SEC Seeks Ideas on Regulating Markets

WASHINGTON — Federal securities regulators, hoping to keep pace with dramatic changes in the nation’s stock markets brought by technology, are seeking ideas on how they should supervise markets in the future.

The four members of the Securities and Exchange Commission voted unanimously Friday to issue a “concept release” soliciting public comment on regulation of so-called alternative trading systems and foreign stock exchange activities in the U.S. as well as more traditional U.S. stock markets.

“We seek a forward-looking and enduring approach that will permit diverse markets to evolve and compete, while preserving market-wide transparency, oversight and fairness,” SEC Chairman Arthur Levitt said before the vote.

The changes under consideration would mark the biggest shift in the way the SEC regulates stock markets since the agency’s formation in 1934, said Richard Lindsey, director of the SEC’s division of market regulation.

“Paper and pen technology has gone the way of the crossbow,” Lindsey said. “Our regulatory scheme must be reassessed to allow new technologies to flourish.”

There will be 90 days to comment on the proposals after their publication in the Federal Register next week. Another version of the 150-page concept release written in plain English is expected to be published in several weeks.

The SEC proposals include:

* Establishing a class of smaller, exempt stock exchanges that are supervised by a self-regulatory organization and have limited disclosure requirements. If such an exchange became larger, it would move into the category of regulated exchange.

* Finding new ways to regulate investors’ access to foreign stock markets that want to do business in the United States. Stock trading on the Internet is becoming increasingly popular, and experts believe it is only a matter of time before there is an Internet-based stock exchange.

* Setting up three levels of market regulation: the first one for the smaller, exempt exchanges; the second for the biggest alternative trading systems, not now regulated as markets, such as Instinet, Bloomberg, Island and Terranova; and the third for traditional markets such as the New York Stock Exchange and the regional exchanges.