July 24, 2006
7/19/06
Ms. Nancy H. Morris
Secretary
U.S. Securities and Exchange Commission
100 F Street, N.E.
Washington, D.C. 20549-9303
Dear Ms. Morris
As the CFO of Walter J. Dowd, Inc., an independent broker dealer based on the floor of the New York Stock Exchange (NYSE), providing professional execution services to the equity investment community, I am writing this letter to strongly protest the rule filed by the NYSE that would significantly change the pricing schedule for transactions on the floor of the NYSE. This proposed alteration is by nature anti-competitive in that it disproportionately assesses smaller firms, on a percentage basis, than it does for the major houses, thereby disenfranchising the small business owners.
Another concern is the fact that the NYSE has filed this rule change to be effective on August 1, 2006, not giving enough time for small businesses to attempt to change their individual business models to absorb such a drastic increase in their operating expenses.
At Walter J. Dowd, Inc. (WJD) our floor costs of operation will jump 180% based on estimates given to us from the NYSE as opposed to a maximum increase to the large brokerage houses of 25%. When these increases are implemented it will drive order flow to the lowest cost providers, determined by volume while leaving the smaller brokerage firms by the wayside. I ask you, can this be construed as anything less than discrimination?
As a point of reference WJD was the first to pilot the NYSE hand-held order management system and we are very active on committees designated for research and development of the hybrid. Therefore, we are not opposed to change. We agree that the current billing model is flawed and that some firms have found loopholes, which have given them virtually free access to the NYSE markets. This must be overhauled to ensure that everyone will pay their fair amount of fees going forward. However, the shift from a commission derived schedule to a transaction based model may have the unintended consequences of driving the small firms out of business. This would result in a much less viable marketplace with far fewer agents competing to get the best possible executions for end customers. Furthermore, these customers will have no choice but to use the big houses, who will meet their billing cap very early on and pay a greatly reduced rate. Thus, the small independent brokers will be eliminated and the
NYSE will collect a lower percentage rate from the large institutions defeating the original purpose of the proposal.
We believe one way to increase revenue for the exchange is to do away with billing caps entirely and to charge every firm the same fair access fees, phased in over a period of several years to give all parties ample time to adjust their business models.
An anti-competitive environment does not serve the publics best interest. I implore you to reject the NYSEs current fee proposal as it is written and put the onus on the NYSE to retool the new charges in order to come up with a more equitable solution.
I appreciate your consideration in this matter. Please do not hesitate to contact me if you have any questions.
Sincerely
Michael D. Berger
CFO