with the advent of computers.  Today, 
with the click of a button, orders can be entered, executed, and confirmed 
within seconds.  

  Technology has altered the landscape of the securities business, from the 
display of quotes and market information, to order execution, and clearance 
and settlement.  Technology has become a way of life for those involved in 
our securities markets -- professional traders use computers in every aspect 
of their jobs, and retail customers use them to monitor the markets and to 
place orders from their homes.  The same technology that has brought 
securities trading into our living rooms has also changed the essential 
structure of the securities markets.  That is why we are here today.

  Today, there are more than 20 trading systems that provide investors with 
alternatives to registered exchanges.  Many of these systems are no longer 
in the minor league.  They now compete directly with the established exchanges 
for order flow -- and account for significant trading volume.  Today, the 
volume on these alternative systems is one and a half times that of the 
Amex and all of the regional exchanges combined.

  A decade ago, it seemed appropriate for the Commission to allow computerized 
trading systems to grow in a regulatory environment outside of the exchange 
framework. With only a handful of such systems in existence and with almost 
no market share, the Commission was concerned that exchange regulation would 
stifle their ability to succeed.  Consequently, these alternative trading 
systems have been regulated as broker-dealers.  Today, however, it is clear 
that some of these systems are viable substitutes for registered exchanges. 

  What do investors expect from markets?  They expect that a market will be 
fair, orderly, and not subject to manipulation.  They expect that information 
and prices won't be hidden from some investors, while available to others.  
They expect that the market will have sufficient capacity to allow them to 
buy or sell their securities when they want to.  And they expect that the 
market will not set priorities that benefit a few investors to the detriment 
of others or to the market as a whole.  The U.S. markets have provided 
investors with these types of assurances.  Since 1975, as mandated by Congress, 
a top priority of the Commission has been the development of a national market 
system that is fair, orderly, transparent, and that protects investors.  This 
release solicits comments to enable us to better understand how to foster an 
environment that promotes market coordination and competition for the benefit 
of all investors.

  This concept release is intended to begin a dialogue as to how we should 
integrate these new and growing alternative markets into the national market 
system.  At the same time, we want to ensure that new markets can continue to 
flourish and add greater competition to our securities markets. 

  It is important to emphasize that this is a concept release.  The release 
attempts to lay a foundation by outlining the current problems in the regulatory 
structure and presenting possible solutions.  We hope that we will receive a 
range of views from the public, and we will actively solicit comments and 
suggested solutions to the issues outlined in the release.

  I would like to take a moment now to briefly describe the concept release.  
The first part of the release solicits comment on new approaches to integrating 
alternative trading systems into the national market system.  One alternative 
discussed in the release is the creation of a tiered framework of exchange 
regulation.  Under this approach, the majority of alternative trading systems, 
which are small or do not establish trading prices, would constitute the first 
tier of exchanges.  These systems would be treated as "exempt exchanges."  
As exempt exchanges, they would be subject only to limited requirements tailored 
to their size and role in the securities market -- such as an audit trail and the 
reporting of trades to a self-regulatory organization, or SRO.  In most cases, 
these systems would actually be subject to fewer requirements than they are today 
under broker-dealer regulation.

  The second tier of exchanges would be the largest alternative trading 
systems -- those that have a high volume of trading and active price discovery.  
The release requests comment on whether this tier would need to assume some SRO 
functions because of their size and role in the market.  Because these systems 
are fully automated and privately-owned, however, the release solicits comments 
on whether such entities need to assume all of the functions of  traditional SROs 
or whether the Commission could use its exemptive authority to reduce or eliminate 
those requirements that are incompatible with the operation of for-profit, 
non-membership exchanges.  The release also discusses ways that fully automated 
systems could meet their surveillance and other obligations in non-traditional ways.  

  The third tier would include the traditional exchanges that are currently 
registered with the Commission.  For these exchanges, the release explores 
ways in which the Commission could reduce unnecessary regulatory requirements 
that make it difficult for them to innovate and remain competitive in a 
changing business environment.

  The release also asks for commenters' views on another approach -- one that 
would continue to regulate these alternative markets as broker-dealers.  The 
Commission could enhance broker-dealer regulation for alternative trading systems 
by improving the transparency, surveillance, and capacity of these systems.  Under 
this approach, existing SROs would need to assume greater responsibility for actively 
supervising these trading systems.  

  These are only some of the ways to integrate alternative trading systems into the 
mechanisms of the national market system.  The release asks a range of questions as 
to whether there are other viable approaches for regulating trading systems.

  The last part of this release looks at the impact of technology on cross-border 
trading.  As with the domestic securities markets, technology has made it possible 
to immediately access foreign markets and a whole new range of investment 
opportunities.  In an increasingly competitive global marketplace,  U.S. investors, 
particularly institutions, now actively look to foreign trading as a way of doing 
business. 

  The concept release attempts to address the realities of this global marketplace.  
The release solicits comment on how to deal with electronic cross-border trading 
while still providing U.S. investors with essential protections they have come to 
expect.  Let me be clear here:  we are not seeking comments on proposals that 
would fundamentally alter the disclosure and accounting framework which has made 
U.S. markets the best in the world.  

  Although the release discusses various approaches, it highlights one -- a limited 
regulatory framework that would focus on the point of entry into the United States.  
Under this approach, only the U.S. activities of those entities that provide U.S. 
investors with direct access to a foreign market -- whether that entity is the 
foreign market itself, a broker-dealer, or a service bureau -- would be subject 
to Commission oversight.  These "access points" would be subject to limited 
recordkeeping, disclosure, and reporting requirements, as well as to the antifraud 
provisions of the federal securities laws.  

  In today's world, linkages to foreign markets can be provided to U.S. investors 
by any number of sources, not just by the foreign market.  By focusing on the various 
means of entry into the United States, this approach provides essential investor 
protections regardless of the source of access to the foreign market.

  In summary, the purpose of the concept release is to explore ways to update our 
regulatory framework to reflect the realities of today's marketplace so we are 
ready to accommodate future changes and innovations into the 21st century.  The 
regulatory framework that has evolved since the Buttonwood Agreement worked well 
when the industry was based on paper and pen technology.  Paper and pen technology 
has gone the way of the cross-bow.  Our regulatory scheme must be reassessed to 
allow new technologies to flourish.  In light of the dramatic changes we have seen 
in the markets, I believe that a dialogue on this subject is timely and -- in 
fact -- can no longer be delayed.  For this reason, I recommend that the Commission 
authorize the publication of the concept release.  

  Before concluding, I want to recognize the contributions of the staff who have 
toiled on this release: Belinda Blaine, Kristen Geyer, Gautam Gujral, Marie Ito, 
Paula Jenson and Elizabeth King.  In addition, I should recognize the assistance 
of the other Divisions and Offices in the Commission, including the Office of 
Economic Analysis.  In particular, I want to thank Brian Lane and the staff 
in the Division of Corporation Finance for their help in analyzing the securities 
registration issues discussed in this release.  And last, but certainly not least, 
I want to thank Hardy Callcott for his help with this project and with all of the 
other Market Regulation matters he has worked on.  

  Thank you, Mr. Chairman.  I would be happy to answer any questions you may have.