Pacific Exchange Sharply Counters SEC Criticism

The Pacific Stock Exchange lashed out at the Securities and Exchange Commission on Monday, saying the agency’s staff report on the October market crash unfairly and inaccurately criticized the exchange’s efforts to improve its automated order-execution system.

In a letter to the SEC, Pacific Stock Exchange Chairman Maurice Mann said the SEC’s report, released last week, placed the West Coast exchange “under a cloud of controversy that is having material adverse effects on our competitive position and professional reputation.” He called on the SEC to issue a revised statement reporting progress made by the exchange to improve its automated system.

Mann said the SEC report inaccurately implied that the exchange--which has trading floors in Los Angeles and San Francisco--had done little to increase the capacity of the automated system, called SCOREX. The system was unable to handle all of the flood of orders surrounding Oct. 19, orders that may have been diverted to it because of execution problems at the New York Stock Exchange.

No Orders Lost

Mann, however, said in the letter that thanks to additional telephone lines and other enhancements, SCOREX can now handle twice the number of daily trades that it could handle Oct. 19 and that capacity will double again in two years.

Mann also took exception to the SEC’s claim that the exchange lost orders and transaction reports as a result of the SCOREX overload. He said exchange staff and members “worked diligently” to retrieve orders, which were then manually processed and executed. Not a single order was lost and all were executed at the prices prevailing at the time the orders were placed, exchange spokesman Don Alexander said.

The SEC’s criticisms, however, have resulted in some potential customers threatening not to participate in the SCOREX system, Alexander said.

In his letter, Mann said the SEC “should reexamine and verify the accuracy of the information” in the report. He added that “it is imperative for the commission to issue a revised statement reporting the changes and enhancements already made to the SCOREX system by the PSE.” SEC spokesman Chiles Larson said the agency received the letter but would have no immediate comment.