Division of Market Regulation:
Advisory Committee on Market Information:
Minutes of March 1, 2001 Meeting

Thursday, March 1, 2001
9:00 a.m.

Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C.

Before: Laura Unger, Acting Chairman

Participants

Mr. Michael Atkin
Vice President, Financial Information Services Division,
Software and Information Industry Association

Mr. Harold S. Bradley
Senior Vice President, Investment Management,
American Century

Mr. Robert G. Britz
Group Executive Vice President,
New York Stock Exchange

Mr. Andrew M. Brooks
Vice President, Head of Equity Trading,
T. Rowe Price

Mr. Paul R. Carey, Commissioner,
SEC

Mr. Robert Colby
Deputy Director, Division of Market Regulation,
SEC

Mr. Matthew S. DeSalvo
Managing Director,
Morgan Stanley Dean Witter

Ms. Carrie E. Dwyer
General Counsel and Executive Vice President,
Charles Schwab

Mr. Joel Greenberg
Managing Director,
Susquehanna Partners Brian McNelis

Mr. William R. Harts
Managing Director
Salomon Smith Barney

Mr. George K. Jennison
Senior Managing Director, Retail Equity Group,
First Union Securities

Prof. Simon Johnson
Sloan School of Management,
Massachusetts Institute of Technology

Mr. Edward J. Joyce
President and Chief Operating Officer,
Chicago Board Options Exchange

Mr. Richard Ketchum
President and Chief Operating Officer,
National Association of Securities Dealers

Mr. Donald C. Langevoort
Professor,
Georgetown University Law Center

Mr. Bernard L. Madoff
Bernard L. Madoff Investment Securities

Mr. Brian McNelis
Vice President,
Reuters America

Mr. Mark A. Minister
President and CEO,
Bridge Training

Ms. Annette L. Nazareth
Director, Division of Market Regulation,
SEC

Mr. Edward Nicholl
Chairman and CEO
Datek Online Holdings

Mr. Paul O'Kelly
Chief Operating Officer,
Chicago Stock Exchange

Mr. Kenneth D. Pasternak
President and CEO,
Knight/Trimark Group

Mr. Gerald D. Putnam
Chief Executive Officer,
Archipelago

Mr. Peter Quick
President
American Stock Exchange

Mr. Eric D. Roiter
Senior Vice President and General Counsel,
Fidelity Management & Research Company

Mr. Joel Seligman, Chair/Moderator
Dean,
Washington University School of Law

Ms. Laura S. Unger
Acting Chairman,
SEC

Contents

I.	Introductory Remarks Joel Seligman Donald C. Langevoort Annette L. Nazareth
II.	Discussion on Market Information that Vendors and Broker-Dealers Should Be Required to Provide to Customers
III.	Discussion of How Market Information Should Be Consolidated
IV.	Discussion on Governance of the Consolidators
V.	Discussion on How User Fees are Determined and Revenues Allocated Among Plan Participants
VI.	Public Questions/Comments
VII.	Summary/Next Steps Joel Seligman

Proceedings

Mr. Seligman: Let me thank you all for joining us this morning and particularly thank those who forwarded memoranda and other correspondence since our last meeting.

I would like to start with a game plan as to how we are going to proceed from today with the conclusion of our open meetings and the ultimate publication of the draft.

Under our charter we have four more public meetings, four counting this one today, and let me give you a schedule first for those. I have already indicated our next meeting will be April 12. I would like to announce we will have a meeting on May 14th, which will address the topic of competing consolidators. It is the topic that Don Langevoort's subcommittee will focus on between now and then. We will talk about the subcommittee a little bit more later, but there will also be two potential subcommittee meetings between now and May 14, one scheduled for March 26, same place, a second scheduled for April 16, again same place.

Our final public meeting will be, unless there is any reason to seek additional ones, on July 19. The purpose of the July 19 meeting will be to address options.

Now the game plan I am going to propound to you is that we are going to employ what I will characterize as a judicial model for proceeding, and what I am going to do is build on the analogy by which appellate courts including the United States Supreme Court proceed.

You typically have an initial conference – think of these as large initial conferences, in which the Judge or Justices state their views with respect to each issue. You then largely proceed to build consensus through the round-robin circulation of drafts.

It is my intent between today and April 12 to try to go through each material issue with respect to how one might renovate the current system. I will ask – and we are going to have most of today for discussion by the members here - - each of you to state your point of view on a series of questions I will propound. They are the ones indicated in the agenda. I may tweak them a little bit.

I will ask everyone to recognize that he or she can supplement oral statements with written statements that will be received later.

At some point after April 12, I will take it upon myself, working with the Division of Market Regulation, to begin preparing the first draft of the chapter or chapters which will address how one might renovate the current systems. There will be a successive circulation of drafts to the members of this committee. Some of you may find you are entirely comfortable with what is circulated, and you can so indicate. Many of you I suspect will find areas where you think either facts are wrong or you disagree or you feel amplification is necessary and will use the circulation of drafts as a process to try to build consensus.

Now what happens if you ultimately disagree with what the consensus appears to be? That will be recognized in the ultimate document. It can either be recognized in the text or be recognized in footnotes. Each of you have the opportunity to prepare a separate statement to accompany the ultimate report.

My intention is to attempt, first, to begin the process of round-robin circulation of documents on the equity side. It may begin with a draft before or after the May 14th discussion on competing consolidators, but the queue would be we will first address the issues, and there are many difficult ones, on the equity side, and begin a process which may take several months of document circulation before we reach a document that will be a final statement.

On July 19, which is a significant interval after the last public meeting on the equity side, we will have a meeting with respect to options. I have chosen that date with some care. I would like to see how far along we can be with respect to building consensus on the equity side. My anticipation is that the July 19th meeting will focus on what are the appropriate differences in the rule regime that should apply to options relative to the proposals we'll make on the equity side.

Under our charter we are required to deliver a final report on or before September 15, and as I said before, I have never missed a deadline and I don't intend to miss this one.

There will be a good deal that will become clearer as you see successive drafts and this will be a process where the ultimate work product and all of our public meetings are public, and the public is invited to comment and certainly will be invited to comment at the conclusion of today's meeting, but that the work product, the circulation of documents before we get to an ultimate report will not be public. That is, I will circulate documents to the members of the committee and ask you to review them and give me comments. The document that will ultimately be delivered to the Commission obviously will be a public comment. The public can comment on it. The Commission action on it will also go through a public process as well.

Now that is the game plan I want to pursue. Let me offer anyone on the committee an opportunity to comment. All right.

Let me then ask Don Langevoort, who will be chairing the subcommittee looking at competing consolidators, to tee up that subject and focus on how they will proceed. I will just add one other prefatory remark. We will circulate at some point in the near future a memorandum to all members of the committee on the procedures for the subcommittee. They are still being reviewed by the Office of General Counsel at the SEC, but what we want to do, and Don will explain this, is have those individuals on this committee who wish to participate in the subcommittee identify themselves either today or in the next few days. Before March 26 we will circulate to everyone a statement of procedures with respect to the subcommittee.

Don, let me turn things over to you.

Mr. Langevoort: Thank you, Joel. Obviously, the subcommittee has a lot of work to do and my expectation is what we are going to try to do is begin developing a work product that can be delivered to the full committee by the May meeting.

Obviously the subcommittee cannot make decisions that preclude anything that the full committee does, and I don't want to in any way interfere with the ability of the full committee to decide these questions. What I do think will be helpful for the subcommittee to do is to ask the question of if you want to go in the direction of competing consolidators or some alternative model, what are the key decision points – what is the series of questions you have to ask in order to design the system.

If there is consensus on answers to those questions, that would be good, and we will certainly make that recommendation to the full committee. What I do want to get is a sense of what those questions are, what has to be asked.

Once we have a list of those questions I think it then becomes important for the committee to consider the costs, the risks and the benefits, depending on how you design the system and make sure we have a complete sense of what the costs, risks and benefits are not only in terms of presence of those costs and risks, but magnitude.

If the subcommittee believes and comes to a consensus that risks are manageable, that is useful information to convey to the full committee. If there is disagreement about the magnitude of the risks, that too will be communicated.

That is what I want to accomplish in the two meetings, March 26 and April 16, that the subcommittee is going to have. What we are going to be creating, in essence, is a decision structure – so as Joel said, the most important thing to do first is if you want to be on the subcommittee let Annette Nazareth's office know, hopefully by next Monday, of that decision. Many of you, six or seven I think, have already volunteered to be on the subcommittee, but we want to get a complete group. Once we have the group established and the General Counsel's Office has given us final guidance on the process by which subcommittees do their work, we will be circulating an agenda description and other materials in advance of the March 26 meeting.

Mr. Seligman: Thank you, Don – and let's be real precise. If you want to be on the committee, it will be very useful if either today you either reaffirm or indicate you will be able to participate at least on the March 26 meeting, conceivably also on the April 16 meeting, and you can do so through e-mail or subsequent correspondence up till next Monday.

I would like Director Nazareth to just comment on the Reuters case, in which the SEC filed an amicus brief which has some overlap with our activities here. I think a couple of members of the committee either in written comments or otherwise have indicated some interest in the relationship between the Reuters matter and what we are doing here.

Ms. Nazareth: Thanks, Joel. I basically am just going to reiterate what we said in our materials that we sent to you. Obviously a number of you had been following this matter and had made inquiries about receiving copies of the amicus brief that had been filed in this matter, so we thought it was beneficial to send it to everyone just so that we are all on the same page in terms of what is happening in this very dynamic process as we continue to address market data issues.

As you know, the Commission filed an amicus submission in an arbitration that was brought by the OPRA plan participants against Reuters and the matter, the issue at hand in that case was interpretation of the contract between Reuters and OPRA that related to the ability of the vendor to convey market information.

The issue in that case was the manner in which Reuters was disseminating information. In this case it was disseminating only the information it had an option among its, with its market participants that it would, it permitted them to get only information with respect to last sale and quote information for that market that had the greatest volume or the dominant exchange for the prior month for each option series, and the question was whether or not that was consistent with 11A and with the interpretation of the contract provision. The Commission did file an amicus brief saying that it did not believe that under the current model and the current interpretations that that was consistent and that what should have been done was that information on all of the markets should have been conveyed.

The Commission also expressed the view that it would have been consistent with 11A had an NBBO been produced and the best price been conveyed, but that choosing to convey the data only with respect to the market that was basically the dominant market for the prior month was not consistent.

Again, I think what we want to emphasize is that, you know, it was a little bit inopportune that we felt it incumbent to address the issue at this time, since we are obviously in the midst of rethinking a lot of these issues. We just wanted to make clear that this was an articulation of sort of what we view as consistent with the current interpretations but don't want to in any way give you the impression that we are not open to the additional thoughts and input from this committee.

Mr. Seligman: Thank you, Annette.

We will be meeting until approximately 5:00 p.m., and then public comments at that point. There will be a lunch break for approximately one hour at some time at Noon or slightly after that. For members of the committee, if you wish to join us in Room 1C50 – do I have that right? – we will not have a meeting there but we will provide lunch for the members of the committee. The lunch will be no more than one hour.

Let me bring us to the matters at hand. We circulated earlier a draft agenda, an agenda for the March 1 meeting, and the first issue on our plate in effect deals with the question of should there be mandatory information requirements, and if so, should we retain the current NBBO structure on the equity side or should we amplify it in some identifiable way.

For those of you with the draft agenda, I circulated four possible ways that we could address this. I would like to first focus on Questions A, B and C or Options A, B, and C.

(A) would be simply we retain the current display rule requirements; (B) would be that we would retain them and amplify them, increasing the mandatory information; (C) would be in effect we eliminate the display rule altogether.

I would like each of you to address those options and try to speak no more than two minutes on this, again reserving the right to amplify your comments through subsequent written statements. If you wish to make written statements on this issue or any other issue we will address today, I would ask that the written statements arrive no later than March 16, Friday, March 16.

I am going to go around the room in alphabetical order and I will in the interest of absolute fair play the next time go around the room in reverse alphabetical order, so no end of the alphabet feels discriminated against in any way, shape or form.

Let's start with Mike Atkin and have his views on this mandatory information component we are addressing.

I'm sorry – when you speak, the button at the front here, you need to press it forward or away from you, as Annette said.

Mr. Atkin: In reading all the comment letters, I thought there was a pretty clear consensus that the NBBO was still vital and needed. I thought there were three core issues that needed to be discussed amongst this group.

The first one was the New York Stock Exchange idea of – is it a must display or a must offer the data. I thought that was a very important question.

I think there is still an open question of whether the vendors can implement that or not.

The second thing was this idea of information competition, whether you can offer your own data separately –

Mr. Seligman: Let me hold that question. I promise we will get to that in a second sweep around the room – which is an important question, believe me.

Mr. Atkin: Well, I could just cut it off there. I think that, you know, clearly the NBBO looks like it is valid according to everybody and the open question I think is is it a must offer or is it a ability to offer.

Mr. Seligman: Thank you, Michael. I appreciate that.

I'm going to turn to Harold Bradley – forgive me, I am very nearsighted – Harold Bradley.

Mr. Bradley: It is interesting as a payer in all circumstances for market data, our views are a little different than a lot of others who aren't collecting somewhere in the stream and/or sharing in the revenues from that stream, and we think – and again, we have been involved in a lot of discussions at a very broad level with the ICI and others regarding the buy side use of information that the NBBO and a decimal environment as currently constructed is insufficient for public good.

We need a depth of available quotes, and the way I have seen many of the proposals structured, it's let's just get the NBBO from the exchanges but we'll repackage it and mark it up and sell it to the end-users, which is always us, so I am a little concerned in terms of how we structure this, that the data is available and it is available because of the way the rules in the various exchanges work for their members.

The idea that they would willingly display that information or sell that information I would argue, for instance, at the NYSE that the depth of book – the orders, bids and offers, away from market, are very, very valuable, and it's what forces everybody to go to the floor to get that information and they market that as one of their great abilities, to go and get that information, and many on the buy side, my firm specifically, would not like to have to do that in order to get information, so is it a public good?

In our view we should see a greater depth of book and we do believe the NBBO is insufficient. We need more and that last sale data is critical to an efficient public functioning of markets and price discovery.

Mr. Seligman: Now, Harold, let me just take your statement and pose the obvious question: If you wish to mandate more, are you able to identify what precisely more you would mandate?

Mr. Bradley: I think all of these things change in the market, but when we have a market that now moves in penny increments, our view would be that there would be two possible ways to address that.

One would be five levels of price, and that five levels of price could be where the orders reside. Another way to do that, because of the great wonders of automated technology now and all the various proposals I am seeing, would be the ability to aggregate a certain amount of data – let's say 10,000 shares or 20,000 shares – and you would require displays that would aggregate displayed limit information. That might be another way to get to increasing the display of limit orders, which I think continues to be a major problem that is implicit in all of this discussion.

Mr. Seligman: And you should again on this topic reserve the right to try to amplify those points through correspondence.

Bob, I know you sent in some very useful correspondence but you –

Mr. Britz: Yes, I am just a little confused, sir. Are we answering – limiting our remarks to letter (A) or beyond?

Mr. Seligman: Focus on A, B, C – that is, it's a question of NBBO, no NBBO, and obviously that includes the last sale reports as well, or NBBO plus additional mandated data.

Mr. Britz: Okay, fine. Given that we are talking about a display rule and we are not per se in the display business, there are folks around this table who are a whole lot smarter than myself and my colleagues at the New York Stock Exchange as to what is best to do on the display side, and the market data business is a rather long end-to-end chain, and you can picture the stock exchanges as being on the production side and the vendors really being on the display side.

So we sort of, to be perfectly candid, punted on this question. We raised a question or two as to whether or not the vendors ought to be obliged to display or simply carry that so that it is available to the customers who want that. We certainly do think that consolidated information is important for investors to have. We certainly do think that the SROs like the NYSE need to comply with the various requirements in terms of production and making it available to various one or more consolidators so that that is available to the vendors to display, but we think probably the vendors could weigh in on whether or not this is a must offer or a must display kind of environment going forward.

As regards to data beyond the NBBO, the NYSE is on record that we are going to publish the entirety of the contents of the limit order display books in June of this year and perhaps even sooner. Beyond that, we are working through, even as we speak, with various pockets of the investment community.

What we might do very quickly to deal with the reality or the perception that the NYSE market has become less transparent over the last three or four weeks on account of decimals, we have got any number of other information initiatives on the docket so I think, and I said this at an earlier meeting, I think markets sort of compete on the basis of the information they provide, as they compete on any number of other services, so the NYSE I think, to draw this to a close – I am violating the two minutes, I'm sure – is in favor of a minimum level of mandated information.

Over and above that, we think the markets ought to distinguish themselves on the innovative information products they provide.

Mr. Seligman: And the minimum level that the NYSE supports is what we have characterized as the NBBO plus last sale?

Mr. Britz: In terms of mandate, I think that's right, but as I said, there are any number of products that will come to market very shortly over and above that that have nothing to do with being mandated by any governmental organization.

Mr. Seligman: And I think we all appreciate that. Andrew?

Mr. Brooks: Thank you, Joel. I think I would like to just amplify a little bit of what Harold said. It is our opinion that the NBBO, though important, really doesn't give an accurate reflection of the marketplace, and for institutional investors especially to trade in the marketplace today you need broader access to information.

I think we would be in favor of mandating not only the NBBO and last sale and volume but also as much of the book, as much of the limit orders, as much data as is available, and leave it up to the market centers or exchanges to provide the data and the vendors to capture it and distribute it and compete on that basis, and so you would choose your vendor perhaps on its display abilities and its ability to give you data in a way that is most functional and useful to you, but I think that all market centers, anyplace where trading takes place, ought to be required to provide as much data as they have.

In other words, the data should be accessible by all and shouldn't be resident just on that floor or that box or that facility. If we are really interested in transparency, it seems to me we have to allow people to see that and how they access it is their choice.

Mr. Seligman: And again, to try to characterize what I think I have heard, clearly you are in favor of at least the NBBO and last sale reports but you also want more.

Mr. Brooks: Yes, so in your scheme I think Option B is the one preferred, is that we would recommend increasing the minimum level of information and that minimum level would be way beyond the NBBO and last sale data.

Mr. Seligman: We will come back for another sweep on data, focusing on what we do beyond the minimum. Conceivably the way I may frame it is, you know – how you re-articulate the minimum if we don't pick that up enough the first around.

But one of the – the real struggles here is, can we trust the marketplace? You have both the NYSE and the Nasdaq coming forward with all sorts of new data at this point.

And second, there is a question, if you try to mandate beyond the NBBO and last sale reports, how do you frame that? In other words, to say I want as much as is possible is useful or as much as the exchanges have is useful in one sense. But it's not terribly useful for drawing a rule or trying to craft a statute.

Mr. Brooks: Just to respond to that, perhaps a way to think about that, Joel, is to think about technology that would aggregate things and take all data from all different centers and aggregate it. So that as you looked at a quote you would see down 32 cents, there was a total of 6,500 shares bid for from 14 different forces. That might be a way to think about it.

Mr. Seligman: Thank you, I appreciate that. Matthew?

Mr. DeSalvo: Yes, thank you, dean. I agree with both Andy and Harold on the insufficient of – insufficiency of the NBBO at its current status of one level in a decimal environment.

We are in favor of option B in your agenda. We are cheered by the fact that the SEC passed the SuperMontage which addresses just that issue. The only addendum I would add to that is it can't be built fast enough. We're also cheered by what Bob mentioned about the opening of the book and the recognition that we deal in an environment that is really two tiers – one on one hand at the retail level and one at the other – and an aggregate of the retail level on the institutional side.

We would prefer to see the SROs show two levels – at the 10,000 share level and at the 25,000 share level – in addition to their expanded books that Bob and the SuperMontage will bring about.

A lot of the difficulties that we have is that to the 500 share and under customer he sees no problem with the decimal environment. But to the institutions that Harold and Andy and the rest at the table represent, that is insufficient. And so we have to recognize that we're trying to deal with a retail institutional environment and the SROs would help us if they would show what was sufficient for the retail and the institutional level by showing the book three to five levels down from the inside market. In addition, if they could show where those levels accumulate at 10,000 and 25,000 shares.

And one last comment also is that in the introduction of decimals in this environment, the fact that a regional exchange can come in between the New York book simply because we're at the penny level, it precludes the importance of the ITS system, which I don't mean to turn this into an ITS argument, but the importance of rolling up an NBBO with the inclusion of regional and third market and listed securities is extremely important to disseminating a true NBBO.

Mr. Seligman: Thank you, Matthew. Carrie?

Ms. Dwyer: Well, Schwab submitted a response to this in writing, so I won't go over that in detail except to say that the NBBO is a useful piece of information. We have no problem with it continuing to be displayed, to be mandated with the caveats that we put on that, we think that should be done in a competitive model. I understand you don't want to talk about that right now.

We talked about most favored nation pricing and sunshine on the pricing structure as being critical to maintaining transparency in this market.

I would also say that we – our customers also, the 500 share customers, 1,000 share customers want to see greater depth of book, more value added market data products.

I was very heartened to see the competitive spirit evidence in the Nasdaq and New York Stock Exchange white papers. I find myself in agreement with Bob Britz in his remarks. But we think that the best way to have the best value-added data products in the market is to have a competitive market for those.

And the exchanges – the primary markets are willing to compete. I think the vendors are willing to compete. I think everybody would win in that kind of scenario.

Mr. Seligman: Thank you, Carrie. And again, when you say the NBBO is an important piece of information you would suggest that you would favor a mandatory minimum with the NBBO and last sale reports?

Ms. Dwyer: With the caveats that we put in our response, otherwise not.

Mr. Seligman: Okay, and there will be opportunity, obviously, through round robin circulation perhaps to pick that up, as well.

Mr. Colby: Can I ask a question?

Mr. Seligman: Absolutely.

Mr. Colby: Carrie, when you say competitive – you support the competitive – making of this information available, you mean that that would be done on a voluntary basis in a voluntary dissemination?

Ms. Dwyer: For other than the NBBO. Value added products of many kinds – whether it's the book or a graphical depiction of the current state of the market, so on and so forth, yeah, I think that that – there ought to be an opportunity for innovation there – that it would be a mistake to mandate something like the NBBO for a larger slice of data and then have that frozen in time when it may not be the most useful product than an investor could use.

Mr. Seligman: Appreciate that, Carrie. Joel?

Mr. Greenberg: Thank you. Our view is that the minimum is not going to change. So we think that the committee should work over that base and then make decisions going forward as to what should be done with this process.

We also – as a specialist and market maker both in stock and options – we don't have an issue with displaying more information. Thank you.

Mr. Seligman: I appreciate that. Bill?

Mr. Harts: Thank you, Joel. Let's make no mistake about it. When it comes to information more is better. So I guess, the short answer is that we would support increasing the minimum level of information and – while at the same time we recognize that different market structures could ultimately make that additional information less useful.

For instance market structures that allow or encourage hiding orders or having orders not represented on the book, which is also a danger. But I would disagree a little bit with Matt DeSalvo in that I think that the markets should disseminate all the information that they have on the book and let's let the – either the end-user or the user's data vendor take care of aggregating prices and sizes at different levels. Thank you.

Mr. Seligman: And again, just to focus specifically. The theme is more is better. You clearly favor at least the NBBO and last sale reports. Would you favor mandating additional information? Or would you rely on the markets to produce it?

Mr. Harts: I think at this point we can place additional mandates on the markets for more information.

Mr. Seligman: And if you were going to mandate additional information, do you have a sense of what you would mandate?

Mr. Harts: As I said, full information about the limit order book, including depth and size – I'm sorry, depth and price.

Mr. Colby: Bill, do you differentiate between what the markets – you would expect the markets to produce and what would have to be given to the customer?

Mr. Harts: Yes. I think as Matt pointed out, again, that we could easily get into a position of information overload. But I think that the customer really in this age of highly advance technology, the customer is in a position to dictate what he wants to see and how. This sort of touches indirectly on what Annette said earlier about the Reuters arbitration. Ultimately it should be up to the customer to decide how much information he really wants to see. But if the information isn't there in the first place to be collected or disseminated, then that becomes very difficult.

Mr. Seligman: Thank you, Bill. George?

Mr. Jennison: Thank you. We are in favor of increasing the minimum standards and making them mandatory. Aggregation, I think, is very important for your basic retail investor out there. I find it a little curious to hear some SROs say they're not in the display business. And, Bob, I'm not 100 percent sure if that's what you really meant. You kind of went the opposite direction later.

But from the retail investors standpoint the display of the information is vital. And so for that reason we would say increase the minimums. Our viewpoint is three to five levels of price will be important. Aggregate the orders at those prices with the combination of some indication of where size resides outside of the quote.

I'm not sure – we're not sure if it's 25,000, 50,000. It may vary based on the stock and the liquidity in the stock. But we think that would be important, as well.

Mr. Seligman: Thank you, George. Simon?

Mr. Johnson: I agree with many of the previous speakers that if you're going to maintain a national market system and really stick to the principles of 1975, I think you have to mandate the display of more than the NBBO because the way the market has changed, the NBBO is not a sufficient statistic of market quality at this point.

So if you believe in the 1975 reforms, you would have to mandate more than that. And my presumption would be mandating the display of the full limit order book, unless there are compelling reasons – either on the technology side or in terms of games that you think people may play in terms of hiding orders.

But I would tend – I would actually rather – I would like more discussion on that, rather like to shift the presumption, the rule-making onto the SEC through its usual regulation of SROs and vendors to make this happen.

Mr. Seligman: Thank you, Simon.

Mr. Colby: I ask the same question, do you differentiate between what you would require from the markets to make available and what must be given to customers?

Mr. Johnson: Yes, I'm sorry. I was doing that – what must be given to customers. Now the way in which it's given to customers – how you package it – is obviously up to the vendors. But what must be available to the customers, I think. That would be my presumption.

Mr. Colby: But could I – there must be a difference between what must be available to customers and what must actually be given to customers?

Mr. Johnson: What must actually – I'm talking about what must actually be given to customers.

Mr. Seligman: Ed?

Mr. Joyce: Yes, thank you. I would come out somewhere between A and B in that I believe strongly that we have to maintain the minimum requirements just in a sense of fairness to continue what the national market system – especially with the expanded focus on best execution. And I am in favor of competition generating deeper levels of data with one exception.

I am concerned with the impact of decimals. And I believe that we should be very careful to evaluate that impact on the markets and consider whether another level of information should be required.

I would not go so far as to say that all five levels of the book – or I think competition will generate additional information to the public and to the vendor community.

Mr. Seligman: So when you say you're between A and B, what you're saying – if I understand it – is you clearly favor the NBBO and last sale reports. You're intrigued by more information but you would rather rely on market forces rather than mandate?

Mr. Joyce: Yes, and that – prior to this decimal experience, I think the minimum would have worked fine as is. I think the system works as is. But I do see the need for additional information. I just would be concerned about mandating it and the information overload that might result from that –

Mr. Seligman: Thank you, Ed.

Mr. Joyce: Especially as you relate it to the options industry.

Mr. Seligman: And we will separately address the options.

Mr. Joyce: Understood.

Mr. Seligman: I appreciate that capacity issues there and overload issues there are particularly acute. Rick?

Mr. Ketchum: Thank you, Joel. Just briefly without reiteration since time is short. Consolidate best bid now for information remains relevant, useful information in the existing environment or the decimal environment – certainly for retail investors, and, indeed, I think for everyone. So the requirements should remain the same as they are today. Undoubtedly the points made here are correct that there is need for greater transparency away from the best price.

I think – I would amend it to say that there is need for greater transparency – for knowledge of available prices, speaking of an environment that is open and distributed rather than concentrated in a single place. There is also a need to know where you go to get that. And the same when you aggregate multiple markets that are not the same. So I think the information you need is not just how much there is to buy or sell at any particular price point away from the market, it's where you can get it.

Otherwise you're going to create expectations in customers that can't be fulfilled. We've always tried to do that to the amount of information Nasdaq has had. We've always provided as a separate feed our consolidated information with regard to all information we have and all information that the markets provide us in a single data stream, whether it's at the best price or market makers or ECNs who are not at the best price.

I don't think you ever want to require that to be the only service that can be available to investors because that service will cost more – no matter what the standards you decide. And investors shouldn't be deprived of being able to access the best bid and offer because they're unwilling to pay for the cost of the full data stream of all orders without making their own evaluation of value.

The last piece is I don't believe at the moment that, certainly from a Nasdaq situation where we always pass through every information we've got and where with respect to SuperMontage we intend to again make that available and have indicated to the commission that we'll make available every information we have with respect to SuperMontage as much as possible on a dynamic basis, the rest on a non-dynamic basis.

If there's any – I'm not – it seems to me right now there's tremendous incentive for markets, for people – other liquidity providers – to provide more information and attract orders. So it's not clear to me that additional regulation is needed away from the best bid and offer.

It seems to me that we have a lot of incentive. And, indeed, certainly the major markets have indicated they have every intention to provide everything that they've got.

The last thing I would say is that I think that in this area people should provide value-added products and provide value-added information any time they're providing something that people can access. So I think that it's equally valuable that an ECN or a market maker provide the depth of their book if that book is not required to be shown in a marketplace. And we don't propose that it should be. And there shouldn't be any question that that is both legal and desirable that people should have the flexibility of doing, whether they happen to be a market or a broker dealer.

Mr. Seligman: Thank you, Rick. Bob, Annette, do you want to make a point? Don?

Mr. Langevoort: I think if I understand Rick right, I agree with him. I take him largely to be endorsing A as the standard. And that's where I would come out with a relatively minimal level of regulated information and an expectation that through a variety of strategies the market can be encouraged to provide the kinds of information that people have described.

Mr. Seligman: Thank you, Don. Bernie?

Mr. Madoff: I concur that last sale information and the NBBO is inadequate and I believe that you have to show the complete depth of the book. I'm not worried about information overload. My feeling is that people will – vendors will very quickly distribute what people want. So to me that's not an issue.

I also applaud what New York and Nasdaq are doing as far as opening up both of their books. That being said that could change at any given time. So I don't take great comfort in knowing that for competitive reasons somewhere down the road one or both of them could determine that for competitive reasons they will change how or to whom, to display this information.

So I start with the basic concept that all of this information belongs to, at a minimum, the firms that gather that information and probably the investors that produce it. And that being said, if you go on a concept that this information is really not a market centers right to distribute that information as it sees fit and it really belongs to the public, then you just have to have that information out. And it has to be mandatory that it's going to be made available.

I agree with Rick that you have to know where liquidity resides because having the liquidity out there but not knowing where it is, is probably you know, not very much help to anybody.

Mr. Seligman: Thank you, Bernie. Brian?

Mr. McNelis: I think that Reuters would like to see a more flexible approach on market data. We certainly agree that originators need to provide that information so that it is available to anyone who wants it. But on the other side in terms of those who actually purchase the information as end-users, that they should have the right to choose what information they would buy and manage their costs and their networks accordingly.

So we would favor an approach that would permit the vendors and their customers to determine what the display should be and how they would receive and manage that data to fit their business needs.

Mr. Seligman: And this sounds similar to the position that you've taken in certain litigation I've read about. In other words, you would, in effect, favor eliminating the display rule as it currently exists and having a more freewheeling kind of approach?

Mr. McNelis: Pretty much, yes.

Mr. Seligman: Okay, I appreciate that. Mark?

Mr. Minister: Yeah, I think Bob Colby is asking, in my mind, the important question to various people. And that is, we certainly don't think there should be any less than the current minimum displayed to clients. Whether or not there is a mandated additional amount of data that is required to be made available by various SROs that can be displayed at the option of the user or the vendor, I think becomes an relevant question.

Certainly, for people active in the marketplace the existing data content is insufficient to function well. So one would assume, as Rick said, that the competitive nature of the business would force people to bring that data out.

But like Bernie said, it may or may not in the long run. So we would certainly favor a minimum display rule as it currently is and would certainly be interested in exploring a mandated level of additional data that isn't necessarily required to be displayed, but is required to disseminated.

Mr. Seligman: Now, do you have a sense of what this additional mandated data might involve?

Mr. Minister: We do. We carry all of the global exchanges that do put out an order book. And it varies by country in terms of the data available and who is allowed to view it. So in certain countries you can actually see what brokers are representing what orders on the order book. But only brokers can see that and not the public.

So there are certainly – and the level of depth – five levels is typically the level of exposure that's there. So I think we can – there are examples – I don't need to go into them right this moment – but I think it's very possible that one could have a minimum mandated data quantity that would be made available.

Mr. Seligman: Appreciate that, Mark. Ed?

Mr. Nicoll: Well, I thought I was going to be the only one to advocate for C. And that's certainly our position. We agree with Reuters. I think everybody should understand that as soon as you mandate a display you inevitably put the SEC into the rate-making business. And I don't see any way to avoid that fact. It is – we agree that the NBBO as it exists now and the mandate of the NBBO is insufficient.

We further agree that markets will quickly compete and provide information to their users that their users demand. We agree that greater transparency is needed and is desirable. But we just disagree on how to best get there. We don't believe that we ought to get there through a regulatory mandate. We think we should get there through competition and that this mandate – this regulatory mandate – at the end of the day is a very heavy handed one that has prevented competition from occurring and delivering more useful information to users.

So we agree with Reuters. We think there ought to be more flexibility. And we think that essentially the display rule should be eliminated.

Mr. Seligman: Ed, I appreciate that. Bob Forney initially began representing the Chicago Stock Exchange. For various reasons, unfortunately part including health, he will not be able to continue. Paul O'Kelly is taking over for the Chicago Stock Exchange – excuse me he's retiring, as well as what I alluded to.

Mr. O'Kelly: The person has changed but our position hasn't changed. We come out somewhere between A and B. We think that if you're going to have a mandatory NBBO it has to have some utility to it.

We've had some recent experience with decimalization, but it's fairly recent. And we don't know exactly what the right level of data that should be provided mandatorily is right now. We believe it's more than the NBBO. But we're still fairly early on in digesting what it means to operate in a decimalized society.

And we think that we should at least look at expanding it to some level of the book. Again, we haven't talked to our users about this – what would be the most useful to them. We're not saying it's the entire book. But at some level, we think it ought to be expanded to make sure that everybody has useful information.

Mr. Seligman: Paul, let me also thank the Chicago Stock Exchange for the paper by – I think it's Professor Barclay. It's very useful, as well. To the extent you focus on what additional level, at the moment you're just intrigued? Or is there any one you would like to put on the table for consideration?

Mr. O'Kelly: Again, we think this ought to be driven to some degree more by the user community. They have to tell us what is useful for the customers, what are the necessary minimums for their customers.

We're not in the best position to decide that, they are. And we would be happy – I have heard several views today. The view that we want everything is not particularly useful, I think, in the analysis because everything costs a lot of money and not everybody wants everything.

And one has to ask who is going to bear the costs of getting something they don't want. We think there's a balance between giving them just the NBBO and giving them everything. And we think the cost of providing that mandatory information ought to be weighed against the benefits. But we just don't know what level it is.

I would like say five down, three down, two down. I just don't know. The user community knows that better than we do.

Mr. Seligman: I appreciate that. Ken?

Mr. Pasternak: I'm going to keep my comments pretty short. First off, we would recommend B, which is increasing the level of the NBBO. We think the NBBO is the holy grail. You have to show depth of market.

The second suggestion we would talk about is – and I'm actually going to quote one of the comments before – a distinction should be made between what I might call the producers and the displayers.

While I'm a big believer in competition – and I think you alluded yourself that there's a certain element of distrust that there's enough competition at the SRO level to make that information available in its completeness. We would say that the standard should be on the producer side to make that available. On the display the aggregators will then decide I think to answer a lot of these questions about who needs to see information at what level. But I think one needs to set a minimum standard of availability of the information and let the marketplace take – let the competitive element at the aggregator level to decide how to aggregate that, how to cost it out and who wants to pay for it, frankly, in the marketplace.

Mr. Seligman: Ken, two thoughts. First, I hope I haven't reflected distrust of anybody in any context. I don't feel that. Second, again, to the extent one focuses on how one would make B operate, do you have any thoughts you want to put on the table?

Mr. Pasternak: Well, the example I would give about overhead and about technology difficulty. We talked about technology. I think in some ways it's a mirage and in some ways – it's a big hope. And then the deployment of technology is always challenging.

There's a big difference – and I'll get really simplistic – about displaying information and broadcasting it. An example would be streaming quotes versus an input-out quote or quote on request. So one can get a lot of information.

I think in the Nasdaq montage they talk about three levels on a streaming basis. And complete availability on a request basis. I'm not suggesting that I'm that rigid on how one would approach that. But I think you have to bifurcate information that you display on a streaming basis, if you want to call it that, and the availability of additional levels of information to either aggregators or who aggregate it free – Andy Brooks, for instance – in ways that you might be willing to pay for. Or other kinds of constituencies who would buy that information that would have either – I would call it an aggregated manipulated or more in-depth of information basis to it.

But I think the marketplace could certainly decide that.

Mr. Seligman: And when you say the marketplace could decide that, that's different than a mandate?

Mr. Pasternak: Well, I think the mandate of availability has to be mandated from information.

Mr. Seligman: I see.

Ms. Nazareth: Could you clarify that?

Mr. Pasternak: So what's displayed would be a much lower threshold.

Ms. Nazareth: So could – could you clarify that what would be the minimum –

Mr. Pasternak: Say in the NBBO you might have three levels – any customer in the United States could see full depth of book on a request basis and maybe pay a premium for that.

Ms. Nazareth: But there would be a mandatory minimum of – the NBBO would be mandatorily available?

Mr. Pasternak: Three or five levels – but I don't have that answer here.

Mr. Seligman: Okay, so is that mandatory minimum on display? Or mandatory minimum on availability?

Mr. Pasternak: Display.

Ms. Nazareth: Display.

Mr. Seligman: Appreciate that. Gerald?

Mr. Putnam: Good morning. We definitely fall into the more is better camp. We do think that competition is the best way to get there. And I guess, our view falls closest to alternative – to B. Although we would make some modifications to the vendor display rule.

We think that vendors should be permitted to disseminate non-consolidated information. And the reason for that is that we think that's the only way that you can get –

Mr. Seligman: Gerald, I promise you we'll get to that option for vendors and marketplace solutions, as well. But focusing for the moment on mandate, you know?

Mr. Putnam: Yeah, as I said, we think that vendors should be able to display non-consolidated information. And I think that one – there's always going to be a demand for consolidated information – most notably a broker's need to provide best execution to its clients. And then there's the users themselves who demand consolidated information.

Modifications to the vendor display rule. One, we think that if a vendor were to disseminate non-consolidated information certain – serious disclosure levels would be required, possibly even a proactive acknowledgment by the data subscriber.

As far as consolidators are concerned a level of disclosure to the SEC would be necessary so that the consolidator would have to report – sort of like on reg ATS, maybe a form vendor, where you report on your method for consolidating, reliability of your system and that sort of thing so that we can ensure that there is good consolidated information.

Mr. Seligman: Thank you, Gerald. Peter?

Mr. Quick: Quite simply, the AMEX is in favor of retaining the display rule and would certainly be amenable to looking at possible modifications. We believe it's essential to the NMS goal of centralization of trading interest. It ensures that the consolidated data is widely available to the investing public.

Eliminating the display rule could certainly lead to market fragmentation. In terms of possible modification to the display rule, the AMEX believes that the committee should examine whether it's feasible to expand the minimum level of information. And of course, with that would go associated costs which would have to be examined.

You know we don't really have a robust representation here of, quote vendors. You know we have one of the large quote vendors, Bridge, in bankruptcy. And one of the essential things – and certainly for confidence in the markets, the way the system is right now we believe has a lot of strong points. And we strongly believe at least that minimum level of display should be retained.

Mr. Seligman: Now, Peter, to the extent you are at least intrigued by expanding the minimum, do you have any particular suggestions you would make to us?

Mr. Quick: Well, if you expand the minimum certainly there is a competitive question of whether or not the exchanges with their specialist system, if they were to show the book what would be the requirements for the ECNs that aren't exchanges to also show a like level of display of orders, as well as the accessibility of the markets. Because right now the exchanges are at a disadvantage in regard to access to the ECNs market for execution of orders if they would like to, in a sense, ITS an order. And they surely don't have that ability now at I think a reasonable cost.

Mr. Seligman: Thank you, Peter. Eric?

Mr. Roiter: Thank you. At Fidelity we would vote for A, retaining the current display rule requirements if the question as it is, is framed in terms of what the SEC should mandate.

As a general rule we think the SEC should compel the display of information only if there is an appreciable risk that the information would otherwise not be available to market participants on reasonable terms.

The display rule itself has not inhibited competition in the display of market data. Rather it's been the absence of an SEC requirement that would require SROs to make available depth of book market data to vendors.

And I know that's not the way the question has been framed, but I don't see the two as mutually exclusive. The SEC I think need do no more than mandate the NBBO display. But if there were to be change it would be to require that SROs be required to make available the depth of their book to vendors and then let competition drive the development of different applications for the display and the accessing of that information.

I think a critical point here is the fact that we are dealing with self-regulatory organizations. SROs occupy that netherworld or gray zone of private and quasi-governmental. And until the SEC revisits the status of ECNs and broker-dealers generally, the latter don't have those quasi-governmental responsibilities or powers.

And hence, I think when we speak in terms of competition it shouldn't be confined to the SROs. The SROs as quasi-governmental entities ought to be subject to some level of public function. And in this context I think it means opening up their limit order books and letting truly private entities access that on a competitive basis to develop products.

And I think if that were to be the case, the SEC would have no need to adopt rules to coerce the display of market data beyond NBBO because market participants would demand. And so long as the broad data was there to competitors to use, it would be, in fact, a fact of life that it would be available to market participants.

Mr. Seligman: Thank you, Eric. My suspicion is that the SEC would prefer the verb require rather than coerce. But I'll leave that to others to analyze.

Mr. Roiter: Okay. Can I edit my remarks?

(Laughter.)

Mr. Seligman: What I'm reasonably confident I heard in this first sweep was the following:

There is a consensus but not unanimity in favor of some mandate of information. Clearly Brian and Ed would like to eliminate the display rule. I didn't hear anyone else subscribing to that. Although Carrie has a conditional enthusiasm.

My instinct is probably at the end of the day we will favor some form of display rule and we will reflect the basis of Brian and Ed's disagreement in the document. And you may want to focus on articulating that in a specific comment letter so we can get your precise phraseology.

The real issue that seemed to emerge – or I shouldn't say the real issue – but an issue that seemed to emerge was an a disagreement in the committee between those who favor the NBBO and no further mandate and those who favored more information. And I would like to flesh that out more.

I want to go around the table once more on this issue. And I want to ask specifically two questions. For those of you who don't favor going beyond the NBBO, why not? In other words what are the costs and risks that would be involved if you went beyond the NBBO and last sale reports and augmented more information?

For those of you who do favor more information, I guess, I'm asking a two-part question. First, again, while we've heard references to the full order book, to aggregation, to going three to five levels down – and we all know that the SuperMontage is three levels down – I would like any further guidance as to how one might frame what more information would involved. And I would also like any further guidance as to how one responds to concerns about costs and risks in requiring more information.

And I'm going to suggest rather than going alphabetically, let's start with those who simply favor the NBBO and last sale report in its current form and ask them to explain why they oppose further information. And then we'll go back to those who favor further information.

Mr. Colby: Joel, could you distinguish between whether they favor it as a minimum, a required minimum that goes out to everyone or whether they favor it as a required display that the vendors could then make available?

Mr. Seligman: How would you like me to frame it?

Mr. Harts: I think that's the fundamental question. Frankly, I think that's the most important one that we've all be talking about.

Mr. Seligman: Yeah, I thought we were dealing with the vendor display rule.

Mr. Colby: Because I thought that – it was difficult to know sometimes whether people thought there should be a minimum that everyone had to receive if they received anything and whether they thought there should be a minimum, in a sense, in the quote rule that said you have to make it available – an augmented minimum. And then it was a question of whether a vendor sold it separately priced.

Mr. Seligman: All right, in fairness, that is a very important distinction to draw. I would – I guess, I have assumed we're dealing with both. And some of you may want to make it very clear you're not dealing with both.

I have assumed that the required minimum would have to be produced by the market centers. And I've assumed that we're also dealing with the display of it. If anyone wants to amplify that they're only dealing with part, that would be very useful.

And again, please feel free to amplify either orally or in writing. But let me start – let's go around the room for those who basically said they favored the equivalent to option A, the current display rule requirements the current production requirements, what's the case against augmenting that?

And maybe we should start with – should we start with Mike? Excuse me – fairness. I refuse to discriminate the end of the alphabet. I said we'll start with Eric this time.

Mr. Roiter: Thank you. Well, we think that if you don't need to mandate the display of anything beyond NBBO. And I think the risk – I think Carrie alluded to it earlier – is that trying to engineer what beyond NBBO must displayed and how it would be displayed I think would tend to limit innovation and how market data is manipulated – to use a benign sense of the word.

Mr. Seligman: I'm not sure it's benign.

Mr. Roiter: But there is a risk that we would inherit a system that would freeze the format and process of this information availability circa 2001, which may look fine today, but in very short order might be seen to be antiquated. I think it's particularly true in light of the very recent shift to decimalization. I think the market itself is still trying to figure out how to cope with decimalization and how far down you need to go in order to get a good sense of where the depth of the market is.

And for those reasons I don't think the risk – I don't think the benefits of forcing the markets into any particular display format is something that the SEC has to mandate.

As long as the information is available to vendors, then the vendors can find ways to present that in the most useful fashion to the participants in the market.

Mr. Seligman: I think there might be some anxiety as to whether or not if it was mandated it would be available. How would you adjust that?

Mr. Roiter: As I said earlier, I think the SEC could adopt a separate rule that simply requires SROs to open up their books and let vendors access their limit order books and do with that information as they will.

Mr. Seligman: Peter?

Mr. Quick: Certainly, I raised the question of the quote vendors capability or what the expense would be involved in terms of displaying this additional information.

Just as an aside, the American Stock Exchange is displaying option quotes with size now. And for the most part the vendors are not able to display that yet to the member firms and to the investing public. So we're talking about extending this to all the equities.

With regard to the discussion of three price increments, you know, up or down, displaying the books, I'm not sure that that's really that meaningful in terms of in a penny world, that's half the old increments. So I'm not sure that that's a real depth of book. And I don't know what would be involved to go many more increments on either side of the market with regard to displaying the depth of the book.

I certainly agree with Rick Ketchum in terms of when he alluded to the cost, what the appetite would be for the investing public and for the members firms to bear additional costs with regard to this information.

Mr. Seligman: Appreciate that. Gerald, I think you were favoring an expanded mandate.

Mr. Putnam: Yes.

Mr. Seligman: Ken, I think you were favoring an expanded mandate. Paul, do you want to comment?

Mr. O'Kelly: I'm still straddling the fence so I guess I got two chances to answer the question. We get back to the point – and by the way I answered the question before assuming it was going to be mandatory production and mandatory display of the information – that's why my concern about costs about pushing all of this information out to people I thought had to be part of the equation.

We think – but it's still early on – that the NBBO as it exists now that that requirement is not going to be particularly useful to people in the future. We don't know how much more information will get to that level of being useful to people.

And there's others that use that information that are in a better position than we to answer that question and we think that they ought to come forward and answer it and help formulate what mandatory minimum ought to be.

We're kind of intrigued by this notion of, well, let's take the SROs and have them mandatorily provide all of this information to vendors and then vendors can decide what's good and what's bad and sell it. And so the exchanges bear the expense of producing the information to the vendors, and then the vendors can decide whether or not it's of any value to them. And if they use it one or the other, they can kind of pick and choose what information I'm mandatorily required to produce to them for their own purposes.

That seems to be driving the decision – we bear the cost of – the regulatory cost of producing it. They're under not any regulatory responsibility for any – using any of that information I push onto them. I'm a little troubled by that prospect.

Mr. Seligman: Thank you, Paul. Ed, you are opposed to the current display rules. So presumably you'll be opposed to augmentation of it, as well, for the record?

Mr. Nicoll: That's correct. I'm just – you know, it seems to me that we ought to have a preference to allowing the markets to operate freely, that when we impose a regulatory mandate that there ought to be clear evidence that it is necessary and desirable.

And I would – you know, it is our strong view that what we ought to do is let market centers compete freely among themselves. And once we engender that competition that we will have the proper amount of data delivered to the users of those market centers because that will be a key criteria of that competition what those market centers choose to display, how much they choose to charge is going to be a key criteria of competition.

And for us to impose some kind of regulatory structure which freezes into place one notion of what the proper level of display is that will create the most efficient marketplace I am very troubled by that without an awful lot of thought and study.

So obviously there's very little consensus here for – and we did not expect there to be any consensus for doing away with the current display rule or the rule for an NBBO.

And if we take that as a given that that is likely to – that our view is not likely to prevail then we certainly would take the position that we ought to mandate as little as possible and letting the markets compete beyond that and that that will create the best results in terms of what information is displayed and what information – by the producers and what information is used and how much people are willing to pay for that information by the users of that information.

Mr. Seligman: Thank you, Ed. Mark, I think you were –

Mr. Minister: I appreciate Peter Quick's concern for the vendor community. And I can assure that my largest shareholders financial problems aren't related to their ability to take in and disseminate market data. That's a whole different discussion.

I think if you look at the dissemination of the minimum vendor information – if you look at the various means it's disseminated and take it down to the hand-held level – although I can get your full streaming quotes on my Palm Pilot, I think that to expand it too much will make it difficult – I'm not saying from a vendor's ability to supply it – but just to be able to disseminate – much beyond the current NBBO and last sale requirements – the current vendor display requirements.

And so from that standpoint I think from a mandated vendors display basis for us to fully service the broad community that we're trying to do that we would advocate staying at that level. We still like the idea of an expanded availability, whether mandated or not – for other users.

Mr. Seligman: Okay, let me focus on the word "it will make it difficult". Why will it make it difficult?

Mr. Minister: Well, I think the display mechanisms – whether you're getting your information off of the TV set, off of a Web site – there are a number of ways now. I mean, there are millions of people now who view market data. And if there is a mandated minimum of market data.

Like I say, as a vendor, we don't have any problems. We can give it to the TV stations. We can give to the brokerage firms to put on their Web pages. But I think to understand and to assimilate dept of market and that sort of thing, it becomes very difficult.

I think at a minimum that it should be the current NBBO, last sale and exchange of trade data.

Mr. Seligman: Thank you, Mark. Brian, you're in the same position as Ed. You don't even favor the current rules. So presumable you oppose expansion?

Mr. McNelis: Well, that's true. But I would like to just comment a little bit about the concern that Paul raised. And that is that he would be forced to produce vast quantities of data that vendors would then ignore.

We had really no intention of ignoring the data. And, in fact, we feel we can make a very good business of providing that data in its full compliment where a customer actually wants it.

And that's the distinction we would like to make is, let us be able to provide the customers the level of content that they feel is appropriate rather than being mandated to deliver the Nth degree to everyone who may not be interested in that depth and intensity of data.

Mr. Seligman: Bernie, I'll come back to you in the second sweep. Don?

Mr. Langevoort: I think most of the points have already been made. My sense is that market is sufficiently dynamic now that you would have to amend the rule every year in order to keep it current and that that's not administratively feasible.

I think that what I want to do – and it's maybe getting to D and two and three and four – is create an environment in which we could even wean ourselves from the threshold NBBO requirement.

That may take time. I wouldn't suggest doing it right away, but I want to create that environment and not put the SEC in a position of constantly having to rethink a new mandatory requirement all the time.

Mr. Seligman: Thanks, Don. Annette?

Ms. Nazareth: I just wanted to make one point in response to Don and in response to the points that perhaps we need a minimum at all, and that we should let the market decide.

One thing I think that's implicit in the views of those who believe that we should at least have some mandatory minimum – even if it's just what we have today, even if it's just the mandatory NBBO – is that when we talk about who is the market that's deciding what information is minimally mandate, as you know particularly on the retail side, those decisions are not really oftentimes made by the principal themselves, but by their agent.

And so one of the reasons why we're very concerned about what is this mandatory minimum is because we're basically saying regardless of the interests of the agent in this situation there is some minimum that the principal will always be able to receive.

Mr. Seligman: Rick?

Mr. Ketchum: Joel, if I can let me address Nasdaq securities and AMEX and New York listed securities separately because my market is in a different place with respect to both.

With respect to Nasdaq securities, to clarify what I said earlier, we don't just have a governmental mandatory minimum of best bid and offer in Nasdaq securities today. We have a Nasdaq rule that indicates that we will pass through the quote/orders – the best quotes and/orders of each market marker and each ECN, which we do – albeit in a separate stream in which there's a different charge to vendors.

And I'll get back to that because the points made here are very important vis-a-vis what you mandate versus what you offer. So I think the only question in Nasdaq securities is with respect to competing markets today enjoy an increasing but still small market share, whether they should be forced to do so.

The prospective competing markets and Nasdaq securities clearly seem to view it in their interest. And, indeed, their basic model involves display of this information. Whether other markets should do it or not I think when you get into a governmental requirement, you're requiring them to do it whether, indeed, the information viewed is going to be picked up and useful to vendors or not.

I respectfully say that despite the earlier statements, in the past vendors have picked and chosen as to whether they find information useful to customers. And I think until you see more you should let the market decide whether they have a useful product to get out when you're talking about a secondary non-primary market competition environment.

In New York and AMEX listed securities we're in a different position. We are a competing market with small market share than the primary market. I think that there are a variety of competitive factors and I would agree with Ed's clear needs standard.

There – just as the Nasdaq securities – suggest that there is a clear need for regulation. New York has indicated the direction they're going to go. I think that probably means the AMEX will have to respond and it probably means that each of us in a secondary market environment will have to do a careful analysis of whether it's in our competitive interest to display this information or not – and part of that will be, will the vendors pick it up? Is it likely to attract orders to our marketplace?

And I think that we probably ought to be allowed to do that competitive analysis recognizing that making those changes costs real money to us and to vendors because when you – and that gets, I guess, to my last point.

When you start reporting more than the best bid and offer, you geometrically increase the message traffic that a market or a SIP must process and vendors must handle and process as well.

You do not want to have a single requirement that all that information must be provided to everyone whether they want it or not because it will cost a lot more. That's true in Nasdaq when it's just the – the best bid is just the stream that involves market makers quotes.

I can tell you in analyzing SuperMontage it's true on another geometric level when you're talking with respect to providing the book information. And, indeed, none of us – until that information becomes transparent and we see how we can evaluate it – can confidently say how much message traffic that is.

So it seems to me there is a lot of competitive juices right at the moment setting force encouraging increased transparency. I think that's a good environment for the government to step back.

But whatever this committee does, it would be a tragedy for customers if, indeed, there was a requirement – not matter what the cost – that all the information had to be passed through or none of the information.

Mr. Seligman: Thanks, Rick. I think I've got Ed.

Mr. Joyce: Yes, I agree with Rick. I'll add one thing that the minimum as defined previously has worked for quite some time. My concern is the impact of decimals. And I think we need some time to analyze that. That clearly the minimum for some segments of the market is not sufficient. How far we go beyond the minimum in my mind is what we have to wrestle with. And we should keep in mind the cost of going too far.

Mr. Seligman: I think I go next to Joel.

Mr. Greenberg: Just a few points. On the mandatory production versus mandatory display, we would be in favor of the mandatory production not the mandatory display because – just to address Annette's point on the principal versus the agent – if the customer is at home and is not getting the information that you think or someone thinks or they think – more particularly – that they should be getting, they're free to switch to another broker dealer who is going to give them that information.

I think with this whole process as we're trying to define what exactly the information that the exchanges or the market centers should be forced to produce, it seems to me we're further complicating the issue because until we get back to what I thought was the fundamental reason for this committee as to how you should price that information once you can require the mandatory production of the information – once you require the mandatory production you're setting up – one the one hand a monopoly-like power, on the other hand to address, I think, Paul's point that maybe they're being forced to produce information that no one is going to pay for.

So until you get to how that information that you're going to mandatorily require to be produced is priced, then all we're doing is further complicating this committee's goals. I think we should be starting at the point of, what exactly is the pricing mechanism for that information before we decide, well, we have the NBBO, now let's lay on four or five other levels of information.

It's just going to take us a lot longer to decide how to do that.

Mr. Seligman: Joel, I agree we have to ultimately deal with both. I think, though, it's easier to focus on pricing issues when you know exactly what information is involved. And I promise you we'll get there.

Mr. Greenberg: Okay.

Mr. Seligman: And hopefully today. Carrie?

Ms. Dwyer: So I would heartily second the remarks of Ed Nicoll and Rick Ketchum and Joel's, as well. You know, I trust the markets. We think that competition is going to bring huge advances in this area, better information for investors.

We believe it's going to be a competitive necessity for market centers to offer better market data. It's already happening – Nasdaq, New York's plans, Island, I believe and Redi Book give their limit order books away for free right now. This is the direction the market is moving in. I don't believe there is a need to mandate the display of this data.

I wonder if firms would have a problem of sending order flow to a market in the future that only gives NBBO and no depth of book. How do we fulfill our best execution obligations in that kind of a world?

So I think that it will be – it will be a necessity as markets evolve and compete. I want to say as a producer of market data I think that we also have to think of brokerage firms who accept orders from customers and are legally required to transmit them onto market centers.

I wonder who the producer is. But as a producer that's required to send this data, the reason we're sitting here is about price and the inflexibility and the secrecy of the current pricing structure.

So our comment on this point was that if you are going to mandate data, then data that is made available by an SRO or anyone who regulatorily receives data should have to be made available to anyone on the same terms. And that's why we suggest most favored nation pricing because we believe that if a market furnishes data, the book, whatever it is and is required to publish its prices and give the same price to anyone for that data, then we'll have a flourishing competitive situation.

Mr. Seligman: Thank you, Carrie. I think next would be Bob.

Mr. Britz: I think the most compelling argument again from our point of view is that it will actually do nothing. At least with regard to the New York Stock Exchange this will by definition be a retroactive mandate if we're talking about the book.

For the less trusting souls around the table, the good news is you get a couple of looks here because we will be sitting around this table in July or September and either the New York book will be out or it will not be out.

Mr. Seligman: Not September.

(Laughter.)

Mr. Britz: Well, you will get at least one look. And so that the notion that the markets might not be up to their words, this committee gets to weigh in post the June deadline for the New York Stock Exchange.

I would echo certainly a couple of points that Ed has made. And I think Don made the point that there are no free lunches. There are costs – cash and non-cash – and maybe the non-cash are the heaviest here – burdens associated with regulation. And so you need to weigh the sort of cost-benefit analysis.

And again, as regards to the New York book – and I believe the equivalent of the Nasdaq book and perhaps the AMEX, it seems to be all on the cost side because the New York cannot – if the SEC were to mandate this, we cannot give you any more than we are proposing to give, which is the entirety of the contents of the book.

And to the point where you would have to revise this regulation constantly I think that's absolutely right now. I will tell you that we've talked about NYSE open book, which is the book, in my view it's probably the least interesting information product that we have in the pipeline.

And so if you mandate that book, are you then going to nationalize our order database and other information products that we have coming down the stream? And maybe you are. You know, you wonder then whether one of the burdens and one of the prices you pay is that you stifle innovation and you stifle the incentive to create innovative new information products which markets naturally have if it can be one of the bases on which they compete.

So if I may make one other point, Joel, there have been a couple of comments about decimals. And I think it's absolutely right that the ultimate recommendations of this committee have to be weighed against delivery in a decimal environment for sure.

But having spent the last 15 days with a cross-section of our customers on decimals, they've made it very clear they're not waiting till September or any time post September for us to deal with the informational problems that decimals have created.

We have ideas subject to working with – working through the community and working with the SEC where we will deliver products to the market in the next three weeks that – I don't pretend – solve the decimal issue, but at least create aids to the opaqueness that seems to be in the market vis-a-vis decimals.

So if any of us thinks that part of our charge is somehow make recommendations that will deal with the decimal problems, I would suggest that's probably going to be too late.

Mr. Seligman: I appreciate that. And I think, Michael, were you –

Mr. Atkin: Yeah, it's hard to not want to comment on the conversation as it shifts as it goes around the room. But kind of bringing it back to the original question I think you asked – and holding aside the question of fees and holding aside the question of capacity which are clearly what we're here to discuss – I would like to just go back and reinforce what I think Eric very articulately said, which is, there is a clear distinction between availability of data and display of data.

And I heard Reuters and Bridge say the same thing pretty clearly. I think it's very worthwhile that we have a debate on, do you mandate availability? Or how do you assure that the book gets known to the vendors?

That you let the competition exist on transparency, view of the world, what customers find value, and things of that nature – so you have kind of a separation, Joel. One is on what's available. And one is how you display that and make it available to the users.

To the degree that there is a minimum, you know, it sounds like, you know, NBBO – maybe add size is a thing that people were talking about. But then you got that same capacity problem and you got the same question that I think New York posed, which is, is it a must offer? Or a must display?

So I think the bottom line for me is, it would be reasonable to not stifle competition on the view of the world. You allow the vendors to compete on the things that they do well. So, I think that the bottom line for me is it would be reasonable to not stifle competition on the view of the world. You allow the vendors to compete on the things that they do well, which is presenting a view of the world to their customers, you let the customers demand what they want from what's available. I think we heard on this side of the room early that display depends on markets you serve and it depends on liquidity and it probably will depend on lots of things. So, mandating display sounds like a risky thing. Mandating availability sounds like a useful thing.

Mr. Seligman: Thank you, Michael. I'm going to go back through the room. There were several who proposed a greater mandate. And again, to reiterate, I'm asking a two-part question. We've heard a lot of concerns about the costs and risks of increasing the mandate; and not pretending to be able to reiterate all of them, but it's everything from competition is usually very good – it's innovative. It may be, as Carrie suggests, that in the future market centers will have to voluntarily produce a good deal more data to be effective. There may be costs involved in increasing a mandate.

There is certainly an inevitable regulatory rigidity. If you define a rule now in an environment you think you understand the environment is going to change. You will have to amend it from time to time. To what extent might that risk stifle innovation?

Finally, the point which the different views on as to whether or not we're dealing with a kind of lack of experience with the new decimalization context. So, to the extent those favor more mandate I think you need to respond to the degree you can, those comments now, and again you can comment further in correspondence. I would also like any further guidance as to what a broader mandate might involve. We've heard a number of ideas. Some of them were suggested by SuperMontage. But they range from the full limit order book, aggregation, going through the five levels down and so on. And again, we've now had some time to reflect on this; if anyone wants to augment that that will be helpful.

Finally, the distinction between mandated production, if you will, from the producer and mandated display by the vendors needs to be also something that may be commented upon.

So, let me start with Harold. I think I have something like eight or nine names of people who favored a greater mandate. If I miss anyone please pipe in.

Mr. Bradley: So, you're not going to start on the back-end of the alphabet here?

Mr. Seligman: No, I sweep both ways.

Mr. Bradley: I think that as we get into this inevitable it always goes to economics. And I want to respect what you've set up as the discussion charter today and say I don't want to talk about cost. I want to talk about what we need in order to discover price in the marketplace. And that to see each market, and again we get into who is a vendor and who is not – is an ECN a vendor? Is Bridge a vendor? Where is a market center? These are all terms that are shifting and sometimes hard, even in the context of a conversation that's very specific, to understand does it mean SRO and non-SRO? And is that even an appropriate – I mean there are all these levels of interpretation.

As a user in the marketplace, a portfolio manager, an institutional trader, we need more data from the market. It has been restricted by certain market centers historically because it raises its value and it controls the access to that owner, "owner" of the data. And again, I defer to Bernie who says, "who really owns the data," I think it's produced by the people who are willing participants in the market.

Historically that's been in, the major SRO centers – I think technology is changing that. So, I would say that mandating the availability of data from those exchanges is important. I would say the display of the data, again, may rely at a minimum – or should exist at a minimum level because – I'm not in the retail business but most retail people don't understand what they're seeing. So, they need some protection. But that the mandated display of that data then can be used by vendors and others providing the service and it can be then competed for.

The aggregation and the cost is a different discussion.

Mr. Seligman: Let me just take it one more step. You've got New York about to come forward with lots of new forms of data on a voluntary basis; the SuperMontage, which was approved by the SEC is augmenting the data – are there data beyond what New York and the SuperMontage will provide in the equity side that you would propose mandating?

Mr. Bradley: Well, if New York is providing, or making available, the full depth of orders in every security at all price levels – is that what I'm to understand? If I'm understanding it, it's kind of hard to envision what more is available. Sure, probably somebody will think of something some time. But that's a pretty good start.

Mr. Seligman: Okay. I appreciate that. Andrew?

Mr. Brooks: I'm fascinated by this discussion because at some point we've got to get back to who is providing the data and who owns the data. I think we need to acknowledge that all this data has value. And to Harold's point, if you limit access to it or limit display of it it perhaps changes the value of that data.

So, I think we're very much in favor of allowing access to the data. I do think that the data display should be – or data access ought to be mandated – but the display of that, I agree, competitive forces should be able to provide that.

However, it must be that we can get to all of that data if we choose to pay for it. So, perhaps as the data vendors have today, there will be tiered data access. You will have one price for the NBBO and there will be another price for the expanded book and everything that you might want.

I wonder, when we talk about things larger than the NBBO and access, don't we need to think about best execution and don't we need to think about access to the data and to all these different market centers if, in fact, the national market system is still a law, a requirement, an obligation. So, I think, Dean, as you asked for what more data I think any data that a market center has ought to be able to be processed and delivered to an end-user provided that end-user is willing to pay for it.

Mr. Seligman: Andrew, two points. First, it's Joel. I found, particularly in dealing with my faculty, when it's Dean it's not as good as Joel, and when it's the administration it's really sullen. (Laughter.)

Clearly, the 1975 Security Acts Amendments and the rules that were adopted under them are the law. And we can propose, if we wish, that changes occur. But we're starting with that as a kind of baseline.

Let me pose the same question to you that I posed a moment ago to Harold. Above and beyond what New York is intending to voluntarily produce and what Nasdaq is now producing, or will be producing through SuperMontage, is there any other data you would suggest we consider for a mandatory mandate, or for mandatory disclosure at the production level?

Mr. Brooks: If all market centers, exchanges, ECNs, what have you, are mandated to provide access to any orders that they hold it seems to me that will get us 99 percent of the way home as we know the markets today, and as far as my crystal ball goes.

Mr. Seligman: I think we have a couple –

Mr. Britz: May I pose a question to Andy on that last comment?

Mr. Seligman: Go ahead.

Mr. Britz: Andy, we have a rule that is about to be enacted, Rule 123, which says that we have to systemically capture every order in a system, in a database essentially, before it is represented at the point of sale, including your orders.

Mr. Brooks: Right.

Mr. Britz: And that will be a – for lack of a better word – a giant order database. Now, you won't know anything about the disposition of those orders, but you will know that there is an order, it's an institutional order, it's for a certain size.

Mr. Brooks: Who will know that?

Mr. Britz: The database will know that.

Mr. Britz: I'm reacting to Andy's point that any information that a market center has it ought to blast out to the community. And I wonder if you want us to blast your orders out?

Mr. Brooks: No, what I would think –

(Laughter.)

Mr. Brooks: We want our cake and we would like to eat it too, we know that. There is a big difference between, you know, having an audit trail for an order so that you make sure a customer's order hasn't been compromised, and that customer willing to have his or her order brought to the marketplace and displayed – so, I think we're talking about orders where a customer has willingly allowed his or her agent to bring the order to the marketplace. Is that the clarity that you –

Mr. Britz: It is.

Mr. Seligman: Thank you, Andy. I think Matthew.

Mr. DeSalvo: Some of the – you asked, Joel, the minimum that I would like to see given the fact that SuperMontage and opening up the book, what else is there is what you're asking. I would like to see at a minimum a 10,000 and 25,000 share increment level with which we can view – our clients are obviously asking for that at the institutional level.

The question becomes, then, do you leave it to the auspices of the vendors to do it or the SRO? If you choose to leave it to the vendors then that means that I must employ several vendors, and at some point – and if I have a framework of how I want that data to be received – if one vendor goes down I now have to talk to the other vendor to make sure that he is giving it to me in the same way. And that's difficult to get competing organizations to do that.

So, if you ask for a minimum I think the SROs should, to help out both the retail and institutional community, put a 10,000 and 25,000 – if people have other numbers that's fine – but at least something – there should be at least a minimum standard that the SROs provide as to the depth. Because as Bob puts out, you could be down 50 levels and not reach 10,000.

The SROs should have some obligation to us to provide the investing community what the book means. I don't want to have go and coerce multiple vendors to provide that minimum when they have their own day jobs.

Mr. Britz: If you had your druthers, would that simply be the book or would that be the book augmented by what the dealer wants to do and what anyone in the crowd wants to do, so the market as opposed to the book?

Mr. DeSalvo: I think that – well, I applaud both exchanges opening up the book.

Mr. Britz: There is going to be a tremendous amount of disappointment when you –

Mr. DeSalvo: That's my point. I agree that the disappointment will be there. Decimals tend to flush that out a little bit, but at least some level when you do open up the book it may become meaningless, as you're alluding to, so I'm trying to say great, you're opening up the book but add a baseline to it. Where is 10,000? Where is 25,000?

And if you leave it to the vendors I have to talk to all my vendors to provide the same level of service. And that can be a difficult challenge.

Mr. Nicoll: I just wanted to point out that we are alighting over a significant question, which Bob's question really brings up, and that is the question of what an order is that we are mandating displaying. Okay? And the point about – Bob's point about are we mandating that we're going to look at the book – an order is an intent to trade. It can be displayed in the book or it can be in the pocket of a floor broker standing on the floor or it can be in the pocket of a market maker operating in the Nasdaq marketplace.

And the more we display the book or mandate the display of the book the more incentive there is going to be to hide people's intent to trade. And this is a huge trade off that we have to think about. The more that we mandate the electronic display of orders the more that we are going to incentivise (sic) other kinds of trading other than electronic display.

I would argue, for instance, that the New York Stock Exchange – if the New York Stock Exchange were allowed to not display all of the trading intent of the crowd standing around the specialist and the Island ECN, okay, was not – was mandated to display all of the electronic orders, and it is in fact a virtual marketplace of electronic orders then all that you're doing is absolutely standing in the way of competition between these two markets. And for us to find which is the most effective forum to trade securities in. And we have to be very, very careful about these kinds of regulatory mandates which can have enormous consequences on the shapes of our marketplace. I think this is a critical distinction that we have to talk about; what is an order that we're so blythly talking about mandating.

Mr. Seligman: I appreciate the point, and it's well taken. Bernie?

Mr. Madoff: First of all, I think it's very clear what an order is. An order is – I'm not going to give you the definition, I think we all know what an order is. I think it's sort of silly to ever envision any sort of mandate to display interest that's in a crowd or in a broker's pocket. I mean, if an institution or a customer chooses not to display his order he should not be required to display that order. That being said, if there is an order that does not have that condition attached or that the customer expects will be displayed then it really should be displayed. So, I think that issue is clear.

I just want to go back to some of my initial comments. I'm more concerned about market centers making the data available then I am about them displaying it. And also, I want to make sure that that data is available to firms as well as to vendors. I mean, I may as a firm, or others may as a firm, may choose to want that data taken raw, as we presently do from SIAC and generate – use that data myself. So, I think we have to be careful to make sure that if we have a definition of who it's going to be available to it can't just be vendors. It should be the firms themselves who, as I said earlier, take the position that that data really belongs to them to begin with.

The other concern –

Mr. Bradley: Bernie, how do you define firm?

Mr. Madoff: A firm would be a registered broker/dealer.

Mr. Bradley: Why?

Mr. Madoff: Well, because I'm – as a registered broker/dealer I am required to take those orders, I'm required to display those orders, I'm required to – I have various other requirements. Now, if an institution says that they want to get that data I have no real problem with that. I'm not taking exclusive – as far as I'm concerned you could open it up to anybody as long as –

Mr. Bradley: It could be a QUID, a qualified institutional data user?

Mr. Madoff: What I'm suggesting, and I don't want to get into a debate as to who gets the data – to me, more is better as long as it's at a reasonable cost. I also don't expect people to provide the data, whether it be a market center or anyone else, as a loss leader. So, data has to be made available to whomever wants that data.

If the buy side wants that data that's fine with me also. I think people should pay a reasonable cost, but it should be made available.

As to the display of the orders, I think it's already been said that just going six places really gets you back to where we were originally, which was not something that everybody was thrilled with. I think it's more sensible to look at Matt's issue of somehow or other coming up with some size issue.

And finally, it's not that I don't trust New York and the fact that they're going to open their – that the book won't stay open – maybe it's because I'm probably older, as I look around, probably than almost anyone here, I've developed – I have learned from experience that the firms themselves, in spite of the fact that we all want competition, the firms themselves have been quite unsuccessful in numerous instances in getting market centers to respond to their needs.

I can talk about ITS and I can talk about linkages to point at examples. So, I think it's naive for us to think that while competition is great and it works, and I certainly believe that it does, I think if there are times that regardless of how much you want to rely on competition the exchanges, market centers, can throw a lot of obstacles in the way of getting what the firms themselves want. And therefore, I think it's unrealistic to think that the SEC will be able to deal themselves out of this issue at all; I think to have a lesser role, but not all.

Mr. Bradley: You don't have to be old to believe that, Bernie.

Mr. Seligman: Let me just step in. I have, I think, five more speakers on this point and I would like us to take a break. I find that, not so much the longevity, but the endurance of a typical committee is rarely at its highest peak after two hours in a meeting. We will take about a ten minute break and then continue.

To keep focus, though, I want to continue going around the table with those who favored the more data. I've got Bill Harts, George, Simon, Ken and Gerald and then we will go to our break.

Mr. Harts: Thanks, Joel. I am as much pro competition and free markets as anyone, but let's – on Bernie's point it's true that everyone, all of a sudden, has gotten religion and they're going to display the book and they're going to open everything up. But let's not forget it's taken over 200 years to get there. I don't think I have that much time left in the business.

I think that the issue of mandated production versus mandated display – I want to clarify what I said earlier, I think that on the production side the market centers should be mandated to provide the additional data in terms of the entire book and so on. As far as mandated display that's a trickier issue because it does involve capacity issues and so on.

But specifically to your question about what else would you want to see mandated – I think retail investors are becoming more and more confused these days because of the issues of flickering quotes and – many of which of the issues have been brought on by decimalization, which by the way another regulatory mandate. But I think to hopefully alleviate some of that confusion you might also want to mandate the high and low price of the day, the high and low price of the past five minutes and possibly the average price of the past five minutes.

The static bid and offer at any given time is almost meaningless now, especially for a retail investor.

Mr. Bradley: Bill, that's on the vendor's side you said? Or did you say the market should do that?

Mr. Harts: No, I would say it should be mandated that that information should be available at a minimum, in addition to the NBBO on any display station.

Mr. Seligman: I appreciate that. George.

Mr. Jennison: I guess I would – in my opinion price discovery and informed execution are what I think is a great goal for your typical retail investor type person. Specifically about mandating either display or production I would say mandate both. And let me flesh that out a little bit.

When I talk about mandating the display by vendors – I mean my thoughts there are we should mandate a slight improvement, a slight increase above the NBBO that we have today. Slight in my mind is three to five quote levels. I don't know if that five pennies, given that it's not quite to six cents we used to have, Peter, is going to do it or not. You know, we don't know, quite honestly, none of us know, because we've just gotten into the decimals and all we can do is watch and see and watch how finely prices get sliced there.

And I think to Matt's point, some aggregation of where you could move 10,000, 25,000, 50,000 whatever the number of shares is the right way to go as well. I think you need both. Concerning the production of data, I'm concerned about that because it sounds like socialist state. However, I think Bill is right. We waited 200 years – it took a long time – I think the state we have now with some ECNs and market centers and exchanges providing their entire book and others not – that concerns me. That has in my mind perpetuated the fragmented nature of the market we have today. I would much rather see clearly what is a very high bar put on a minimum there, which would be full production of the entire book. I think the direction that New York is going is great. That's a very high bar. Beyond that I think, you know, innovation will take it from there. But I think the minimum there will be important as well.

Mr. Seligman: Thank you, George. Simon.

Mr. Johnson: Thank you. I think Annette's focus on protecting investors, particularly small investors, and seeing this basically as an issue of consumer safety is essential here. And I think that the right way to regulate, and the way the regulation generally works in the United States in this kind of market where people are concerned about consumers and about protecting these ultimate principles, as she said, is the regulator has a right to look around the market and to see what the best practices are and to watch as best practices evolve and then to decide which ones you mandate.

So, for a long time it's been illegal to sell a dangerous car in the United States, however, the definition of a dangerous car has changed dramatically. So concretely on this point I think from what I've heard and what I've seen it sounds like mandating the full disclosure of the order book, preferably at the display level, is something that's entirely reasonable and clearly the NBBO is not enough to protect investors at this point. So that seems completely reasonable.

I think that the point New York makes about nationalization of innovation is a valid one. I think that is in part what happens in this kind of situation. I think there are many ways in which you can benefit from your innovations, both by reducing your costs and by creating intellectual property to which you have the right to charge when people use it.

So if you invent a better seat belt you get part of the value from that. You can get that also from your information products. I think that this – rather than pinning it down and saying now we can specify for the next five years exactly what the mandates are I think start with the limit order book. I don't think it's too costly because we see a number of people doing it voluntarily. Say that's the bar at this point, of course you may have time to meet that standard, if the SEC certifies compliance, and the SEC has the right – and, in fact, even the presumption is that the SEC is going to change these standards and make them tougher with an eye to protecting individual consumers as we go forward and as innovation takes place.

Mr. Seligman: Thank you, Simon.

Mr. Pasternak: I will maybe take a few comments and just kind of meld them together with a different viewpoint. First off, I'm a strong believer, as everybody is, in competition. Many people here – a few people have made comments about the levels of display that are already occurring as a competitive element. Another comment was it may be impossible to do business without that level of display. In fact, if all that's true, and I believe it is true by the way, then the bars that we're talking about on production are really relatively irrelevant and a reasonable safety net, meaning produce the whole book in its entirety. I could tell you from a personal practice that we're already in the very early stages of doing that and it's not cost prohibitive in my opinion to do that.

The second comment, which I think is a little ignored here even though people have touched on it, is the evolution of the market – and I will go through just a little hopefully, not too boring, homily in my own life – the first knowledge I had of the market was about 30 years ago when I was a young boy where I actually saw a ticker tape and I saw a last sale coming through this – this stream of paper coming out with all these prices, this person was on the phone buying and selling stock on these prices and I was totally fascinated.

The second exposure I had to prices was an old Quotron machine where I saw last sales and NBBO now, because it was post-1975. Today – and then I started to – along with those two other periods I actually visited New York Stock Exchange and from the booth I got to look what was going on. And then I joined a fine company called Speer Leads and Kellogg and I actually got to go down into the crowd and saw discovery happening.

And what I would propose today is that we have a virtual crowd, that we're moving to virtual crowds, and the discovery process has many, many participants. And how we display this information is a critical element to how pricing formation occurs. It's not just about display, it's not just about cost. It's really about how the whole markets work. And frankly, every single person who can push a button and buy 100 shares of stock could be a participant in this virtual crowd. And that really wasn't reasonably possible, certainly in 1972, for instance, when I was a young man, and probably not that possible until frankly the Internet and post-1995.

So I think the minimum elements are critical and then we will find out in this vast discovery process whether some variation of Ed's model is the winning model, some variation of the New York Stock Exchange crowd with a lot of information relief is the best model. But we need to set a – frankly, a high bar – a high bar of production of information to let that competition answer this question about discovery.

That's really the – why I'm in favor even though, again, my natural inclination is to let the markets completely take care of what's appropriate. But in this case I'm going to take a very interventionist approach.

Mr. Seligman: Gerald, the last word before our break.

Mr. Putnam: As far as mandating information, we think that the production of the information should be mandated. I mean a marketplace should have to provide its best bid and offer at a minimum and it should have to provide its last sale.

At that point we think that vendors should have the right to decide whether they want to be a consolidator, at which point they have to accept all of that last sale and best and offer information from various marketplaces, or whether they just want to provide non-consolidated data. At that point the end users get to decide whether, with disclosure non-consolidating information is the value that they would like to pay for or whether the consolidated data is most important to them. And then we would obviously get to price later – but how that gets determined, we would argue, should be by competition.

We have a case study here on how depth of book emerges.

The New York Stock Exchange, you know, would be, in my opinion, the most likely marketplace to resist providing more information, since it has such a dominant position there, but that's not what they've chosen to do.

Bob, you can answer whether it was, you know, competition, responding to customer demands, which I guess that's the reason why you would certainly do it, not necessarily because you thought that that was, you know, some gift to mankind, but it was, you know, responding to competition. That's why it happens.

So, you know, I think it is happening. We're seeing it in both forms of the consolidated and non-consolidated data, non-consolidated data being provided for free on the Internet by Yahoo Finance with disclosure.

Some people, a lot of people use it. We get feedback from that website, because we're one of the contributors to that data.

But, you know, we're already here, so competition will decide how much data a marketplace will produce, but at a minimum, they should have to produce a bid and offer and a last sale. If you don't do that, I don't know what you are.

Mr. Seligman: Okay. Thank you, Gerald. What I'm going to suggest is, let's take a break. We'll go no later than 11:30, and I mean I will be in my seat, rolling, at 11:30. We'll then go for about an hour before lunchtime.

(A brief recess was taken at 11:15 a.m.)

(11:33 a.m.)

Mr. Seligman: Let me see if I can recap where I think we are, and then tee up our next topic.

With respect to the question of mandating information, the consensus favors a mandatory rule of some sort.

There was a division between those who, on the one hand, favored kind of a minimum mandate with the NBBO last sale, and then in effect relying on market forces to generate additional data, versus those who took the point you needed to augment the mandate, and there were a variety of ideas as to how this might be done.

For those on the minimum mandate side – and let's just by way of shorthand refer to the NBBO last sale report kind of approach – I am proceeding, on the basis of inference and assumption, that they would take the position that they would like to leave the rest of the world basically free for negotiation, free for what the market will produce, and how producers could negotiate with vendors and so forth, but in the vendor display side of things, there would be a requirement that the minimum be disclosed and whatever else the vendors would want to augment that with.

So that, in effect, you might have, under this approach, an NBBO, and then this could be augmented by what the vendors negotiated, whether it's the whole book, several orders down, and so on.

Now, the area of discussion so far this morning, where there are the most open ends, it seems to me, is what you would mandate in addition to the NBBO and last sale price if you go that route.

I will particularly encourage the proponents of going that route to use their pens, or use the laptops to augment.

I think, on the one hand, there were some serious questions raised about the costs and risks of augmenting the production side here.

On the other hand, there were those who said, in effect, if you don't mandate, what's voluntarily disclosed today might disappear, or what have you, and there were concerns there.

So if you want to augment the mandatory minimum, it will be very, very helpful to frame precisely how you do this and to precisely respond as best you can to, I think, you know, a series of concerns dealing with costs and risks involved there.

What I would like to do now is to turn to our second topic, which is one where we may spend some time. This is the question of, we're starting with the assumption we have some mandatory information. How do you consolidate it?

Separately, Don Langevoort, through his subcommittee, and on May 14th, will focus on the kind of more free market world in which, in effect, there would be multiple competitive consolidators.

The way in which I've tried to frame the questions under Part 2 would initially focus on should we just retain the SIAC and Nasdaq systems pursuant to the current type of joint SRO plans, or should we envision a world in which we replace the joint SRO plans and then focus on how we go about doing this.

Let me focus your attention initially on Points A and B, and I want to go around the table at this point, just focusing on those.

The question I'm really posing to you is should we retain the joint SRO plans, more or less, we have now with or without a mandate in some form of competitive bidding?

And I know, in effect, the SuperMontage is moving in that direction. The New York Stock Exchange has made the point that it's certainly something they could do in the periodic review of the SIP arrangements with SIAC.

Or, is there a case for replacing the current type of CTA/CQ Plans, and if so, what is that case?

I think, in fairness to the alphabet, we'll start with Eric and go this way, this direction. We'll get to other points under subpart 2. We may get to them after lunch.

Eric?

Mr. Roiter: Yeah. Thanks, Joel.

Well, our view is that probably Option B is the optimal choice here. It's actually a two-part question, because the decision to go to competitive bidding and the decision to maintain or retain an existing joint SRO plan are really separable.

There is an intermediate question that one could pose, and that is, is there room for revising the joint SRO plan? We think that there probably are parts of the plan that could be revised, particularly the unanimity requirement, to do –

Mr. Seligman: And we will separately address that.

Mr. Roiter: I think in this area we do want to move cautiously, incrementally. Let's see what happens when you put out the consolidation function for competitive bid.

That may address many of the problems that the market participants have had and might, by simply going through the function of a competitive bidding process, ameliorate some of the difficulties that people have experienced with the joint SRO plan.

Mr. Seligman: And you would require competitive bidding?

Mr. Roiter: Yes. That doesn't presuppose any particular outcome. It might even, at the end of the day, mean that the existing consolidators retain that function.

It might mean that perhaps the bids that are submitted don't meet the requisite levels of reliability of service and dedication of sufficient resources to give the SEC the ability to make a judgment that the function ought to be given to somebody new.

But assuming that the SEC does set some minimal standards for reliability, sufficient resources, contingency planning, in the event that a particular system goes down, then yes, we think that you could only benefit the market by going to a competitive bidding process.

Mr. Seligman: Thank you, Eric.

Peter?

Mr. Quick: We certainly think, for 24 years, SIAC has done an admiral job in terms of making sure that quotes get out to the investing public.

We see no advantage in having multiple competing consolidators of market data. We think it would introduce complexity and inefficiencies.

The possibility of different data streams we believe is fundamentally at odds with the NMS.

The AMEX is willing to explore opening the exclusive process function to competitive bidding. However, cost should not be the sole determinant factor. System up time, ability to hand future capacity demands are also very important.

Mr. Seligman: When you say, just to bring you down a bit, when you say explore, that's different than require?

Mr. Quick: Yes.

Mr. Seligman: Okay.

Gerald?

Mr. Putnam: We think that the plan should continue to exist, but they should be open to competitive bidding, and that some revisions, which we're going to address later, like governance and who is allowed to participate in the plan, we would make some revisions there, to allow other participants, like broker-dealers, in the plan.

Mr. Seligman: Appreciate that.

Ken?

Mr. Pasternak: We also support B, with a little more caution, subject to a better understanding of how pricing would work and corporate governance – subject to understanding better how pricing would work in that world and how corporate governance would work in that world.

Mr. Seligman: Okay. And we'll get to governance a little bit later.

I think, you know, when we say we would support B, which I would suggest means a requirement of competitive bidding,