Division of Market Regulation:
Advisory Committee on Market Information:
Minutes of December 14, 2000 Meeting

Thursday, December 14, 2000
1:12 p.m.

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

Participants

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

Robert G. Britz
    New York Stock Exchange

Andrew M. Brooks
    T. Rowe Price

Robert Colby
    SEC

Matthew S. DeSalvo
    Morgan Stanley Dean Witter

Carrie E. Dwyer
    Charles Schwab

Mitchell Feuer
    Reuters America

Joel Greenberg
    Susquehanna Partners

David A. Hunt
    McKinsey & Company

Simon Johnson
    Massachusetts Institute of Technology

Richard Ketchum
    National Association of Securities Dealers

Donald C. Langevoort
    Georgetown University Law Center

Bernard L. Madoff
    Bernard L. Madoff Investment Securities

Mark A. Minister
    Bridge Trading

Annette L. Nazareth
    SEC

Edward Nicoll
    Datek Online Holdings

Gerald D. Putnam
    Archipelago

Peter Quick
    American Stock Exchange

Eric D. Roiter
    Fidelity Management & Research Co.

Joel Seligman
    Washington University School of Law

By Telephone

Robert H. Forney
    Chicago Stock Exchange

William R. Harts
    Salomon Smith Barney

Edward J. Joyce
    Chicago Board Options Exchange

Thomas M. Joyce
    Merrill Lynch

Contents

I. Introductory Remarks

II. Presentation of Alternative Models

III. SEC Issues

IV.   Discussion

V.   Summary/Next Steps

VI.   Adjournment

Proceedings

Mr. Seligman:   Let me make a few preliminary points. First, for the members of the committee, when you speak, remember to push the clip forward, so that the court reporter can satisfy his duties.

We will have today, I believe because of weather circumstances, four members of our committee participating by telephone: Robert Forney – do we want to confirm whether or not he's actually on line?

Mr. Forney:   Right here.

Mr. Seligman:   Okay. Bill Harts?

Mr. Harts:   Here.

Mr. Seligman:   Ed Joyce?

MR. EDWARD JOYCE:   Here.

Mr. Seligman:   Tom Joyce?

Mr. Thomas Joyce:   Here.

Mr. Seligman:   Very good. Welcome.

Mr. Thomas Joyce:   Thank you.

Mr. Seligman:   Let's tentatively mark for the next two meetings of the full Advisory Committee, March 1 and April 12. I anticipate we'll have at least two more meetings of the full Advisory Committee at some point during either late spring or the summer. I want to wait a bit to try to particularize the date on that.

A member of the committee asked for a memorandum to be prepared on the Advisory Committee Act itself, including a description of staff and budget. And it has been prepared and you'll find it at your seats.

There are a couple questions about our governance process, and by way of reiterating a little bit from our last meeting, this is an advisory committee, not a full Commission. We are engaged in, essentially, an effort of consensus building. Our processes will be somewhat less formal than the full Commission.

Be assured, though, that before any draft or final report – I should perhaps emphasize – final report is ultimately concluded, there will be circulation of drafts to all members of the committee. The rights of committee members to either dissent from any specific point or prepare accompanying or dissenting positions will be preserved.

The public, under the Advisory Act, has the ability to comment in writing or, indeed, to comment at the meeting itself. For those in the public who may wish to comment in writing, I will ask that copies of your comments be sent to Annette Nazareth, the director of Market Regulation at the Securities and Exchange Commission. I will be copied from those copies. I'll also note we now have a Web site – and I've circulated information on that – in which, at the least, transcripts of our meetings will be available.

At the conclusion of today's meeting, at approximately 5 o'clock, I will ask if any members of the public here wish to comment or pose questions, and we will have, today, up to 30 minutes for such comments, and we'll keep a reasonable period in future meetings.

It's worth emphasizing for everything, whether in the public or in some section of the industry, there will be not only the opportunity to comment on the work of this advisory committee, but any SEC proposals derivative of our work will be circulated in the normal comment process.

Our committee meetings, that is the Full Advisory Committee meetings, will be in Washington, D.C., here. There may be the creation of subcommittees after today's meeting. I'm not certain, as yet, where those will occur, nor the membership. But it's not inevitable that all subcommittees would meet in Washington, D.C.

Under the Advisory Act, the subcommittee meetings are not required to be open to the public, and I would suggest that there may be a practical advantage in not opening them to the public, having them have the opportunity sort of to let everyone let their hair down, conceivably, brainstorm in a way that's hard to do in the public. Any conclusions that a subcommittee reaches, will be presented to the full committee, and that will be a public process.

Now we start with a structure dealing with market information, that, as a practical matter, is derivative of Section 11A, which was added to the Securities and Exchange Act in 1975 –

Ms. Dwyer:   Excuse me, Dean Seligman. Can I interrupt you before we move on to substance?

Mr. Seligman:   Sure.

Ms. Dwyer:   I had requested that we put some governance issues on the agenda, and I thought maybe it would be good to have an opportunity to discuss those a bit before we move on.

I appreciate your attempting to structure how we will work and so forth, but I think it might be worth talking about who will have input as to what our conclusions are, whether we will operate by vote as we move in an orderly fashion through these issues that we've set up, who will do the drafting of the report, how we'll determine that, who will set up the subcommittees? It might be useful to have the entire group be aware of that process.

And in terms of subcommittees, I thought maybe we could discuss the merits of having private meetings on a topic of transparency. It might cast the wrong impression.

And I guess, finally – and anybody jump in here if you wish – I always think it's important if you're trying to undertake a large project, to work back from the deliverable and understand at the outset what the process will be to create that end product and start to schedule and plan that work now.

And so those are the things that I'm confused about, and about what resources are available to us, and who will staff this, and so forth. And I thought maybe we could more broadly share some views.

Mr. Seligman:   The memo I prepared focuses on the staff availability that was particularized in the charter we received. With respect to the subcommittees, they will be selected in the same fashion as the committee was, by me, in consultation with Division of Market Regulation.

Ms. Dwyer:   Is that necessarily how that should work? I mean I don't know if anybody else has any views. I'd be very interested in how subcommittees are constituted and what their mandates are.

Mr. Seligman:   Well, they have less of a mandate under the Advisory Committee Act, and there is some discretion. But let me put it in different terms, Carrie –

Ms. Dwyer:   It's only in the interest of consensus –

Mr. Seligman:   – and be very clear. We have a large mission. We have a limited period of time. We have limited staff resources. And, at some level, the most important part of the mission, as articulated by Chairman Levitt, in certainly his letters to me and his statement at the last meeting, is to see if we can build consensus.

Now transparency is well and good and, clearly, our efforts will be reflected in many different public ways throughout the process. But there are instances when one is trying to build consensus where it can be self-defeating. I think people are more willing to talk outside the box, more willing to think about new alternatives, sometimes in private. And it's in that spirit the subcommittees will be used.

There's a different aspect of the subcommittees, however, I want the emphasize, and that is there is a great deal of technical work that will have to be done before we can produce a document that not only speaks in grandeloquent generalizations about what we would like to do, but thinks in an effective way about mechanics, risks, costs, and so forth.

You asked about the drafting of the document. A first draft may be done by the SEC staff. It may be done by others on subcommittees. We'll see as it evolves.

I don't want to restrict how this process can evolve too much at the outset. I think we're still feeling our way, to some degree, and this is tough stuff, to put it very simply. What I am going to insist upon is that when we get to documents which reflect whether it's subcommittee conclusions or tentative conclusions or permanent conclusions of this Advisory Committee, they will be accessible to the public, available certainly for written comment. We now have the Web site, which means it can go far beyond those of us who are in the room and we're able to make our connections for today.

I will also submit you made a point at the last meeting – I think implicitly in an e-mail you sent to me – that you're concerned about the ability of retail investors and others in the investment community to participate. Part of the reason that this committee has such disparate membership is that you, in effect, are representatives of different constituencies. If you, for example, in your position at Schwab – or I can pick any other name in the room – wanted to, in some way, aggregate information and make it available to the committee, that certainly would be fine.

But at a different level, we mustn't lose sight of the fact we're asked to complete a report by September 15th of next year. We're still at a very preliminary question today. I mean the question, in effect, is, are we going to be focussing on two models or one? It's a fundamental question, to be sure.

I am concerned that to the extent we add more procedural hoops, more opportunities for town meetings, or what have you, that schedule would simply be impossible, given the resources available to us.

Ms. Dwyer:   Well, I think in terms of publicizing our work or having meetings, I suggested several alternatives for getting broader input from other firms, as well as the public. I would think publicizing that we are seeking comment, perhaps on the Web site, might be a good idea. I would ask whether there is any problem under the Advisory Act, if, for instance, Schwab were to link its customers to this Web site. I don't know whether that violates any contribution restrictions? no? But I think the committee itself –

Mr. Seligman:   Don't pay us anything.

Ms. Dwyer:   Hmm?

Mr. Seligman:   Don't pay us anything.

Ms. Dwyer:   Well, the provision of services –

Mr. Seligman:   Yes.

Ms. Dwyer:   – can sometimes run you afoul of this act.

But I think in terms of the subcommittees, the work, I'm not trying to slow this down. If anything, I'm trying to understand where our deadlines are and how soon we have to meet them, because we actually don't have very much time to complete a very difficult task. We're already a couple of months into it. In terms of subcommittees, it may be useful for there to be subcommittees. I, again, would urge that we not hide them in the dark.

I would think that everyone here would like the opportunity to know of the creation of any subcommittee and the opportunity to serve on it. So I would – you know, I don't know if anybody disagrees here, but I would ask that this committee be given that opportunity, as well as an opportunity to participate in the drafting process. If we have a drafting subcommittee, that would be something some of us would like to participate in.

Mr. Ketchum:   I do think there's – well, I think you need a good deal of discretion to be able to move this process forward if we're going to meet the date. I think there's much in what Carrie is saying. I believe we ought to, as a committee, look at concerted ways of ensuring that there's clear publication and focus from both an industry and investor standpoint, if they wanted to provide their views.

I, as well, would like to understand a little bit more of the schedule. I think subcommittees – I agree with you – are probably critical. I have no problem with some of their meetings being separate and private. I think that the results of those meetings and the summary and conclusions ought to become public at some point, and they ought to be shooting – moving towards a public environment to discuss.

I guess the other piece is, if the committee is going to be a success from a collegiality standpoint, I'm uncomfortable about subcommittees in which if there are people on the committee interested in participating on, that they can't. And if the result of that is that the committee wants to operate, on the whole, on an issue because everyone wants to participate, then I think I'm uncomfortable about excluding people on it.

And I do think that this is – that the issues here are both important from a public interest standpoint and from commercial standpoint levels. They are pretty significant and I think will increase the likelihood of acceptance of the conclusions, as well as the likelihood of reaching some merged agreement if we have as good an understanding as possible about that, and we're able to give you any support you need between now and March, to make sure we're pretty far down the road in outlining things at that point.

Mr. Forney:   Mr. Chairman, this is Bob Forney in Chicago.

For the benefit of those of us on remote connection, would you please ask the speakers to identify themselves?

Mr. Seligman:   Sure. And for your background, the first speaker, other than myself, was Carrie Dwyer of Charles Schwab. The second speaker, other than myself, was Rich Ketchum of the NASD. Let me concur with the –

Mr. Ketchum:   NASDAQ.

Mr. Seligman:   Excuse me, the NASDAQ.

Let me concur with the serious points first. Clearly, the results of any subcommittee efforts will be reduced to writing, shared publicly, not only with this committee, but we'll do it in a way that's accessible more broadly. I understand these are serious issues.

Second, there's been no determination to form any subcommittee at this point. I have been a law school dean long enough to know I never turn down a volunteer. And the big issue at the end of the day, or maybe in the next few days, will be, should we form subcommittees? How should they be – who should be on them? And we'll see if there's a way we can be as inclusive as possible. Clearly, if there are subcommittees formed, they will be meeting before March 1st. They may be meeting a number of times.

And let me take under advisement the mechanics of how this is done. But I've heard from Carrie, in a number of ways, from Rick, a couple of themes that I think are very, very important. We will make clear that our ultimate and interim written record will be fully shared, not only with the committee, but accessible to the public.

With subcommittees, if they are formed, I will certainly give opportunity for those who wish to serve on them. I think at the end of the day I'll try to give you a preliminary sense of what my thinking is after we've had our discussion.

With respect to who will draft the report, I'm starting with the assumption that a first draft may come from the SEC staff, but I want to be very, very clear that this will be circulated among all of you. As has been my custom in other context, sometimes you can make real progress on drafts through kind of a round robin circulation process, rather than through voting line by line.

And I have learned through painful experience, you can't draft on the floor. And one of the advantages of a subcommittee having the opportunity to look over and over again a draft before it goes to the committee is you work out technical problems in a way that is sometimes harder to do in full meetings.

Does that help with the points you've raised?

Ms. Dwyer:   That's really helpful, and I think we'll probably have a series of governance issues as we go along and discover how this process is going to work.

I just had one other question, at the risk of delaying really getting on to work, that I wanted to direct to the SEC staff, to Annette and Bob. And that is, I'm really glad to see we have the Web site up. If a public investor wanted to see all of the submissions that have been made and will be made, they would see them on the Web site at this point? That's how they get access to this information? Or how are we going to handle that?

Ms. Nazareth:   They are not currently on the Web site.

Ms. Dwyer:   Since we submitted them –

Ms. Nazareth:   If we have a request to put them on the Web site –

Ms. Dwyer:   I'd love for ours to be. We submitted them electronically, so it should be, I would think, fairly easy to do.

Mr. Seligman:   I would like that, as well. And certainly the first meeting, the second meeting, not only the transcripts, but the submissions which are going to frequently be referred to in the transcript would be useful.

Ms. Nazareth:   We could do that. That's not currently the case, but we could do it.

Mr. Seligman:   As well as the agenda and so on.

Ms. Nazareth:   Right.

Mr. Seligman:   Well, let me, somewhat briskly at this point, turn to substance.

We start with, again, a context which focuses on Section 11A of the Securities and Exchange Act, essentially the 1975 Act amendments. The SEC, more or less since the enactment, has focussed on a series of clear themes. They've focussed on transparency of quotes and trades. Second, they've focused on dissemination of consolidated best bid and offer now captured, at least in certain equity contexts, in the NBBO. They've focussed on workable models for disseminating market information.

We are now in a world which has changed in so many fundamental and practical senses that the model has been called into question. We see new forms of competition suggested by the ECNs, new forms of technology, and you'll hear lots of references to that today. We are evolving very rapidly into a new age of decimalization, which has enormous consequences for what we can do in terms of this type of market information.

From the perspective of this committee, we've been asked to provide advice to the SEC, as to where we should be going into the foreseeable future. We are not bound to limit ourselves to existing statutory context. We can make proposals, if we deem best, as to how the Securities Exchange Act or other relevant laws should be amended. We are not bound by existing rules. We can make proposals with respect to rules.

I have suggested at the last meeting, and we'll focus at today's meeting, on equities rather than options. There are problems in the options markets which are particularly unique and particularly significant at the moment, dealing with capacity, dealing with the lack of an NBBO, and there is an effort at the moment to address particularly the capacity problem, which I think if we wait to see how that plays out, will be of significant benefit to our committee.

I will highlight, going back, I guess, to process. I do think it is the ambition of this committee when we prepare a report to think hard through not just what our ends or what our concepts should be, but mechanics, costs, risks, benefits.

I looked upon the various proposals that came today as really useful for triggering a discussion that we will have today on one pivotal question, which is, should it be the ambition of this committee to take the existing model in the equity world and make a series of proposals to improve it, or should it be the ambition of this committee to proceed on two different models: one, a new model that would not have the kind of mandatory consolidation that the current CTA CQ model has. Another, in effect, one that would focus on improving this particular model.

What I'd like to do for today's discussion is to give, literally in the order by which proposals arrived, the New York Stock Exchange, Reuters, Schwab, Datek, and Archipelago, up to 10 minutes to focus on an explanation of their models, particularly focusing on why they believe they would be better than the existing schemes.

The SEC is then going to comment for about 10 minutes. And in an hour or fewer, after those presentations, what I'd like to do is then go through and allow all of the members of the committee an opportunity to question the proponents of the various models, again starting with New York.

We'll take a break about 3 o'clock for about 10 minutes. My ambition would be that about 4:30, I'd like to go around the room and not so much in terms of a formal vote, but in terms of a kind of articulation of views, ask each of you your sense as to whether or not we should be proceeding on dual tracks, that is an alternative to our current model and reforming our current model, or on one track, that is just reforming our current model. I'll allow the public to comment on that at about 5 o'clock. Then, somewhere between 5:15 and 5:30, I'll have a few wrap-up remarks.

My sense is this is a fundamental question we're posing. It is not easy to work through the mechanics of how we would improve the current model. To work on an alternative one is a different and greater ambition. There's nothing that precludes us at the end of the day from following the type of approach that, in a different context, the O'Malley Committee offered with respect to the audit committee function, where on the most pivotal issues of accountants' independence, the committee was divided and they had alternative presentations. And it may be that's where we'll come out.

The key, though, is, whether we have one presentation or alternative ones, I think it's important they be rigorous. I think it's important, and we serve the SEC best, if we don't just proceed at the level of principles and generalizations, but we really work through the mechanics and costs and risks.

With that said, let me turn to Bob Britz, who will be representing the New York Stock Exchange, for about a 10 minute articulation of their model.

Mr. Britz:   Thank you, Dean Seligman. I sense we may have already gotten ourselves into a little bit of a time hole here, and I'll do my best to make a contribution to get us out of that.

I also sense that my slides were so well received last time, that I shall go slideless, with one possible exception today, depending upon questions. And I'll make an assumption that the committee members have read the submission on the part of the New York Stock Exchange, so I won't reread that to you here this afternoon.

I thought it might be helpful to do a sort of a color commentary of what underlies the various positions we put forth and the models we put forth. And I think that's really helpful to get a clear understanding of what the New York is trying to do and what it is not calling for. And I think first and foremost the NYSE – and I think we did say this in the letter – is not proposing a new model for market data for the entirety of the securities industry. That would be presumptuous and well beyond our ambition to exit CTA. We're frankly not proposing any model, not even those that we have imagined might come into place on the heels of the NYSE and perhaps other markets exiting CTA.

The only thing we have the authority to propose is that the New York Stock Exchange withdraw from the Consolidated Tape Association, that authority having been given to us by our board, as soon as is practical.

And we understand that we have a burden in that regard. We have to explain certainly to the Securities and Exchange Commission – and I assume by extension to this committee – how we on the one hand withdraw from the existing consolidation mechanism and on the other hand continue to meet our own statutory requirements vis-a-vis consolidation and dissemination of information.

I repeat we are not calling for the abolition of CTA. One perfectly acceptable scenario is that in fact, the NYSE does withdraw and other participants would then – CT/CQ continue to bond together, as it were. And that organization goes forward exactly – or not exactly – but almost exactly as it exists today.

Others will decide the future of the Consolidated Tape Association. They may decide it continues with the New York exiting. Or they may decide it after. And when I say others, that may be the participants themselves, that may be the Securities and Exchange Commission. That may be the Department of Justice. It's frankly not for the New York Stock Exchange.

I simply wanted to make very clear that we are not calling for the abolition of CTA. We are not trying to impose an NYSE-centered model on the rest of the industry. Let's be clear about what our board did earlier this year. It authorized us to withdraw from the Consolidated Tape Association and we intend to do that. And we intend to do that without asking for any relief of our statutory obligations. We believe we can do it and continue to comply with those obligations and essentially if we've – if we've authored that submission reasonably well, we showed exactly what we mean by that.

If the New York – or I should say, when the New York withdraws from the Consolidated Tape Association, if that is all that happens, as a result of this proceeding and others, and you hold everything else constant, there's no question but that – in our minds – but that we can meet our statutory obligations.

And there's no question that there will not be any sort of crisis in market data dissemination and consolidation. Now, it's not for us to say that you can hold everything else constant. It may very well be – as we said in our letter, that we indirectly create a template and other markets choose to either embrace that template and do something similar. Or withdraw and do something different, but something different that again would be – would comport with the statute and would garner SEC approval.

But it's not terribly difficult to imagine that if the only thing that were to happen here was that the New York Stock Exchange withdrew from the Consolidated Tape Association that there would be a very slight difference in the market data model that exists today. I repeat we can't predict that everything will be held constant.

And I speak for no other market than the New York Stock Exchange. So hopefully that clarifies exactly what it is we're trying to do here. Nothing more than what we believe is our right under the plans to withdraw and what we know is our burden to prove that we will comply with dissemination and consolidation requirements.

I would also take a moment or two to try to talk about why. I will tell you that this was not an arbitrary, precipitous decision. It's really something that has been developing over the last several years. And it's – I think it has been perceived as a proactive decision on the part of the New York Stock Exchange.

And I guess, maybe on one level, that's true. But it really is very much reactive to the sort of events and the tea leaves as we see them over the last several years. A surprise to no one in this room – CTA, rightly or wrongly, has become a magnet for noise, for criticism as a so-called single-source monopoly over the last several years.

You know when that noise comes from a firm and it's rhetoric and has to do with business interests of that firm, that's one thing. When the criticism comes from our regulator in the form of the reference to the problem with – a problem with market data is that there is a single source monopoly – that kind of statement gets the New York Stock Exchange's attention.

When the SEC then believes – or at least questions that the problem may be so severe that they need to go to the process of concept release in order to get proposals on the problem and possible solutions to that problem, that too gets our attention.

Certainly when the SEC takes the extraordinary step to create a committee like this to grapple with the problems of CTA and market data, that doesn't go unnoticed by the New York Stock Exchange.

We also notice the SEC's representatives around the CTA table at the meetings becoming increasingly uncomfortable with the kinds of joint discussions and the subjects of those joint discussions – increasingly over the last couple of years.

We also notice our fellow participants in CTA arriving at CTA meetings, which never used to be the case, with outside counsel in tow. We need ever-expanding rooms in order to accommodate Consolidated Tape Association meetings, increasingly over the last couple of years.

We took note of what the SEC and the Department of Justice have done vis-a-vis the options markets in terms of how they may and may not act jointly. One example being in terms of the provision of capacity planning, which is something routinely done around the Consolidated Tape Association and has always occurred to us to be a cooperative and necessary and reasonable exercise and relatively harmless given that, among other things, what the CTA participants do around that table is set prices.

I've run out – I've run out.

Dean Seligman:   No – if we're going to hold to the 10 minutes, you've got about three minutes.

Mr. Britz:   That's fine, sorry.

Dean Seligman:   I wanted to give you some warning.

Mr. Britz:   Right. So anyway, fine, I'll make that long story short. The point I'm trying to make is that the NYSE as one participant within CTA has become increasingly uncomfortable. If there ever was a risk-reward ratio that the NYSE deemed favorable associated with CTA, clearly it has titles on the unfavorable side. And we are increasingly being part of this organization given the sort of laundry list that I just went through with you.

Again, I suggest to you that the NYSE offers no particular model. We were just trying to share with you what the world could look like following our withdrawal. But Dean Seligman asked me – and I presume others – to sort of touch on why the world would be better, why one model over another would be more preferable.

And again, I don't know that it's our burden to say that any model is preferable. Our burden is to prove that we can meet our statutory requirements under a somewhat different model. But I'm willing to at least take a shot at one or two of the models that we've put forth in our letter as to the good impacts that might drop out of them.

And the first thing I would say is, number one, that all of what takes place in those models we sketched out is absolutely invisible to the consumer of the data. That is to say they continue to get their bid and their ask, whether they are the ultimate customer or whether they're an intermediary. They continue to get the size associated with that in the last sale and everything.

And frankly, all of the machinations that happens up above that – embodied in the models that we put forth in our submission are invisible.

Number two, I think, obviously it suggests a more competitive approach at the consolidation level. And I won't take up any of my time suggesting why competition is a good thing. It certainly should please those that think of CTA as, quote, "a single source monopoly".

The cost of consolidation and dissemination now will be under that model disciplined by the market. Again, I should think the competitive forces would think that's a good thing. Don't know but we guess the DOJ might prefer the model that we have indicated in our submission.

And while it doesn't – in and of itself – get to the cost of producing market data, right? We are at the collecting, consolidation and dissemination level. The production costs are embedded within the various market centers. It does for the first time embrace a competitive model vis-a-vis the pricing of that data, which at least starts us down that competitive road, which again, we think is probably a good thing.

I'm not sure whether I am on time – you got – I'm done?

Dean Seligman:   About – let's say time to wrap up in two or three good sentences.

Mr. Britz:   Okay, the only – let me take 30 seconds on that cost of production. The NYSE and other market centers are at the end of the day in the business of manufacturing securities prices and not very much else. Everything else we do is in support of that.

We tell the world on a moment-by-moment basis what a fine slice of the worldwide enterprise that's Exxon is worth – a single share. And the costs associated with the production of that data are very significant. I did have one slide, which perhaps in the Q&A I will come back and use, that shows you essentially the manufacturing process associated with creating – manufacturing and distribution – with creating securities prices.

I think it's important to recognize that within our model – although we have certainly introduced competitive disciplines at the consolidator level – and we think we've begun to introduce them vis-a-vis pricing at the market center production level – there's nothing in the model that changes the cost of production one way or the other.

I'll stop.

Dean Seligman:   Thanks, Bob. And we will come back for Q&A. Let me, though, get all the models out on the table. And let me turn to Mitchell Feuer, who is representing Reuters today.

Mr. Feuer:   Thank you,

Dean Seligman. And thank you for accommodating Reuters by allowing me to substitute for Tom Glocer and present our alternative model.

As many of you no doubt saw it was announced that Tom Glocer will succeed --

Dean Seligman:   Mitchell, I think you need to turn your mike on.

Mr. Feuer:   It was announced last week that Tom Glocer will succeed Peter Jones as chief executive of Reuters Group next July. And we are very excited for Tom Glocer and excited about what his leadership will mean for our entire company.

But as you can imagine that announcement has brought tremendous additional demands on his time, although he was planning to attend this session himself, these changed circumstances unfortunately rendered that impossible. Please do not interpret his absence today as any lack of enthusiasm on the part of Reuters for the important work of this committee. And again, I thank Dean Seligman, Annette Nazareth and all the members of the advisory committee for their understanding.

Before I describe some specifics of our proposal, I would like to set out our objectives in preparing the submission. Consistent with Dean Seligman's request at the last meeting, we did not try to set forth a comprehensive set of regulatory changes. Instead, we sought to outline a conceptual proposal that would help lead the committee to further discussion. We have not tried to answer every possible question raised by this model or by other alternative models.

Rather, we hope that our proposal will help answer the question that is at the heart of the agenda prepared for today's meeting, the question articulated earlier by Dean Seligman, namely: Should the committee proceed to attempt to develop an alternative model for disseminating market information?

And I don't think I'll be spoiling any mystery when I say now that we hope the answer will be: Yes, the committee should.

Before I give an overview of the Reuters proposal I would like to say a few words about some common ground that we see running through all the proposals that were submitted today. All the proposals point to technological changes and market forces as sufficient to ensure that investors continue to receive reliable, relevant, real-time market information.

All the proposals envision a change from a single monopoly consolidator for each segment of equities market data to a system of competing consolidators. It's fitting that Reuters' turn to present its proposal falls in the middle of the presentations because in some ways our proposal itself falls in the middle of the proposals.

As I've said all the proposals envision a system of competing data consolidators. We did not suggest the retention of any mandatory or exclusive processor that would enjoy a favored position in relation to other competing processors.

On the other hand, we did not determine that the time has already come to end the requirement that investors receive consolidated information. And there I might point out, Dean Seligman, I think that I heard you assume that a new model would not have mandatory consolidation. And I think that is an important and worthwhile issue for the committee to consider, but it's not axiomatic to us that an alternative model would not continue to ensure that investors receive consolidated information. And in fact, our model tried to build the element of consolidated information into it.

So if the proposals could be arranged along a continuum, the Reuters proposal would probably fall somewhere in the middle. In drafting this proposal, we tried to remain faithful to the policy goals articulated in the 1975 amendments: efficient trade execution, fair competition among market centers, and enhanced availability of market information.

As I have alluded to, we believe that technological advances in recent years call into question the current regulatory mechanisms for achieving those goals. These advances include growth in computing capability, rapid and continuous communications among market participants, and standard communications protocols.

In short, we believe that network technologies offer better opportunities to collect and disseminate market data – opportunities that cannot be realized under the current mainframe regulatory model.

The heart of our alternative model is one that – as I've said is common to all the proposals – multiple, competing entities could act as market data consolidators, instead of single monopoly consolidators. Subscribers would be free to purchase market data from any consolidator, taking into account factors such as quality, speed, additional features, and cost.

We propose that any entity seeking to act as a consolidator could be required to meet certain minimum standards. Consolidators would be required to disseminate consolidated information meeting minimum requirements set by the SEC, such as last sale and best bid and offer quotation reporting.

Each broker-dealer would have an obligation to submit transaction and quotation information to at least one consolidator. Broker-dealers would be free to negotiate the most favorable terms available from any consolidator. This gives an advantage to consolidators operating systems that are more efficient or more attractive to subscribers.

And we believe these advantages would translate in turn into lower costs and better service for subscribers. Each consolidator could be required to make market data available to competing consolidators on nondiscriminatory terms. For example, it could be required – a consolidator could be required to provide their data to competing consolidators on terms no less favorable than those on which it sells it to subscribers.

Consolidators would be free to offer data and services beyond the regulatory minimum. By the same token, investors should have greater flexibility to manage their systems and choose the information they wish to receive.

We see two principal features in this model. First, the obligation of each consolidator to provide competitors with nondiscriminatory access to market data and, second, the freedom of both broker-dealers submitting data and subscribers receiving data to choose among competing consolidators.

These features are intended to ensure that investors continue to receive consolidated data, meeting minimum requirements – set by the Commission – that incentives are in place for innovation and efficiencies in the provision of data, that securities regulators are freed from performing rate reviews of monopoly processors, and that investors have greater choice in meeting their needs for information.

So to answer your last question, Dean Seligman, those are the advantages that we see in this proposal, that we believe it could be less costly, more innovative and more responsive than the current model. We hope this proposal and, in fact, all the proposals taken together point the committee toward issues deserving of further exploration.

We believe that the intellectual and other resources represented on this committee and at the SEC are up to the task of developing an alternative model for consolidating and disseminating market information, an alternative model that takes advantage of the changes that have occurred since the current model was put in place. And we are eager to work with our fellow committee members and with the SEC in that endeavor.

Mr. Seligman:   Thank you. Representing Charles Schwab, Carrie Dwyer.

Ms. Dwyer:   Thank you, Dean.

We find it fascinating that we received five submissions from participants representing each of the key market segments – retail brokerage, vendors, ECNs, and a traditional exchange, and the submissions reflect a common agreement that the existing system should be replaced with a more competitive market-driven model, not a particular model in any of the cases, but flexible, guided by principles.

I think that's an extraordinary fact. We didn't receive a submission from anybody who felt differently.

Our letter – I'm not going to describe our letter. You've all read it, I'm sure, and it's something we've said many times before.

We didn't attempt to define a structure, but rather, set forth principles that should govern the development of a new structure. This is consistent with the very best way that the securities market has been regulated in the past by establishing broad goals and then allowing different means of meeting it.

Our principles were that competition and market discipline, incent innovation, and drive efficiency, fair pricing, and shares a level playing field among all market participants, fair competition and balanced governance, prevent overreaching and undue advantage, and a minimal administrative burden and maximum technological efficiency and resilience.

Those are, to us, key principles. You could say them many different ways, and I assume if this goes forward in terms of some concrete proposal, it will be put in some sort of statutory or rule language.

The submissions all contained some of the same compelling ideas: that instilling competition prods innovation, rationalizes pricing, and avoids the need for SEC rate-making.

Our letter raised the need, and so did others, for independent and balanced governance of the consolidation function and a competitive networked model that would avoid a single point of failure and build in badly needed capacity and redundancy. This is constant across all of these.

There were differences in the submissions, and we'll disagree about many things as we go down the line, but all of the submissions were strikingly similar on these points.

Within this set of five submissions, we see also wide recognition of the failure of the current structure, no endorsement of the status quo, so I would postulate that there must be some disagreement here.

Let me say that, rather than use my 10 minutes re-reading to you what we wrote, I might cede my time to someone who wants to be the defender of the status quo and believes that we should be, instead, thinking about simply tinkering with the current model.

If there's anybody here, I'm glad to give you my time.

Mr. Seligman:   Carrie, if you don't take your 10 minutes, I assure you, the time will be put to good use.

Ms. Dwyer:   Okay. So be it. Speak up or forever hold your peace.

Mr. Seligman:   Thank you, Carrie. Let me turn to Ed Nicoll, representing Datek.

Mr. Nicoll:   Thank you. Thank you for allowing us to submit our proposal.

I, too, am not going to use my 10 minutes solely for the purposes of hearing myself speak. I think that we obviously proposed a market-driven model, probably more so than some of the others, but I would agree also with Carrie, that there is an awful lot of agreement across these five proposals.

One of the things that we – perhaps a point of disagreement is the need to mandate consolidation of data. We took what I guess would be regarded as a more radical view in that regard, and I would hope that that is a subject that we would address sort of post-haste.

It is one of the areas of disagreement among the five. I don't think anybody really stretched or sketched out a system that, you know, that is not flexible.

I think all five of these proposals are very broad and driven by principle and by notions about how to get to where we want to – you know, where we want to go, rather than to seek to specify a detailed model at this stage.

We thought about this a lot before submitting it, and we came to the conclusion that there was no longer any need to mandate, at the level of the consolidator, a consolidated quote.

We're not sure that there isn't the need to impose, you know, regulatory mandates at other levels of quote dissemination, but we're not quite sure that that is necessary at the point of the securities industry processor or at the point of the consolidator.

We think that markets will result in, and that competition will result in consolidated data, in fact, a whole host of different kinds of data, but that there will be no shortage of consolidated data available to broker dealers, for instance, to meet their requirements to display the national best bids and offers to their customers if that is where the regulatory burden is placed.

We don't have an opinion in this submission about whether that burden is needed and about at what point it should be placed.

I just wanted to point out that our conclusion that a mandated consolidator, a regulatory mandate for a consolidator is not necessary at that level, and we believe that a better result comes from allowing various players to publish data in various ways and make that data available in the way that the market desires, and that you'll have, through the disciplines of the marketplace, a better mix of information and more valuable information delivered as a result of allowing various players to compete and allowing them to do so without creating a single notion of what the best bid and offer is at any one moment on any one quoted security.

We think that there has been a lot of innovation which has – you know, which we have foregone over the last 10 years, as we think about this, as a result of the present regulatory structure, that many people deliver data which is nominally in accord with the regulatory structure being defined by the national best bid and offer, which in fact does not reflect what amounts to the national best bid and offer at any one time.

What we have concluded is that the markets would do a better job at delivering more useful information than any notion that is promulgated by the SEC or any other regulatory body about what's useful to investors.

So we thought about it hard, we debated it internally, and we came down on the side of a market-based solution to this, but we're clearly here to discuss it and to learn from each other and perhaps, you know, we're open to others' points of view on this matter.

I, too, would reserve the rest of my time. It's not necessary to go through the proposal. I think it speaks for itself.

Mr. Seligman:   Thank you, Ed. Gerald Putnam, representing Archipelago.

Mr. Putnam:   Thank you for giving us the opportunity to present a model. I actually would like to go through ours, certainly not in great detail, but an overview of our vision for a modern NMS.

First, I would like to say that, you know, reading the other four submissions, we were surprised that our plan was actually the most conservative of the group.

For the record, we haven't lost our minds at Archipelago. We have never been for incremental change.

It's just that in this case, we think that, given where we are in the marketplace, that we need to have a transition period which would allow some of the other exchanges an opportunity to alter their business models, the fear being that if you just cut the system off the way it works today, that you will smother several of the competitors.

Our model certainly calls for vigorous competition, and we would hope that we wouldn't kill a couple of regional exchanges in the process of cutting them off from market data revenue.

My overview will discuss two things: one, the guiding principles behind our plan, and second, some of the details.

First, the guiding principles:

Number one on the list, transparent information; neutral control and a workable governing structure; effective regulation; open participation; and incentive-driven IT deployment are central to those principles.

Transparent information:

We've envisioned extending the exclusive SIP, so keeping an operator in place that would provide the basic information that we think is required, which is typified by the best bid and offer from each marketplace, and last sale information.

That will assure consolidation of information until competition makes the ESIP, or this exclusive SIP unnecessary.

Then we would allow competitive information aggregators into the marketplace.

Those independents could contract competitively with each market center or a market center could become a competitive information aggregator, and they would be free to go beyond the current limitations of the type of file that we have today and start to display things like depth of book, value added information.

A linkage system provided by the exclusive SIP and competitors that would be open to anyone who can run a line into the competitive SIP or into the exclusive SIP, and we think the benefit there is that we would certainly eliminate single points of failure.

Neutral control and a workable governing structure:

We imagine a governing committee that oversees a national market system with a majority voting structure as opposed to what we have today with a single veto structure.

The ESIP, or exclusive SIP would be funded by the members of that governing committee. As competition takes hold, we would love to see the exclusive SIP wither on the vine and die. It would be replaced by the competitive SIPs.

We imagine that this governing committee would make two types of decisions.

One would be business decisions, and there we're talking about the selection of an IT provider, pricing, that sort of thing, and we think representatives from all market segments should have a voice in those business decisions.

Secondly, regulatory decisions, so oversight of inter-market interactions. We believe that the current model where SROs enforce rules involving those linkages is critical to maintaining a fair and orderly marketplace, so we would imagine keeping that intact.

Effective regulation:

SRO participants create minimalist rule structures, and here we would – you know, that's dealing with things like decimals, order delivery, trade-throughs, priority schemes, that sort of thing, if we decide that we're going to have price time priority across marketplaces, across the marketplace, then that group would be there to enforce how the SROs are there to enforce those rules.

Relevant SEC rules also apply, so things like the firm quote rule and last sale reporting are covered in this scheme. SRO participants enforce the rules with SEC oversight.

As an alternative, we've suggested that the committee could contract with a single independent – the key is independent – SRO that could provide that inter-market oversight.

Next, open participation:

All trading venues are free to link directly to the NMS, choosing their own method to get there, some minimum standards for what sort of, you know, speed and price reporting we think is required. All trading venues would receive quote attribution in the ESIP.

The non-SRO trading venues, we see them contracting with competitive SROs as a way of gaining access to the national market system. We actually think that that's necessary.

If we're going to have the SROs enforcing rules within the market center, the non-SROs would need to come under them in order to accomplish the oversight that we think is required.

Finally, incentive-driven IT deployment:

The governing committee has an opportunity to oversee the technology implementation again with all market participants having a voice in how we build the system.

The committee would solicit competitive bids for the exclusive SIP and they would select that technology on the basis of value, and they would be there, the committee would be there to reevaluate performance of the technology of the ESIP on a regular basis.

So I'll finish with that.

Mr. Seligman:   Thank you, Gerald.

Let me turn to Annette, and in turning to Annette Nazareth, I think it's well to keep in mind the question that Carrie posed: do we have a defender of the current system in the room?

It might be worthwhile focusing to some degree on what you would see as the merits of what we have.

Ms. Nazareth:   The defender of the current system?

I thought it would be helpful to at least give you a bit of an overview of what our concerns are, and perhaps betray some biases, although I hope that I don't betray an inclination to just retain the status quo in all of its glory, so I thought it would be helpful to sort of frame what our concerns are.

As you know, the Commission is obligated, at least currently, under Section 11A of the Exchange Act, to facilitate the establishment of a national market system for securities that, among other things, makes quotation and transaction information widely available to brokers and dealers, and the extent to which a model for disseminating market information promotes the transparency of quote and trade information would be of great significance to the Commission in evaluating a model.

When market participants have ready access to real-time securities prices from all markets, they are better able to make informed decisions and to obtain the best price, and from a broader perspective, widespread transparency makes the price discovery process work more efficiently.

In addition, the extent to which a model leads to the consolidation of market information would be a key consideration in the Commission's assessment of a model's merits.

While it is evident from the alternative model submissions that there is some divergence of views, obviously, on the continued necessity of fully consolidated market information, I believe that we should all think very hard before we recommend a retreat from this fundamental element of our national market system.

To truly maximize the opportunities for best execution and efficient price discovery, not only must quotation and transaction information from each market be accessible to investors, but complete information must be available in one place.

Congress made clear when it adopted the '75 amendments that one of the paramount objectives of the national market system is the centralization of all buying and selling interest.

In this way, each investor has the opportunity for the best possible execution of his order regardless of where in the system it originates. And a consolidated best bid and offer, at a minimum, is necessary for market participants to effectively price limit orders and to evaluate best execution.

So we look forward to hearing and continuing to hear of your views on the merits of consolidation, but you should obviously be aware that the Commission's historical inclination, which was certainly buttressed by its congressional mandate, was to adopt a model that provided for some form of mandatory consolidation.

Finally, the Commission must be satisfied that any model for disseminating market information is workable. In other words, the model must, as a practical matter, function efficiently and achieve its goals.

For example, the Commission is statutorily obligated to make sure that market information is available on fair and reasonable terms that are not unreasonably discriminatory.

Any viable model should generate market data fees that meet this standard in the ordinary course without regulatory intervention. In addition, the Commission would expect any model to produce a market data dissemination system that is technically sound.

Among other things, information systems should be secure, accurate, and reliable, and have sufficient capacity to handle the increasing volume of market data.

The purpose of giving you these comments was to give you some perspective on sort of the angle from which we are viewing these various models that have been proposed.

I thought it would be helpful to lay those out and to give you that framework so that you have some context for the questions that we will pose, and I think we will all obviously be free to pose questions. We have a number of them, and I guess I can start.

But I must tell you that one of the things that concerns me with all of the models is one that I guess we would have loved to have seen, sort of the panacea, the perfect model that seemed to take the Commission out of the role of having to regulate fees in some way.

And frankly, I don't think I see in any of these models, even the ones that purport to have market forces somehow protecting investors in such a way that these fees would be fair and reasonable, I don't see it working in any of these models.

I'll start with the stock exchange. I don't think that – I mean, you Bob, basically have said that your model isn't actually that different from the status quo. You see it as somewhat less different from the status quo than I think some of us probably read it as, but that's okay.

But basically –

Mr. Britz:   I meant to say in its simplest incarnation.

Ms. Nazareth:   In its simplest incarnation, with the rest of the world not shifting, as well.

That being the case, your model, if we can call it that, continues to rely on SEC oversight of the fees, and so obviously, we would have the same statutory standard.

You've gone on to say, though, that you're not part of the CTA, and in fact, you emphasized in your presentation today that basically, your main product at the New York Stock Exchange is producing prices, and that the cost associated with that production, with that product, is very high.

So what standard do you think, under your proposal, where we would be judging your fees by – how has this proposal in some way advanced the ball or extricated us from this very difficult process that we have of ensuring that investors receive market data information on fair and reasonable terms?

Mr. Britz:   I'm not at all sure that it's relieved you of that obligation, or I've done it. That was not our intent, necessarily. In fact, almost quite the opposite.

We saw the burden of proof on us to be how do we withdraw, on the one hand, yet how do we comply with all of the relevant rules of the SEC, and statutes, exactly as they exist, on the other hand?

So we very deliberately did not attempt to rewrite the rules or rewrite the law.

Having said that, clearly at the consolidator level, I did suggest that for those who were concerned that this was a revolution in market data, I did suggest in its simplest incarnation, it's only somewhat different than the model today.

I also suggested or meant to that you could have a ripple effect here and it might look very different to the point where you have any number of competing consolidators, and at that point – and we frankly don't think there ought to be delay to get to that model, but again, that's not for us to say, that's for potential competing consolidators.

And it's also for other current CTA participants to sort of vote with their feet to decide what it is they want to do on the heels of New York having withdrawn.

But if the egg does get unscrambled on account of New York having withdrawn, also on account of other market participants wanting to do something similar, you're then left at the consolidation level potentially with any number of people being in this business.

I won't speak for vendors sitting around this table, but I shouldn't think it would be a terribly difficult exercise to add the consolidation function to their embedded infrastructure today. I wouldn't think it very costly to be a self-consolidator.

So at that point, you would have market discipline on the costs and the pricing of a consolidated product.

Again, I don't want to speak for what you ought to do vis-a-vis regulating fair and reasonable but you've gone from a monolithic kind of model with a single consolidator to commercial businesses being in the – performing that consolidation function with the market discipline that that represents vis-a-vis the prices.

I also said that New York, in this brave new world where it is no longer part of CTA, would in fact, of necessity, have to introduce a New York pricing schedule to consolidators of any type who are interested in the New York feed.

That, in and of itself, doesn't change my production cost, to be sure. It may very well change the prices associated with the New York Stock Exchange, but again, that is also subject to the process that exists today, in fact not at all different, vetting with individual firms, vetting with industry trade organizations, vetting with the New York Stock Exchange finance committee of its board, composed very significantly of broker dealers who are consumers of this data with the board itself at the CTA level filed with the SEC for your views and ultimately subject to public comment – so, no difference.

Mr. Seligman:   Bob, let me, if I could – this is one of many crucial points we'll work through.

But I hear you saying, in effect, that while the New York Stock Exchange wants to withdraw from the CTA/CQ, the prices at which it would make its data available to competing consolidators would be ultimately subject to some form of SEC rate regulation, if I have that right.

Mr. Britz:   Precisely as it exists today, because it was never our objective to try and rewrite that section of the '34 Act.

Ms. Dwyer:   Could I just add one comment that is somewhat in aid of Bob here, surprisingly? Because we thought his suggestion was pretty constructive because there will also be another factor that affects the New York Stock Exchange's single feed fee and that would be competition.

Because there are already products out there in the markets that are derivative of New York pricing, folks who have to meet New York prices to offer best execution and so forth – some of them are sitting around this table – there is a one-to-one correlation between the market data that they can put out and what you would have on the New York Stock Exchange.

So combining all the feeds together, as we do today, is one way to achieve that. There are proxies out there that probably would be priced differently. And so some of that might play into this as well.

Mr. Seligman:   Carrie, I mean, by way of walking around the room with the five proponents for a moment, in the model or the concepts that you suggested in your correspondence and statements, would you envision the SEC performing the same role that Bob has just described? That is, ultimately, fees from the – or, rather, the SRO costs would be subject to some form of SEC overview and rate regulation? I was asking that of Carrie.

Ms. Dwyer:   Well, in our proposal, we attempted to take the Commission out of that role. It's been a very uncomfortable role for them. It's very difficult to do.

If you looked at our proposal, we rely on a couple of points. One was, among the principles we suggested, most favored nation pricing. If you're going to sell market data to anyone, you need to sell it to everyone at the same price and provide equal access.

To some extent, that would serve as a moderating factor on the most valuable data in the market, which is New York Stock Exchange's data, because they would have to charge all of their members, all of their customers, all vendors at the same rate. We also think, because of the introduction of competition, as I described a minute ago, that you would find that prices are naturally corrected by competition.

If the Commission – and we added this as an option – if the Commission decided that a utility needed to be in place to provide the current NBBO, then there is a stronger role for the Commission there. We think again they could set principles and guidelines and we think that should be cost-based, since we are obligated to furnish the data to New York Stock Exchange and other markets that don't create market data; it comes from somewhere.

And since we are regulatorily required to furnish it and then buy it back, as we've been saying for the last several years, we think that that function ought to be cost based. So, mixed answer.

Mr. Seligman:   Mitchell?

Mr. Feuer:   Well, we tried as well to get the SEC out of this monopoly rate review exercise. We tried to do that and we see that as one of the advantages of the model that we submitted.

And I think that principally there are two pieces that we built into the model that are intended to bring that about. First, we envision a requirement that each broker-dealer must provide transaction and top-of-book information to a consolidator.

Now, we would allow broker-dealers to try to structure those relationships on the commercial – on commercial terms, on the terms that make the most sense for each broker-dealer. But we would require – but there would be a ceiling upon what any broker-dealer could charge because each broker-dealer would have to strike a relationship with – a contractual relationship with at least one consolidator. And we think that ensures that no source of information can hold the entire market hostage. They would still have the obligation to report that information to someone.

And then, at the consolidator level, we agree with what's been said to my right on the panel, that having a system of competing consolidators – in our proposal, each would be offering consolidated data but, as I say, that's something that we certainly feel can be discussed. But that competition between the consolidators for the subscribers' business would also tend to – would tend to keep the costs of market data in check. And, indeed, we expect that you would see that the ultimate cost of market data would be reduced from the level that it occupies today.

I would say one other thing, which is that the relationships between broker-dealers and a consolidator to provide data, that could take many different forms. It could take the form of bartering individual – the broker-dealers' individual data in return for a stream of consolidated data. It could involve sharing the consolidators' stream of revenues attributable to that data and, so, again we think that building the flexibility into that relationship also would tend to provide broker-dealers with value in a way that would very likely reduce the costs of the data itself.

Mr. Seligman:   Okay. I turn to Ed.

Mr. Nicoll:   I take it the concern here is that we've got a model in which we've got consolidators competing so we are perhaps less concerned about the cost of consolidation. But there is still the issue of what the New York Stock Exchange itself is going to charge for its data. And since they are in the way of perhaps a monopoly, perhaps not – since they have such market power, that they need to be regulated because they would be in a position to exercise that market power, were they not regulated.

And your concern is, at least in Datek's proposal, certainly in others, that we have not gotten the Commission out of that business. We would argue otherwise. We would argue that the New York Stock Exchange, despite its position today, which one could argue resulted from privilege – you know, a privileged regulatory position in the past, will be disciplined by competition in terms of how much it can charge for its market data. And we would urge the Commission to consider that as a strong possibility.

I think a place like Island, for instance, would love to see the New York Stock Exchange overreach and charge too much for its data, okay, in order to allow us to charge less for our data and attract other people to our marketplace. And we would argue that the New York Stock Exchange would not be so foolish as to charge so much for its data that it would be risking its position as the place where providers of order flow go, that it is disciplined by the fact that it's got to attract that flow in order to produce – in order to publish the data and if it were to charge too much, that competitors would benefit from that.

So we think that there is, in fact – there are, in fact, potentially market forces in place to do a better job at disciplining the New York Stock Exchange than the current regulatory environment does.

Mr. Seligman:   I promise I'll open it up.

Gerald.

Mr. Putnam:   We think that our incremental approach will get the Commission exactly where it wants to be. That's why we took it. We were afraid that a shock to the system, one where you do have one exchange which dominates the market in listed securities having the ability to use that power to get – take competitors out of the marketplace, that we started with an incremental move from where we are today, we start to set up or allow competing SIPs to evolve that, over time – and not a long time. We've watched this happen in other marketplaces, we've watched it happen in our own. It won't take long for those competitors to emerge.

If, in fact, market information is not a natural monopoly, which we don't believe it is, competition will emerge. You'll find fair prices. New York can do exactly what it wants to do and go out on its own. And the SEC will come out of the ratemaking part of the business and open market forces will determine what we pay for market data.

Mr. Seligman:   Let me open it up. Let me just focus on this. I think this is a particularly significant point.

We have had five proposals which have proposed, in effect, we have some form of competitive dissemination of information, we no longer rely on what has been characterized as single source or monopolistic CTA/CQ. If we were to pursue that, we either could envision a plan under which, as is the case now, the SEC would have some ability to review the cost at which SROs and others provided data. Or we could rely on the market, have no SEC review, view this as in many other contexts, you simply assume that market forces will arrive at efficient prices.

I think Rick Ketchum was perhaps the first not only to indicate an interest in speaking on this but literally to physically grab me he was so interested –

Mr. Ketchum:   It's been an hour-and-a-half. Let me respond to that point or at least the points that run to the SEC. I sure would like a chance to talk about some of the other proposals and some of the implications too.

It seems to me there are two separate sets of issues. And I would start to say I'm going to disappoint Carrie to say that I also wouldn't speak for the status quo. I think that finding a means to have competition among exclusive processors is a good idea. Or, for that matter, among the providers of the information. And I think we should work hard at finding a way to do that. But I don't think it's quite as simple as any of the proposals have set out and let me walk through that.

There are essentially on just this issue two sets of assumptions that drive different directions on different issues. I think to add, in Datek's credit, they have taken a purely pro-competitive approach with respect to not calling for consolidated information. At that point, I think you can have the SEC step back from the standpoint of fee regulation. And I think Ed's points are correct, that whether it be NASDAQ, New York Stock Exchange and the ECN or anything else, that one would have to think long and hard about the price that one charged for data, vis-a-vis as well as every other price in competing in that environment.

The implication though, we shouldn't kid ourselves, which is will there be consolidated information available? Absolutely. There will be information available in any market that wants to move.

Will it be accessible easily in a single place? It's never happened before so I don't know why we should assume it's going to happen now. Whether it be the newspapers, whether it be with respect to any major vendor with limited access and capacity to be able to handle it and the rest, and different interests of their investors and how they operate, I think we have to assume that there will be with respect to most of the places that order routers and order executors look, there will be some data with respect to markets that matter from a pricing standpoint and not data with respect to markets that don't particularly matter or, in their conclusion, are not important enough.

So the Commission would need to reach the conclusion that that's okay and that the competitive implication of that is okay. If so, then I think you can move down the rest of the road fairly logically and I think we can all compete fairly effectively on this point, though I'd love to talk later on the issue of brokers providing data and a variety of other things.

So I think that's one rein and it does work from a pro-competitive standpoint and I think the proposal handles together. But I think we're kidding ourselves or at least we're ignoring every historical indication with respect to the provision of data so far here, in Europe or anywhere else, to assume that it's going to be easily accessible everywhere. And I think to some point, those are the points Jerry made and I think are fair.

The separate rein is a rein I think with people who are clearly trying to be less revolutionary from that standpoint and also recognize the standpoint of procompetitiveness and transparency. And that is to continue to include a consolidation requirement, I assume, at least at the level of the vendor that reaches out and touches both the public and the people who make order routing and order execution decisions.

One can run down that line and I think that the New York Stock Exchange did an excellent job of talking about the ways that it can be addressed reasonably while still encouraging competition and I think that on that point, Reuters provided a very innovative approach with respect to placing obligations however one views it on the consolidators to be accessible to at least one place. But I think they both – we ought to at least acknowledge that they're more difficult and we should spend more time as a committee on it than now.

From a New York Stock Exchange standpoint, if there is consolidated data, those markets that are the primary pricing markets continue to have substantial power. And if indeed every market has consolidated data required, it has substantial pricing power. And the only way for it to not result in an over 100 percent level is if, indeed, the board's governance is as immaculately effective as was suggested here, that no one tries to increase their prices, even though they've been given the opportunity from an almost unlimited pricing power standpoint. That could happen if those boards are that effective. I have great respect for boards but I'm not sure they always are.

If not, then I suggest the Commission has to be a much more aggressive rate regulator than you have been before, because you are going to see people with much more pricing power now and with a different balance than you have there.

Now, that may not be different than the pricing power that the CTA has and certainly we would be willing to live in that world. But I think we ought to at least spend some time thinking about the pricing power.

The Reuters approach, I think, is very innovative, putting aside the concept of brokers providing information separately, which I would love to address afterwards, and do not support, in suggesting a way to address that. I think, first, it has to be at the level of whoever is selling the data the first time. So anybody who can sell the data, whether it be broker an exchange, a facility of an association or a consolidator, has to be subject to the fact that their data has to be included in a consolidated print.

At that point, that does put us in the same – in the same box as a vendor, in that we both have to get to a point that we get agreement with somebody for that information. I think that's very clever and we ought to think more about it and it may well be the answer to this.

The down side that one has to look at, and I just haven't thought about it enough, is how many – if you all only have to find one, what is the potential for activity in which people, in order to maintain relationships, at least with respect to major players, go along, accept higher prices or work out things in an arrangement that then forces pricing on everyone else in that type of environment? I don't know. I think it's an interesting approach. But I guess I'd point out that as the one risk of it and I'll stop there.

Mr. Seligman:   I think I saw Eric?

Mr. Roiter:   All of the proposals that have been put forward, I think, are very thoughtful. And I think that to the extent that each proponent is looking out for its own self-interest is fine, as long as that self-interest is linked to competition and the interplay of market forces. And if they think you can prosper when you really have a true interplay of market forces, then I think everybody can be the winner.

I wonder at one level whether we're confusing two different basic categories of market data? All the proposals tend to lump last sale data and quotations together. And I think some of the models that speak in terms of having multiple consolidators and giving participants in the market the freedom to choose to whom to give their data, that may work better for quotations than last sale data, at least where you have two unrelated parties entering into transactions. And it's not clear to me, for example, how you get away from the fact that, to the extent that 85 percent of the trading volume in New York listed securities happens on the New York Stock Exchange, how you could come up with a model where individual brokers would decide that they're going to sell or turn to a single – one of several multiple consolidators to give that data to and not to others.

So I think as we think through some of the implications of these proposals, it might be worthwhile to try to address separately what they mean for last sale data and what they mean for quotations and depth of book.

I think any reference to what history has taught us about how data has been made available or how imperfectly that data has been made available is of dubious relevance here in the twenty-first century in an Internet age. I think that we've never had at our disposal the technology through the Internet and other advanced communications facilities that make it practical to provide data on a real time basis through networks in a decentralized way.

And part of this, I think, depends on whether you think you have to think in terms of a push system or a pull system. Now the question I have is when we all speak about making consolidated data available, does that mean that any consolidator would be required to push out consolidated data whether the recipient wants it or not, as opposed to imposing on any consolidator the obligation if a recipient of data wants to get it, to allow that recipient to pull out consolidated data.

So those are some of the questions I have. I agree with some of the comments that have been made earlier. Simply saying that you are going to let each market center "compete" and let 100 or 1,000 flowers bloom doesn't necessarily mean that competition is going to sprout from that soil. And I would look at two questions. One is a question of sequencing. How pricing data, whether it's quote data or last sale data, is first created and then transmitted.

I mean, it's one thing to say that Standard Oil of Ohio could have sold back at the turn of the twentieth century petroleum to a number of distributors and those distributors in turn could then sell refined petroleum products to hundreds of filling stations across the country. But if you have a Standard Oil that controls the origination of the product, then you have to ask yourself whether there can be effective interplay of market forces. And if you have a market center that has 85 percent of the transaction volume, regardless of how many wholesalers, wholesale distributors might come to that originator competing with one another, the question still remains whether you have a really competitive framework in terms of the originator and any single distributor.

The second question about competition here and whether it's practical and effective is whether, at any point in the sequence, you do have a choke point, a single lane, a tunnel through which everything must pass. And I've listened to what people have said and I've read the submissions.

I think they are conceptually on sound ground. But I think a lot here depends on details and on questions of whether, in fact, at every step along the distribution chain, you've got the ability.

Mr. Seligman:   I see Andrew.

Mr. Brooks:   Thank you, Dean. Just a couple observations.

First, I think the proposals are all very interesting and people have obviously put a lot of work into this, thinking about things outside the box, and I applaud that because I don't think it's easy. I do think, however, in no way should we jeopardize full transparency and consolidation of data.

I mean, I don't know how anyone would exercise their fiduciary obligation of seeking best execution if we didn't know what was trading, what was quoted, where it was and how to access it. I mean, this is fundamental to the marketplace, it seems to me. Certainly in the job we're expected to do every day. And if the Commission wants to change that job, then we could change the rules by which we're doing our job. We're open for discussion there.

Secondly, I think we would all agree that market forces would be better than a monopoly in almost everything we do. But I keep going back to something which is nagging in the back of my mind. And that is, whose data is this? Who is charging for it, who should be the recipient of the monies?

Now, does the data belong to the market center that generates the trade? Maybe, maybe sometimes. But how does a trade get generated? Somebody initiates an order to buy a stock. Is that person getting paid for that origination of that order? I don't think so. I don't think you're sending me a check or a rebate every time I buy 100 shares of XYZ. So I wonder who are the stakeholders here, how is this money sort of moving through the snake, who does it belong to and how do we reprice it along the line.

Certainly, the people that reprice it and package it with added values and services ought to be adequately compensated for that. But somewhere, at the origination, I'm wondering how does that person get compensated? And I think some of us have talked about the individual investor in this process and that's sort of who we represent at T. Rowe Price in aggregate. And I wonder how does that investor, does that person who in fact is creating the bid or the offer, which generates part of the last sale, how does that person participate in perhaps a repricing of this whole process? And I hope at some point we will come back to that and try and answer that or at least keep in mind that that person is a stakeholder.

Mr. Seligman:   Joel Greenberg.

Mr. Greenberg:   I actually have a question for Annette and Bob, since they usually ask me a lot of questions, I'll get to ask them one.

It seems to me that if the requirements are going to be maintained that the ultimate trader or ultimate investor must get consolidated information, that that's a given, then the SEC is going to have to get involved with what is a fair price for the information. Because if I'm a market maker, if I'm a specialist, either on my own or at the exchange and you're requiring my information to go to an ultimate investor, I can make the price whatever I want.

So I think we can cut through a lot of the models and just decide that piece alone. If that cannot be changed, for whatever reason, for best execution, because it's in whatever Act, then we should start with that premise and say, well, there has to be some referee for the first commodity that you're forcing the ultimate broker-dealer to give out to their investor. Because otherwise the whole system falls apart. I think there was a proposal to put a ceiling on it. But whatever it is, you've got to decide what is a fair ceiling.

Mr. Feuer:   Well, what we actually proposed wasn't for the SEC to set a ceiling but to try to interject a way for the market to set a ceiling by requiring each broker to provide that information to at least one consolidator.

It could be that some broker-dealers might want to provide that information to more than one consolidator and that would be fine as well. But the requirement that a broker-dealer provide that information to at least one consolidator in order to be in good standing, if you will, in the national market system, we think introduces a market ceiling on the cost of data.

Mr. Seligman:   Let me follow up on Joel Greenberg's point, which is somewhat along the lines of what I have been thinking about for the last several minutes. I'll go back even to a more fundamental point.

We haven't defined the data. I anticipate we're going to have to spend some time, ultimately, getting there. The question can be posed whether we have a single consolidator or multiple, a monopoly or free market resolution, should there be some mandated minimum form of data.

I agree with Joel that if you decide you don't want some minimum mandated data, there are very significant implications for best execution. I will add or echo a point that Gerald Putnam made earlier. There may be very significant implications for regional stock exchanges.

I am not certain whether or not your derivative point that, if you have mandated information, you have to have an SEC role of some form, necessarily follows but it might.

But let's start with the question should there be some mandated minimum of data? Putting to one side for the moment whether or not there could also be additional data provided through whatever means.

Ms. Dwyer:   Dean, let me just – I'm continually doing this. I apologize. If we could just back up for a second? Again, I'll ask my question again. We're talking about status quo versus – excuse me. We're talking about consolidated versus nonconsolidated. We're talking about phasing in. We're talking about data definition. A lot of – through the tactical issues that we will have to deal with.

But I don't feel we have come to closure on which model we're going to be talking about. It would seem to me to be pretty inefficient to continue to talk about each of these questions with status quo, with a competitive based model.

Are we decided that what we are talking about is moving to a different type of model? Can we get to that decision so we can be as effective as possible in going to these other questions?

Mr. Seligman:   But I would submit to you, Carrie, that before we get to that decision, it's relevant to those around this table how we would come out on this more fundamental issue. That is, in one model, Ed's, he's basically stating no mandate, no mandated data, no mandated consolidator. In others, there's the sense some form of mandated data seemed to be implied but no mandated consolidator.

I want to press us back a bit and focus on where we really are on the mandated data. I assure you before the day is over we will focus on which way we're going with a model.

Ms. Dwyer:   I'm really not trying to be obstructive. I'm just saying that the answers to those questions very much depends on which fork in the road you initially decide to go down. And if we can get closure on that, all those other details will vary depending on what you're talking about.

Mr. Forney:   Mr. Chairman, this is Bob Forney. It's difficult for us who aren't there to interact in this process. For a point of information, I thought the procedure was to listen to the five. I certainly didn't assume that because there were five that that is the subject of the day. I thought we would get around to asking each one of us to talk to our positions relative to staying with the model and fixing it to our views on either of the five.

Just because we're not talking doesn't mean that we believe any one of these five or some combination of these five is – gets our vote. I certainly don't.

Ms. Dwyer:   Bob, this is Carrie Dwyer. That's one of the things I was getting to early on. I really do want to hear from anybody who thinks differently and that's why I offered you my time.

Mr. Forney:   The Chairman asked for us to do that at the end of the meeting. That's my understanding. That's why I haven't said anything.

Mr. Seligman:   Bob, I apologize. It's harder to see a hand, obviously, when you're on a telephone.

Let me stop though, for a moment, maybe up to our break, and ask you, Bill Harts, Ed Joyce, Tom Joyce maybe if you could give us your sense on the five proposals. We will, obviously, go around the room in some sense at the end of the session but I wanted to flesh out more of the issues before we got there. So why don't we start with you.

Mr. Forney:   This is Bob Forney. In terms of speaking to the five proposals, I think there were terrific ideas in each one of them. The key principles that were stated in the Schwab proposal, Boy Scouts, Girl Scout oath sounds terrific to me. I would hope that we would all be trying to deliver to those principles.

I think that the – our fundamental position, which I thought we'd be talking about at the end of the meeting, and that's why I haven't said anything, is one inclined to work within the current structure for a lot of reasons, which we can either talk about now or talk about later.

In that context, I certainly agree with the position from some of the proposals, the Reuters proposal I believe most articulately addresses this, requiring a mandatory consolidation. I think there are other comments to the same thing. The question relative to minimum data, yeah, I think so. That seems to be the issue.

The comments relative to pricing and the role of the proverbial 800 pound gorilla in the pricing process I think is absolutely critical. And I think the issue of governance as we submit – we did not submit additional comments because it was our understanding that we were only asked to submit those additional comments if we had something that was different from our original comments that we submitted to the SEC.

In our original comments, for the record, we are certainly in favor of changing the governance structure. If anything gets done, I think that's the most critical. Innovation is very hard to achieve in an environment where there is only change if 100 percent of the participants are ready for the change.

And should that changed governance structure include people other than the participants? Absolutely. Is there room on any of our boards for public representation, customer representations? Speaking as an SRO CEO, absolutely. Does that work better? Absolutely. Should those people be on the governing committee of this group? Absolutely, in our opinion.

Would that alone have a significant effect on answering many of the issues that are put before the committee in written comments and in these five proposed plans? I think also absolutely.

So I think there is a whole lot that can be done by working from the structure that's in front of us. And I certainly agree with Rick Ketchum – I believe it was Rick – who was commenting a minute ago on the detailed issues associated with this. For all its warts, this process we're talking about does create a very competitive market.

I don't know about anybody else around the table, but I see nothing but competition here at the Chicago Stock Exchange and the market certainly does work and this is a very big part of that competitive environment.

Thank you.

Mr. Seligman:   Thanks, Bob.

Bill Harts?

Mr. Harts:   Well, I would actually like to pose a question.

Mr. Seligman:   Bill, could you help me out and just speak a little bit louder?

Mr. Harts:   I'm sorry. Is that better?

Mr. Seligman:   Yes, it is.

Mr. Harts:   I guess we're sort of somewhere in the middle as well. We don't think that it's time to completely throw out the existing system. At least we haven't seen anything that convinces us at this point that there is something significantly better.

And we're somewhat discouraged that the New York Stock Exchange seems to have already made up its mind that it would withdraw. And my question, and maybe you could answer it now or later, would be to Bob Britz.

Are there any scenarios under which you could see New York not withdrawing and possibly working within the existing system? Or is that something that's just off the table at this point?

Mr. Britz:   Very hard to speculate there, Bill. I don't know whether you were on the call from the beginning, but I tried to do a little laundry list on the reasons why the NYSE thought that it was in the best interests of its – the NYSE itself – and certainly its customers to no longer be a part of an organization like this, that this was really a reactive move to a series of external events rather than some sort of proactive business move on the part of the stock exchange.

You know, could events change that might lead us to rethink that? I suppose that's possible. But we actually think that there's a good deal of risk associated with the New York Stock Exchange – business risk and legal risk – associated with our continued participation in this organization.

But I repeat what I said earlier, Bill, which is if we're the only ones who see it that way and the only thing that happens here is that New York withdraws, that's a blip on the market data landscape and not very revolutionary at all. And the consumer of the data doesn't even notice that.

Mr. Harts:   I think what concerns me more than anything else is that the exchanges and market centers that use the New York pricing data within their own pricing calculations would obviously be adversely affected.

Mr. Britz:   I don't know why that would be, though, because we would still be obliged to disseminate our data. Again, our approach to this model was to prove how we could, on the one hand, withdraw and, on the other hand, still comply with all of the laws as they exist today.

Mr. Harts:   Thank you.

Mr. Seligman:   Ed Joyce, you are representing CBOE and I tried to put the options aside for a moment. Do you have a comment anyway?

Mr. E. Joyce: I have a couple of comments in a general sense that probably apply on both sides of the fence. I won't go into a lot of detail because I think what Bob Forney laid out said most of it very well.

I am concerned about changing the entire model at a time when the precise reason that consolidation was put in place will be tested more than ever, given the markets and the member firms' obligations as it relates to best execution.

And I agree with the points that Carrie had made on governance and flexibility and competition. But I think we have to be careful to consider the point that Annette made that we got to this point in consolidation for very good reasons. And if we allow a system, in the name of competition, to result in all kinds of fragmentation that we were trying to avoid to start with, I think we're doing it at a time when it really could be dangerous.

So I would work on what's broken. I would focus on the governance issue. I would focus on competition, maybe a little bit further downstream from the consolidator that's talked about in the various proposals. But I would introduce more competition. I would address costs. I would be thrilled to see more input on costs.

In doing that, I would like people to recognize that it is not just the marginal costs of disseminating the data that is offset by the fees in market data distribution. It's more than just that. And I think we have to consider that in our evaluation of it.

So I would address the areas that we think are broken without throwing the whole thing out. Especially if you want to get something done in shorter order. I think that would be the most effective way to go about it.

Mr. Seligman:   Thanks, Ed. Tom Joyce?

Mr. T. Joyce:   Thank you, Dean Seligman.

At Merrill Lynch, we probably have two or three thoughts relative to the proposal to date. And I guess there was a lot of motherhood and apple pie out there. But having said that, our views would be, I guess, the following.

We would be happy to see the governance structure of the current CTA, et cetera, modified. We definitely think that would be a step in the right direction. And we would absolutely like to see somehow to inject competition and innovation into the process.

The caveat there, however, is that we would be a little hesitant about jeopardizing the current quality and access to the current information that we have out there.

So I guess a little bit of what Andy Brooks articulated. It is hard to imagine, one, doing their – maintaining their fiduciary responsibility without access to the current information that we now have. So I would be hesitant about getting too aggressive on that front. And frankly, I guess, we could sum it up in that we would love to make adjustments and enhancements to the current model but we have no appetite for wholesale changes to the current model.

Mr. Seligman:   I saw Bernie and Mark. And let's take your two comments and then we'll break for a few minutes.

Mr. Madoff:   Thank you, Dean.

You know, maybe it's because I am older than most of the people, that I am somewhat more concerned about some of the proposals. I think the proposals are all very interesting. I think they're very intelligently orchestrated.

But if, in fact, the SEC is looking to diminish their role, somehow or other, in almost any way in this area, I myself am very uncomfortable.

I could tell you that it's sort of interesting that most of these proposals are put together by people who are direct competitors of each other as well as all of us around this table. That's the nature of the business today, that we're all competing. And I think it's naive to think that this will not present problems of one form or shape somewhere down the road, even if they're unintended.

The SEC must, as they have always been, sort of been the overseer of everything that we do to keep us from injuring ourselves, as well as injuring the public. And I can tell you that, during the whole exercise that we had with ITS and that is still going on with ITS, there are situations that come up that they must intercede and they must be the ones that are going to sort of make the final decision.

So I am not suggesting that we shouldn't change this. Although I guess if I had to come out on one side or the other, I would come out on trying first to fix what is obviously broken in the existing system. I think it's been laid out. It's very clear. And I would be more comfortable addressing some of the issues which we clearly know have to be addressed, see what impact that has on the overall existing system, and then worry about putting new models in right from this point.

So I just – I guess my major concern is when I hear these comments about the SEC somehow or other being uncomfortable in this position or wanting to remove themselves from this position of getting involved, fixing rates or overseeing it, I'm not suggesting that they have to be the one to fix the rates. It's just that I think that if they're not at this table, regardless of where we come out on this issue, I see a lot of trouble down the road and I am not certainly willing to put my life in the hands of any vendor or any one brokerage firm or any system because I think we're all in for-profit businesses and I think that that will be the controlling factor at the end of the day.

Mr. Seligman:   Thanks, Bernie. And, Mark, we'll let you have the last comment before the break.

Mr. Minister:   My comments come somewhat in trying to get clarification. It seems to me that the first level of consolidation comes at the SRO level. Now, I realize the Reuters proposal might negate that, which I wouldn't agree with and I won't put it off, like Rick did. I don't think that is a good idea.

But if the first level of consolidation is at the SRO level, regardless of whether they come together in a consortium like CTA or OPRA, if that's an agreed upon point, maybe we need to know that definitionally for the committee. Is that the first level of consolidation, do we agree that should be the first level of consolidation?

As you go up from there in terms of aggregating that data, I think that's open. I personally like the Datek proposal of putting it at the SRO level and then allowing competing security information processors to aggregate that. I mean we currently take that OPRA feed and we create an NBBO of options prices. Now, it's not really an NBBO because it's ours. There is no NBBO as we heard earlier. I think those things have to be definitionally done and supervised.

So the SEC is never going to get out of supervising --

(Laughter.)

Mr. Minister:   So I think from a consolidating and sort of working one's self up, as to where we decide the competing structures come in, I think it's important that we go clear down to the broker level, to the person actually making the transaction being able to disseminate information at that point. Or do we go to the SRO level? I think that's an interesting point.

I definitely like the idea. I will support Carrie in making market data available at the same price to everyone. I represent a very small community of professional users of investment data. I say small by number. They do pay 85 percent of the cost of market data. So if we can equalize that and you'll pick up part of my 85 percent, we'll be extremely delighted.

(Laughter.)

Mr. Minister:   It is funny on the price structure. We love the ECNs. They took the same attitude that the exchanges that we work with around – new exchanges around the world. They want to give the data away, because it's a form of advertisement. It's no different than the grocery store down the street that shoves a flier through my mail slot. Doesn't charge me for that flier.

They want – they use this data as advertisement to get transaction volume. I disagree with Bob, even though he says their main focus at the New York Stock Exchange is creating market data. It only represents 15 percent of your revenue. My core business represents a lot more than 15 percent of my business.

So I do think that the price of market data is not the vendor. We don't charge a thing for market data. If Ed gives us his for free, we'll give it to the next guy for free.

So I do think it goes back in terms of controlling fees at the originator – and that can be very competitive.

Mr. Seligman:   Thank you.

Let's take about a 15-minute break. We will pick up no later than 3:30. We really will be back at the table at 3:30.

(Recess.)

Mr. Seligman:   Okay, I believe Matt DeSalvo indicated he wanted to comment on our last line of inquiry. And let me turn to him at this point.

Mr. DeSalvo:   Thank you, Dean.

As a firm that pays north of $100 million in exchange and vendor fees, this certainly is a difficult issue for ourselves and I'm sure for a number of people on the phone and around the table. The current system provides little competition and little incentive for fee reduction or product innovation.

To highlight some of the issues that were brought up, we clearly, representing 100,000 brokers and their clients, have the necessity for increased transparency and the use of consolidated data. That's clearly paramount to an effective marketplace.

We clearly see the need for lower fees. Bernie's point that we don't see the – would like to preserve the SEC's involvement. Carrie's point and some of the other proposals that the governance that occurs in the current model or whatever model is constructed to include vendors and broker-dealers, not just SROs, is essential.

And that, on an economic basis, we are somewhat worried that as SROs de-mutualize, that the revenue derived from market data – will the pressure be on these SROs to generate significant or growing revenue line items in a public – as public entities? And to go back to Carrie's question, if it is just to recoup costs of processing that data and then disseminate it, it clearly may lead to staying with the status quo model. But if it is under a de-mutualized entity, that a revenue line item is significant to that SRO, then it may lead to the introduction of a new model because of the pressures to reduce revenue will clearly exist.

Mr. Seligman:   Thank you, Matthew.

Michael, I think I saw your hand just before the break and I want to allow everyone to comment on the topic we were addressing before the break. Would you like to say anything at this point?

Mr. Atkin:   If you don't mind. Some of it might just be a little bit of confusion on my part. But I think we're jumping all over the map a tad and I realize all these issues are relevant and important and we just now recently came back to the issue of market data fees, which of course is why we're sitting here. But I'm having just a little bit of trouble with the logical progression of things.

And when we started off this meeting last time, we kind of tabled the idea of fees for the immediate term until we could deal with some structural issues. And we asked everybody to go away and come back with models on consolidation and I think that's what people did. They came back with models on consolidation and I think that, within those models, there is a high degree of similarity around what some people were saying.

A lot of it has to deal with promoting efficiency. And people say competition is good, competition among SIPs would promote efficiency. We can deal with things like formats and order routing and other important things like that. And that's one level of conversation. And within those proposals, there was a discussion of information competition and that's jumping to another level of discussion.

But I'm having a little bit of difficulty making the transition between talking about competition among SIPs and whether that's a good idea, a workable idea and a useful thing to do and then jumping into this idea of information competition, what is the right level of data to be putting on the table, whether that means you need to – so just maybe to reinforce what Carrie was saying, if we could get a little bit of closure or direction on how we're going to deal with that first level of discussion, I think it would be easier, at least for me, to move on to the second one.

Mr. Seligman:   That's a fair point. And I will say one of the challenges of chairing this group is we have 25 – let me put it this way – 24 other very bright, very knowledgeable people at the table. Some of you have particular interests in the outcome. All of you bring a wealth of experience.

And part of what we're wrestling with is kind of a first cut determination and there's no question we started with five good responses to the question, you know, is there an alternative model or at least a suggestion of an alternative model that would justify us focusing on that.

I would submit to you, we can't work out every detail of an alternative model around the table like this. There are just too many. They really need to be put down on paper, you need to have time to study them, to ponder them, to think about them, to comment upon them.

Let me, though, even with the question, you know, framed as it originally was, take a point that Bernie made and maybe ask if we could go around the room at this point and focus on it for a moment.

Bernie suggested – let me quote it the way I wrote it down – after giving what is now his standard admonition – he is somewhat older than others of us in the room – which I presume necessarily implies somewhat wiser, that he would urge that we try to fix what is obviously broken in the existing system before considering other models.

I have heard various reservations about going to new models and I have heard five proponents of it. I'm going to ask if maybe our best strategy might not be the following: Let's focus on trying, in fact, to fix the current system. We would start with a series of specific questions which would include, among others, what data should be required in it, how it should be governed.

I would, if we pursue this, and perhaps in any event, before trying to set an agenda, give everyone an opportunity to add to the list of topics. I would suggest that there might well be a logic in having some sort of subcommittee to work through these before we meet again in public on March 1.

Take as many meetings as we reasonably should to focus on can we fix the existing system before we try to determine should we consider an alternative model. This would not be an absolute up or down, "We will never consider an alternative model." But it might give us a better way to frame the discussion. We would not be comparing the existing system and, you know, in all fairness, Bob, I think your concerns were not about where it may be going so much as what precisely we would be proposing against should there be a new model.

It may be, if you focus on a lot of the logic of the new models, it was in terms of multiple providers of data. It may be that that kind of gets folded into a fix of the current system, depending on how we define what data should be mandated, depending upon how much flexibility there is to provide alternative data, depending upon how data can be packaged and disseminated. It may be that effectively addresses it. I don't think we know until we work it through.

But let me ask you to go around the room and we'll pick up, certainly, the people on the telephone. Should our best strategy be, in effect, let's make a determined effort, systematically, to address can we fix the new system before we address the question, should we develop a new model. Or should we alternatively focus on a kind of bi-modal route, both looking at the development of a new model and looking at a kind of fix to the existing one.

I'm getting to this question somewhat earlier than I said I would. I'm doing this in part because a number of individuals during the break indicated that, because of the airline schedules they're dealing with, they may have to leave a little bit earlier than we had anticipated.

And what I would suggest is let's start with Mike Atkin.

Mr. Britz:   Joel, if I may, just for point of clarification, does "fix the existing system" imply holding the consortium model constant and fixing other things around the edges, or does it imply abandoning the consortium model, or is that simply in the new model camp?

Mr. Atkin:   Thank you. I think that's exactly the right question.

Mr. Britz:   I don't know what "fix the existing system" means.

Mr. Seligman:   Yeah. That's a fair point. Forgive me, let me take that under advisement. It seems to me if we go down the route of trying to improve – and I think "fix" is perhaps the wrong verb – we could pick that up.

If you're suggesting within improvements to the existing system we could have competition with the consortium, you know, maybe that should be viewed as a new model. I guess it is within the framework of the existing consortium, but I'm thinking out loud here.

Mr. Britz:   One of the models, the simplified version of the model we suggested, is that NYSE simply withdraws and we would speculate that every other CTA participant, for example, continues to coalesce within CTA.

Mr. Seligman:   Let me be very precise. What I am suggesting is let's see if we can develop a model where the existing members of the CTA/CQ would continue. Let's see if working through the dimensions of how that model works, we might find ways in which we can build consensus in this room, including the New York Stock Exchange. That's one alternative.

The question should be, should we pursue that first and then think about other models, or should we pursue both simultaneously? And Bob, I see that you grabbed the mike. Why don't you address that.

Mr. Britz:   I guess I don't know how that gets at the various critics who have cited the problem with market data is the single-source monopoly. And those are not the New York Stock Exchange's words. So you might not address that question to me.

I'm just trying to understand what the universe of possible fixes is. And if it doesn't include competing consolidators, I don't understand how that represents a fix. But I understand what the ground rules are.

Mr. Nicoll:   I think that the players have different views of what's wrong with the existing system. And so it may be useful to have people identify what they think is fundamentally wrong and then talk about whether it's useful, if that can be fixed with adjustments to the model, the status quo that we're going with, or whether it needs to go to a new model.

And if you think it needs to go to a new model, I think it's then incumbent to explain why the new model solves that problem. Because they – I think a lot of our conversation today has illustrated that some of these models solve some of the problems but they don't necessarily solve all the problems.

Depending on which problems you think are important, you may or may not think that your model has solved the problems or the resulting models solve the problems.

Mr. Seligman:   That's fair.

Mike, let's start with you and we'll go around the table and we'll pick up the people on the telephone as well.

Mr. Atkin:   I guess simply stated, I think I've heard five things that are wrong with the model. The first one is governance. Mostly the unanimous vote within the plans and how that's overly restrictive on innovation.

The second thing I've heard is wrong with the model is the way CTA/CQ revenues are split and whether the formula for allocation is good or bad.

The third thing I've heard is that all these exchanges are in competition with each other, so sitting around the table and making joint business decisions is not necessarily how a hopefully soon to be public company wants to operate its business.

Kind of the first point that everybody brought up was that it's no longer needed because technology has evolved to a point where you can do consolidation at the vendors' locale or the brokers' locale; you don't need to have a single point of consolidation to get a consolidated quote.

And then the thing I just heard Bob bring up today, that there were some antitrust issues that were put on the table by the SEC about joint decisionmaking on capacity mitigation.

Mr. Colby:   May I flesh that one out? The Justice Department and the Commission in dealing with the options exchanges raised concerns about the capacity planning process being used as a means to restrict capacity in a way that was anticompetitive. So I think the antitrust issues are focused on the degree to which you need to share private business decisions in order to make the consortium work, not the overall operation of the consortium.

Mr. Seligman:   I will say – and let me just flesh that out a little bit more – I have read every antitrust decision to my knowledge that has been published with respect to securities markets since they've come into existence. I don't think that should lead us in any case. There is an implied immunity that stock exchanges have, under some circumstances, from this, certainly if you satisfy sufficient SEC review.

And, for whatever it's worth, I think while there may have been some observations and some speeches that can be viewed critically by some, I think that is different in kind than the other issues we're talking about.

Mr. Roiter:   Well, I think that, fundamentally for me, if you're going to say what's wrong with the system, the first question you have to ask is why does the New York Stock Exchange want to withdraw from the system. And if those are – those issues are put on the table and it's something that the Exchange and the Commission can work out, maybe that gets pulled off the table and you have a different level of conversation.

If it's something they aren't going to work out, then you know what's wrong with the system.

Mr. Seligman:   Okay. Bob, you've already articulated remarks but, if you would like to add to them, please?

Mr. Britz:   I mean, I would do it very simply. I think from the Stock Exchange's point of view, what's wrong with the current model is simply that it's not necessary to produce the desired result, that result being a consolidated data stream. And maybe there are folks around here who disagree with that. But it seems to me if you agree with that, then the burden is on those who think that a consortium is appropriate, given that it is not needed to accomplish the objectives of the 34 Act. I think the burden is on those to demonstrate why it ought to be on place.

I'll yield after just making a comment on governance. It occurs to me, having spent a fair amount of time at CTA meetings, that there might be a misunderstanding vis-a-vis governance and, frankly, vis-a-vis CTA in general. CTA is this sort of amorphous cloud in the middle of recipients and market centers, a sort of a conduit, if you will. At the end of the day, it does nothing.

The SIP actually distributes the data. The market centers produce the data. CTA is this cloud where we come in and discuss pricing and used to discuss capacity planning until we were advised we ought not to do that. But it's important that you understand the governance. No decisions are made at a CTA table. This notion that we ought to have broker-dealers and vendors and so on around that CTA table.

In fact, what happens at New York – and there are other markets here and, by all means, verify what I say or contradict, if you think – is that every decision that the New York Stock Exchange takes at a CTA table is a decision that has been vetted at least at its finance committee of its board, or its Board of Directors.

And if I may quickly divert as to the pristine nature of the board of directors, as it so happens, on the board of the New York Stock Exchange is the single largest market data customer of the New York Stock Exchange, who by definition is the largest payer. So there is a very significant – and that's only one example – a very significant check and balance.

So I think the notion of asking the folks who represent broker-dealers and institutional investors and public investors on our board and also the other market center boards to sit on some new governance board of the Consolidated Tape Association, it's not clear to me that that's any different than the role they play already on the various market center boards.

Mr. Seligman:   Andy.

Mr. Brooks:   I guess it seems to me, Dean, in asking the question which way we should go, I think we ought to go – we sort of – bipolar is not quite the right word, but I think we ought to be on dual tracks.

I think if we take a look at what's wrong with the current system and if the staff could help us itemize the or illustrate the things that are – that various people find wrong with the current CTA and market data structure, I think if we're on dual tracks, on the one hand we could look to see if we could fix it and, at the same time, as you pointed out, Dean, we could see if new models addressed the issues of what's wrong with the current model. And I think it would provide some clarity for us if we were comparing along the way.

So I think the dual track process might allow us to do this sort of instant comparison and perhaps be an easier way for this advisory committee to look at the issues.

Mr. Seligman:   Matthew.

Mr. DeSalvo:   The question that you asked, Dean, was to modify the existing model. To help, on page 4 of New York's proposal, there is the existing model. So to answer the question, I would say, looking at the existing model and working from there, that at the bottom, the end user broker-dealer institutions, individuals and corporations, they should clearly be added to the governance of the CTA or CQ.

When you move up from there, the reason – Bob asked why should they be included on there. Well, the role of these people on the board of New York is clearly different than their role would be here. One of which would clearly be the discussion of fees. The role that Morgan Stanley or an individual plays at the New York Stock Exchange level is clearly different. So I think that there is a huge difference why they should be at this level right here on the model.

At the CTA/CQ level, this operation should be put out to bid to an Oracle, a NASDAQ or EDS on New York and that is one way with which to reduce fees. That this operation has no vested interest in innovation or introduction of technologies. That if you put this operation out to bid, market forces which Ed and some of the other people point out, would result in a reduction in cost structure.

So I think the addition of governance of these individuals that are on the bottom of the existing structure and putting out this operation of dissemination of consolidated quotes to public bid, those two things alone would result in innovation and fee reduction.

At the top level, I go back to the original question. What are the SROs trying to derive from these? Are these fees simply to be – to recoup, or are they revenue line items? If the SROs are de-mutualizing in the future, the pressure on those to produce revenue will be increased. And that's where the SEC, I believe, would be involved.

So in answer to your question, governance, out for bid, and the SEC's determination of what the revenue should be to the SROs, I think, are the three things that we would suggest in the existing model to answer your question.

Mr. Seligman:   Okay, Carrie.

Ms. Dwyer:   Well, I feel a little bit like I'm circling Dulles endlessly and it's not the fault of this committee, because I have a longer history with this issue than most of the folks here.

This issue has a long history. It's been two years of meetings, letters, petitions, congressional testimony, SEC concept release, extensive comment on the release. The first couple of meetings of this committee, the papers that folks prepared here. And we continually cycle back to the same fork in the road, which is why I was so aggressive earlier about, you know, trying to at least determine a path.

Now, we're cycling back, putting aside the work we've just done, and saying, okay, let's look at the other. I think we can look at the other. I think perhaps we ought to. And perhaps more than five this time. You know, anybody with an interest here perhaps ought to, within two weeks or so, brief the committee on how you would fix the current system. We're happy to do that.

I think the current system is CTA as it's currently constructed, because I clearly saw the New York's withdrawal from CTA as one of the five innovative proposals. I think that goes in the other bucket completely. But we would be happy, again, to talk about how we would fix CTA and all of the market data vendors. It would also be very – excuse me. Market data consolidators, governance structures, fee structures, you know, blocks to innovation, so forth. We'll do it again. And I would hope that we would have a lot of input on that, get some more points of view.

I would also think it would be really useful, now that Commission staff has had the ability to hear these proposals, to hear the other discussion. It would be great if you would come back with specific questions you want answered. That would help us to really point to what you might be concerned about.

And the final thing I would ask is, you know, something I've been wondering about. We filed a letter with the Commission a couple of weeks ago. What is the status of pending proposals coming from the market centers to change the status quo? You don't have to give an answer, but this is --

Mr. Seligman:   Let me pursue that one separately.

Ms. Dwyer:   I think it belongs in here.

Mr. Seligman:   I know you think it's relevant. But we've got a lot of people in the room --

Ms. Dwyer:   One sentence, which is the TRACE system, the proposals for streaming data, the other proposals that are going out there, this committee's work is moot and our work is moot if these things go ahead and change the status quo while we're deliberating.

Mr. Seligman:   Carrie, let me go back to your point. I don't mean to defer or circle the airport. I'm asking your advice. We can either start with consideration of, as I've put it, colloquially, how do we fix the system?

Or we can try simultaneously to develop a new model drawing on the proposals made here, and drawing on other information that will develop.

Which would you recommend?

Ms. Dwyer:   Well, I believe that the proposal we submitted, which is consistent with all the proposals we've submitted for the past two years, is the way to fix the current system.

We believe, we raised the issues, these are the solutions we saw to address it. If you tell me that CTA, as it now exists, and OPRA, and so forth have to continue to look that way and the SEC has to continue the role it has now, I can come up with ways to fix that. And I assume others can as well. And it does no harm to lay those out on the table if we can do it quickly and efficiently.

Mr. Seligman:   Okay. Mitchell?

Mr. Feuer:   I've developed a new sympathy for the Palm Beach voters confronted with the butterfly ballot because the – what's in front of us, in effect, is that we're being asked to vote between two things and I want to vote, I want to vote twice.

I'm a little bit unsure at this point which falls into, which falls into which category. Matt DeSalvo just raised putting the role of the exclusive processor out for competitive bid. And we certainly think that that is an idea that deserves exploration.

I don't think it was really quite captured in any of the five proposals that were tabled. We think that's an idea that deserves very serious consideration. And I'm not sure which category that now falls into. Is that – if it's improving the system or if it's an alternative model.

Mr. Seligman:   I would think you could view that as improving the current system.

Mr. Feuer:   But, I guess I would then, I have to cast my vote, like Andy Brooks, for proceeding on dual tracks. And let me say, let me say why.

First is the issue of timing. We're now, we're not going to meet again until March. And I think we then start to squeeze ourselves on the process. If we're going to have recommendations in September in terms of not having enough time to then develop alternative models more fully.

Second, I want to point out that I – Dean Seligman, I think that you tried to make this distinction in hearing others comments around the table and on the phone, I still think there's a certain amount of confusion that alternative models necessarily means abandoning consolidated information.

So as others cast their, cast their votes, I would repeat that that is not necessarily so as in both the Archipelago proposal and our proposal try to preserve consolidated information.

Third, what I've – another thing that I've heard this afternoon is that there seems to be some – there seems to be some concern about whether a single market center would have a level of, would be able to exercise a level of pricing dominance in a competitive market. And that's a fair concern. And I would say that, but it's not a reason not to explore alternative models.

Instead, we could perhaps agree that that is something that any alternative model must address. And again I think there's a little – I want to put that, because I think there's a little confusion about that.

And the last thing I would say about improving the existing system and, again, Matt DeSalvo has raised this, is that the current system is changing before our eyes. And I think that we run the risk of not fully living up to our responsibilities if we solely focus on changing the existing system.

What I have in mind is that the SROs are demutualizing. As others have said, this will introduce entirely new pressures into the existing system.

And in addition to that, we already see market centers and market participants disseminating data of different sorts and in different ways, in ways and of kinds that I think most people thought were not countenanced under the existing system just a short time ago.

So, I think those are – that's evidence that the existing system in fact is changing rapidly and that it may not be entirely useful to focus our efforts solely on improvements to a system that is, that is changing even while we meet.

We may want to get ahead of that and explore alternative models. So, dual tracks.

Mr. Seligman:   Thank you, Mitchell. Joel?

Mr. Greenberg:   Thanks. If improving or putting out the process for bid is improving the system, I would vote that we folks aren't improving the system.

To us, as I said before, it seems that given that the SEC is mandating consolidation and, in essence, is coming up with a government mandated monopoly, I think what we have to focus on, then, in either an improved system or a new system, is what a fair payment for that data that someone has to buy should be.

So I think we should have a subcommittee that should look at the cost structure and decide how you determine in any model, or I do favor just trying to improve the existing model by deciding a methodology for deciding what is a fair payment for that data.

Mr. Seligman:   Thanks, Joel. David?

Mr. Hunt:   I think somebody who spends a lot of time helping large organizations create very difficult change that, on any scale, what we're contemplating here is extremely complex. And the lessons that I would draw from my own experience are three.

The first one is that it is very important that change happen in somewhat of an evolutionary way out of currently a system that people trust.

The idea that you are somehow going to turn off what you have today and the next day turn on something completely different, with all of the huge technological, legal risks, and others in this I think is naive. So, I think that whatever we come up with here must be an evolutionary path that does deal with what we have today.

Secondly, I think there is a huge risk in groups like this that somehow the great becomes enemy of the good. And I think there are a lot of things that can be done quite simply that don't necessarily mean that we need to construct the next wonderful paradigm for the market.

And the third is that change happens in a nonlinear way. It's very unlikely that we will be able to pick out, kind of, a static model and then also be able to define exactly how we will get there from the way it is today.

And I think it's important that in our deliberations we allow for the dynamics of changes that are happening outside the things we're talking about, as well as the market.

And so I would actually vote that we not only look at things that we can do quickly that will fix the current market, and I think there are quite a number of those, but, that we also look at new end states and new models which would radically be different, but that we also carefully consider how we get from one place to the other given the technological risks, costs, and everything else. And we'll have to make important trade offs along the way. Even if we were to all agree what the final end state is, we probably wouldn't be able to get there very quickly. So I think, unfortunately, I vote for one, two, as well as a transitionary path for getting there.

Mr. Seligman:   Thank you. Simon?

Mr. Brooks:   That wasn't an option.

(Laughter.)

Mr. Johnson:   It seems to me that – I'm quite puzzled by the discussion because it seems to me, at least, on the evidence that you presented us, that the system is really not in such bad shape. And the proposals that put forward don't seem quite to fit the problems that have been identified.

It seems that a lot of the concerns that have been raised go back to governance, governance around the plans or around the people who provide the data, and the way that gets consolidated.

And I think, to my mind, it's worth spending a lot more time thinking about whether there are solutions which can be suggested. And I think, I hear implicitly, there are, which would improve the governance relatively easily. I'm not sure you can find a complete consensus on that.

I think there's a lot of issues within that particularly about the transparency of accounting by people involved in the various plans, the SEC raises in its concept release that haven't been discussed. So, I think we can spend a lot more time on that one.

I'm all in favor of discussing, also, alternative systems. I think that would be very healthy and interesting. But there are two issues that nobody's raised today that again puzzles me why you haven't brought them up.

The first is, there seems implicitly an idea that you want to abandon what's sort of the global gold standard of market regulation which is based on the relation of the SEC and SROs. And a key piece of that is how SROs get funded.   I think perhaps not in the first stage but in the second and third stages of all your plans what happens after the initial unraveling. SRO funding dries up for – not for all SROs, but for a lot of them.

And so I don't understand how regulation works, unless you're expecting the SEC to change its role very dramatically, either reduce it or massively expand it in some way that we need to explore.

The second thing that nobody's mentioned, and again, it's quite puzzling that you're not more concerned – perhaps you all just haven't had time to talk about it but that's the issue of market power.

It seems that allocation of market power and the opportunities for taking market power through data and through controlling data and through what we know happens in a lot of data intensive markets in different places.

Those seem like, that also seems like a very important issue that has to be explored and we have to think about it. And you have to think about what the regulatory consequences are of market power.

So I'm more in favor of proceeding on dual tracks, but I think we need to be bit more frank and open on both issues.

Mr. Seligman:   Thank you, Simon. Rick?

Mr. Ketchum:   Well, I want to sit next to Simon all the time.

I would say, at first, that I think it does make sense for us to take some time to explore improving the existing system because we haven't done that, albeit, some have spent a great deal of time talking about it and thinking about it. And I think it does make sense for us to do that. I would say two things.

One, that I would have difficulty exploring improvements to the existing system without including some hybrid at least of New York's proposal that there should be an ability to step out of any particular plan and what standards there should be in being able to do that. So I do view that as part of exploring improving the existing system and I guess we would include it.

I also, I guess I'll show my partisanship for the – but I think it would be, I think Carrie's raised an important point, which is, I think it would be not good for us to spend so much time exploring improvements to the existing system and we didn't get back to the other and suddenly woke up like the Supreme Court and said, whoops – there's no more time.

So, I do think that we should set a deadline for that and it seems to me we would all be in a better position to determine the direction we wanted to go after we completed that. But I don't think that it should be allowed to take us anymore than two meetings and perhaps less than that.

Mr. Seligman:   Thank you, Rick. Let me let Annette and Bob hold their peace for a bit, and turn to Don.

Mr. Langevoort:   Yeah, I guess I'm going to favor the two track system with some degree of skepticism, for what Simon and others have said, that the alternative model is going to – discussion group is not going to be able to come up with much of a consensus.

I think the issues of best execution, monopoly pricing, and a variety of other things are going to, as that group goes through its discussion, become so insoluble that maybe the best thing that group is going to do is show us why trying to fix the existing system is the only practical alternative.

But I think it's an exercise we need to go through. I think we need to have that discussion. And maybe in the process of not coming to a consensus we'll learn quite a bit.

Mr. Seligman:   Bernie?

Mr. Madoff:   Yes, I think that one thing that seems fairly obvious is that the problems that we have with the existing system have come out of the – have come about because of the governance of that system. And that we have not been able to make the changes and have the flexibility that we probably – that a lot of us would have liked to see come about with the existing system.

We probably would not be at this table today had the governance been such that we could have operated the existing system in a businesslike way that addressed the concerns of a lot us around this table.

And I also think that while we're trying to fix the existing system, we probably will come up with a new model from that exercise. You know, I – maybe I am missing something, but I don't think this is so difficult. I don't think this is great rocket science in trying to accomplish what we're trying to accomplish.

I mean, I know we all have big issues. Some of us have, you know, some of us are more affected by them than others. But, I think that with that dual track is a good idea because I don't think anybody, I don't think even if we said, don't think about these new models, that anybody around this table is going to go home and not think about them. But I don't think that's much of a danger.

But I think from a time, from a time standpoint, and I guess it was David that brought that point, that I think it's unrealistic to think that it is the most prudent thing to do or from a practical sense to come up with a new model in the time that we would like it to come up with that's going to satisfy all our concerns.

So, I would vote for just try to fix the system and I think a subcommittee should probably start immediately on that. I don't think it's wise to wait until March to start on that effort. I think that that's something that probably could be addressed immediately.

The new models, whoever's thinking on these new models and try to perfect them, go along with that. I think that we will probably very likely come across with a greatly modified model anyhow once, you know, once we fix this existing system.

And I think Matt laid it out very nicely. I mean it's – those are the issues, and the most important issue outside of the governance, is putting this thing out for a competitive bid. That to me is realistic and I think everything else will fall into place. Maybe I'm oversimplifying, but, I don't think so.

Mr. Minister:   Well, obviously the answer – we've got to agree on what's broken. Certainly governance seems to be repeated over and over again. And if that's the only thing that's broken, that seems – I agree with Bernie. But it seems fairly straightforward in terms of realigning government, so I'm not sure that is the only problem.

If it's technology that's broken, then we probably don't have the right committee assembled here, and that would be a whole different issue.

I think my biggest concern about the current system is that it disenfranchises certain participants. Obviously, I agree with Simon. I think market power leads to some of that disenfranchising. You could argue Super Montage shows that, not inclusion in CTA could include that. But I think – and again, that could change by governance, but certainly I think that is one of my concerns about the existing system is how it does disenfranchise certain market participants.

Mr. Seligman:   Ed.

Mr. Nicoll:   I think, obviously, we'd have to vote for the dual track approach. And you asked us to I guess comment on what's wrong with the system, and I'm kind of puzzled on the other side of the coin, which is that we just view it as almost an anachronism at this point, as an unnecessary, you know, inefficient vestige of another age. We don't see it as playing that important role. You know, the notion – I mean – and there are so many different ways to address these concerns. Of course everybody other than the New York Stock Exchange sitting around this table is concerned about the market power of the New York Stock Exchange. But – and you know, from our perspective, we're not in the CTA and, you know, but for the actions of – extraordinary actions I think – of the SEC during extraordinary times, we wouldn't be in the consolidated quote system. You know, I mean we just think that it's a completely unnecessary set of regulations which, in the network economy, are no longer necessary and needed to accomplish the goals of delivering consolidated information to investors around the world. And that's what's wrong with it.

Of course governance is wrong with it. The technology is wrong – I mean, there is a lot wrong with it, but what's really wrong with it is that it is a vestige which I think we would be much better off really thinking about what the world would look like without it than trying to fix it. But we are realists, and we believe that, you know, we – if our choice is a dual track or none, we would certainly vote for the dual track.

Mr. Seligman:   Thanks, Ed. Gerald.

Mr. Putnam:   Our proposal and our vote would be for a dual track approach. The reason we suggested a dual track approach was it addresses some of the questions that Bernie raised. I think Tom Joyce raised it, if we just blow this thing apart, you'll shock the system based on the way market share percentages, how they exist today, that's our fear. We may be wrong about that, but that's our fear is that you would shock the system.

First approach is let's work on the existing system, improve the governance structure. The single veto governance structure is unworkable. And why not let's deploy some modern technology or some new technology and try and improve the performance of the existing system.

The second step is to certainly introduce competition. Because if we don't introduce competition, I'll argue that we'll absolutely fail and we'll get this wrong. The fact that we're here today discussing this I think is proof of that. Because I believe, and it may be naive, that 25 years ago, the group that set the system up probably thought they did a reasonable job but obviously failed, otherwise we wouldn't think we had a problem. And competition I think will take care of that so we can get to a point, and I don't believe it will take long for us to get there. We'll get to a point where the SEC can step back, let the system run itself because it will be running itself.

Bob's point about the New York wanting to break away and do its own thing and everybody else stays, we want to break away and do our own thing. We've got a dozen ideas. I mean we're ready to take our shirts off, get in the competition, and start producing some value added services. I think the guys at The Island that we know really, really would love to be in that position as well. So, one, fix the existing system; and then let competition keep it honest.

Mr. Seligman:   Peter Quick.

Mr. Quick:   Thank you, Dean. We at the American Stock Exchange believe that the committee should focus on improving solely the existing model. We do not believe that the current market data system is seriously broken or requires major structural changes.

In general, the system is achieving its goal of providing reliable real-time market data to the investing public. It's vital to remember that this whole system is not about the exchanges or the processors but the investing public receiving consolidated data.

Any action taken which seeks to modify this system must tread cautiously as Annette suggested, lest we destroy a complex system which has worked for the past 25 years.

By definition, the goal of the national market system is consolidation and centralization. To the extent the proposal of the New York, Reuters, Schwab and others advocate decentralizing this system by splitting off participants from today's centralized plan into multiple separate plans or by creating competing processors, these proposals are conceptually and philosophically at odds with the goal of legislation, concentration and centralization of market data.

Competing plans and competing processors, all of which would have to submit their fees and technological qualifications to the SEC for approval as to fairness, reasonableness and capability inevitably thrusts the SEC into not one but multiple rate making roles and would necessitate the establishment of a comprehensive administrative law system requiring hearings to administer and adjudicate the reasonableness of fees, the technological capabilities and ongoing technological performance. And the latter would require the SEC personnel to actually monitor and pass upon the technological fitness of the hardware/software of each competing processor as well as coordinating the dissemination of market data from these competing multiple sources.

Moreover, as Professor Seligman has noted, that in creating a national market system which mandates the consolidation of market data by competing exchanges, Congress intended to tip the balance in favor of ensuring reliable market information to all market participants by mandating consolidation rather than the dissemination of market data open to unfettered competition.

Mr. Seligman:   Thank you, Peter. Eric.

Mr. Roiter:   Thank you. Fixed commission rates, off-board trading restrictions, institutional membership on exchanges, listed options trading, unlisted trading privileges on regional exchanges, alternative trading systems, ECNs, stock index futures trading. I think history is teaching us something, and that is whenever the Commission has a choice to introduce greater competition, even if it is incremental, the markets and investors are better served.

I do subscribe to what David Hunt said, and that is that often change of this magnitude should be done incrementally. To return to the choice that you posed, Joel, whether you see it as two tracks or three tracks, I happen to think of the competitive bidding for the single consolidator to be qualitatively different than the current approach for a single consolidator, so I would count them as three.

I would be in favor of pursuing them at the same time with a preference and a presumption in favor of the model that would introduce greater competition even if on a gradual or incremental basis. And I would suggest, perhaps, that it might be worth exploring whether, as in so many of the other instances which I alluded to, there may be a way to have some kind of pilot program that would test some of the assumptions that are being made about a model that would depart from the current approach.

I actually suggested in Fidelity's comment letter back in April when the concept release was outstanding the idea of introducing competitive bidding to perform the single consolidator function.

I would have written more for this meeting, but I wrote about four pages back in April and I think basically tapped out of ideas at that point. But I think that it's one that is worth exploring along with the multiple consolidator approach.

And it may be that the bidding model for single consolidator would be a middle step that one could take to inject some competition into the process without entirely discarding the approach that's been taken historically.

I would suggest that, as we go forward, there be a way to separate factual questions from policy questions. I think much of the discussion today tended to blur those two. We may be able to establish common ground more readily on some factual questions. And I may be the least informed on some of these because they are, in part, technological.

For one thing, I think we've been assuming, but I don't think anyone has affirmatively stated unequivocally, that from a technological standpoint it is relatively straightforward to perform consolidation among multiple consolidators. It sounds right to me. Maybe there's a consensus here that the technology is fairly mundane, and that's a function that could readily be performed today by multiple consolidators. If that's the case, I think perhaps we should just pin that down and go on from there.

I think there are some other factual questions, and they relate to competitive barriers or barriers to competition. And I think under any of these models, I think you don't have perfect competition, and it may be worthwhile to try and identify to get agreement on what barriers to competition are inherent in the current model, a multiple consolidator model – particularly where people can choose to relate to some but not all of other market participants and a competitive bidding model.

The latter I think has some real barriers to entry because it may be that the cost of gearing up to build the infrastructure to perform that is so high that it may not be a particularly appropriate model. But it may be worthwhile to try to come up with a common set, a template of questions that relate to barriers to competition and then apply them systematically to each model.

And I think it may be worthwhile also to get agreement, and I think we perhaps are very close to having agreement on success factors, how we would measure success, either final success or incremental success. And as I hear people around the table today, there are recurring success factors that are being invoked, the reliability of data, the real timeliness – if that's a phrase – of data, the wide availability of data, providing data on a consolidated basis at least for those who want it. And maybe we don't have to mandate consolidated data because maybe enough in the marketplace would demand it in any event.

I think reducing single point of failure is certainly another success factor to the extent that we can achieve it. And promoting innovation. There may be others, but those are the ones that I identified during the course of today's discussion.

So, again, I'm open-minded about any of these approaches. I think if we approach this, systematically separate the factual questions, which I think include competitive barrier questions, from policy questions, we may find a more systematic approach to some of the questions that we've been trying to grapple with here today.

Mr. Seligman:   Thank you, Eric.

Mr. Quick:   Could I just – Dean Seligman --

Mr. Seligman:   Yes, Peter.

Mr. Quick:   Could I just add a couple of things with regard to the AMEX's view?

Mr. Seligman:   If you like. I would like to give the people on the phone a chance to comment if I could. They've been very patient.

Mr. Quick:   Sorry.

Mr. Seligman:   Bob Forney, are you still there?

Mr. Forney:   Yes, Mr. Chairman. A real quick answer to the question. I think we could presumably get to the same great conclusion by taking either strategy. I favor the working with first the issue of trying to fix the current model as the more efficient approach. If for no other reason, we know that model, we know what the issues are, and we can deal with them relatively quickly.

If we take the other strategy first, it seems to me that it, by definition, has no form, no structure, and will in fact require us to deal with all of the issues associated with the current model anyhow. So it seems to me that – I think somebody else earlier said that we would eventually be looking at – I think it was Bernie that said by looking at the current issue first, we will logically go to wherever we have to go to to ultimately optimally fix the components that have to be fixed.

Mr. Seligman:   Thanks, Bob. Bill Harts.

Mr. Harts:   I think this actually --

Mr. Seligman:   Bill, I'm really having trouble hearing you.

Mr. Harts:   I'm sorry.

Mr. Seligman:   Could you --

Mr. Harts:   I think that in Schwab's proposal, the – Carrie Dwyer actually laid out it in fairly good detail what most of the problems or most of the issues with the current model are, and I would recommend that everyone really at least focus on that in terms of forming their thoughts, because I did.

As I looked at this list of issues, I sort of came to the conclusion that there really wasn't much on there that couldn't be remedied by some incremental changes in the existing system. And I guess that's where we're coming out on this is that if we sort of start with the existing system and looked at what would need to be changed, maybe with placing a special emphasis on deregulation, some of – it would probably cure some of the points that Carrie was talking about. But I think if we do start with the existing system that we'll end up where we want to be.

Mr. Seligman:   Thank you, Bill. Ed Joyce.

Mr. Joyce:   Yes, to be brief, I wouldn't go on a dual track. I'd identify the problems as was just recommended and deal with them specifically under the current structure. At the conclusion of that, I'd determine whether or not I still had a problem and whether or not I had an appetite to continue. And I'd do so if necessary.

Mr. Seligman:   Thank you, Ed. Tom Joyce.

Mr. Joyce:   Thank you, Dean Seligman. Two things. One is, I would suggest that if we're going to fix anything, we should start with – as has been articulated earlier.

Mr. Seligman:   I'm sorry, I'm having trouble hearing.

Mr. Joyce:   I'm sorry. I would suggest that we start with governance if we're going to fix anything. I think a proper governance structure and organization would result in innovation, competition, improved technology, open access. I think the governance structure is where we should start.

As far as trying to come up with an acceptable compromise that this group can endorse, which obviously we're going to end up with a compromise, with all the disparate views we have, I think the most practical thing remains the dual track approach with two subcommittees, one working on the more moderate view, and one working on the more aggressive view, and we pursue that formula as has been articulated by many others as well.

Mr. Seligman:   Okay. Peter, you wanted to have a word more?

Mr. Quick:   Yes, absolutely. The three areas that we think need some tinkering with are our view of the appraisal process for governance of CTA. Perhaps with the consideration of public governors, I'm a little perplexed in terms of why the member firms representatives on the various boards and, for instance, Schwab and Fidelity and Archipelago certainly are represented on the regional boards that have members of the CTA.

So I'm not sure that in and of itself couldn't be tweaked so that they have more a voice input into those. And perhaps a public governor or governors up on the CTA as well as a review of the revenue allocation. We believe that this is the appropriate place to consider introducing competition into the market and to look at things such as how long a market is on the best bid or offer.

With the globalization of the markets and the extending trading hours, we should be working towards collecting the market data after traditional trading hours, consolidating that data, and expanding linkages between foreign markets.

You know, I'd suggest that while we're not talking about the options, that had we had a consolidated system for options, that the option exchanges wouldn't have gone through their SEC-DOJ problems that they did this summer. And I think it's very instructive, and I think it points to the strength probably of the single consolidator. Thank you.

Mr. Seligman:   Let me turn to the SEC for a second. Carrie, in one of her later comments, posed the point that if certain steps are not taken by the SEC, we could be overtaken by events. And I do think it's worth just a sense of where you think we are with respect to the proposal she raised. Do you want her to refresh your memory?

Ms. Dwyer:   I was talking – we've sent you a letter on both the NASDAQ and The New York Stock Exchange initiatives to offer streaming real-time data on the websites. Okay, well, I didn't know. And the other is the TRACE proposal, which we will be commenting on, which in a way recreates the current structure for the corporate debt market.

Ms. Nazareth:   I'm not sure I agree that it recreates the current structure. In the following sense that when that – in the process of coming up with that proposal, there was very substantial participation by the Bond Market Association and various members of the industry, and it was made quite clear that the existing structure did not have to serve as a template. And I think that there have been – well, perhaps the current proposal that you're reading defers some of the issues with respect to ownership of the historical data and the like, I think there has been, you know, a clear intention to treat those issues perhaps somewhat differently than is the current model.

So I think that it has been – while it has moved on a separate track, I think that it was definitely our intention to have those issues be separately addressed.

Ms. Dwyer:   Okay. And it may be that we're reading more into the proposal than is there.

Ms. Nazareth:   Yeah, I think --

Ms. Dwyer:   You'll have a comment letter probably next week on --

Ms. Nazareth:   Yeah, because I do think that – you know, because there wasn't total consensus on all of these issues, I think what we did was we bifurcated it and let some of those issues that we do think need to be addressed, be addressed in perhaps a new way. And because we didn't have consensus, but we're eager to get debt transparency up and running --

Ms. Dwyer:   We all are.

Ms. Nazareth:   – we sort of separated those out. But our view was that we did that without prejudice, that those additional issues could be addressed in a different way from what is the current model.

Ms. Dwyer:   Okay.

Mr. Seligman:   Bob.

Mr. Britz:   If I may, I was listening very carefully to the comments, and it seems to me that perhaps six or seven commentators raised this notion of being very careful, vis-a-vis implementation and transition. I think Jerry said to be careful not to shock the system.

I hope everyone understands that The New York Exchange proposal in no way shocks the system. Because if you look specifically what will happen if we were to withdraw 9:00 a.m. tomorrow morning, we would continue to use SIAC as our pipe, the vendor of New York only market data. We would – SIAC – and by the way, I suspect, although I don't speak for other market centers – if this were to happen at 9:00 a.m. tomorrow morning, the other market centers would continue to use SIAC as their pipe.

However, for the first time, they would have the opportunity to at least think about using EDS or CSC or whoever they cared to use, and presumably would do so in a methodical measured kind of way. In addition, SIAC would continue to hold itself out as a consolidator wholly apart from the single source pipe. And for the first time, other vendors would presumably hold themselves out as consolidators as well.

So I don't think that to the extent that you look at the New York proposal there is any sort of pulling the rug out from under the existing landscape at all. In fact, it will undoubtedly happen in a very measured way.

Mr. Seligman:   Appreciate that. I think Bob wants to comment.

Mr. Colby:   I didn't want to respond to that comment so much as to say that I think Bernie's right in that it's impossible to think about fixing the existing structure without also opening your mind to thinking about whether there's more extensive changes that will solve it better. But – and I think it's probably covered – we hear from all different people all different concerns about the existing structure. I think they all came out in – not with any one particular discussion but going around the table, except for perhaps who ultimately owns the data at the base and whether that's the SRO or that's the – actually, Andy raised it, whether it's the SRO, it's the intermediary, it's the ultimate customer. That's a very metaphysical question.

And I just want to say that on behalf of the Commission staff, we're not at all reluctant to think about new structures, because times change. And if there's a better way to do it, we should do it. It's just that a structure that may engender future shock but doesn't solve the fundamental problems that we have to deal with is no benefit at all. And so it has to address market power. It has to address SRO funding. It has to address new entrants into the business. It has to address how to have innovation in the system. It has to address reliability, or else, it's just – it's not a step forward.

Ms. Nazareth:   I think that – you know, it's easier because we all have experience with the existing system to criticize the existing system and try to think about how we would change it. I think that it was a much bigger challenge. And I'm sure others agreed with me. And when we read these proposals, while they were very well done, you have to sort of weave your way through it and say where am I and how is this actually going to affect the way market data is distributed and consolidated and the like. That was a tougher haul. And I think that along the lines of what Carrie had said, if we're going down a dual track, it might be helpful because we did certainly – the Commission staff did have a number of questions as we went through with those models just saying "Gee, I'm not sure I really understand what they think is happening here." And I think that to the extent that would help if we do go down the dual track, we would like to share with you our questions on the models that were proposed so that at least you'll sort of be doing – get answers and then deal with, to the extent we can, a more apples-to-apples comparison.

We know what the problems are with the existing model. Do those same problems in fact exist in the models that are being proposed? Or do you have a response to those problems? So we'll try to do that as well and get back to you.

Mr. Britz:   Bob, if I may? At least Ed and I said that the biggest criticism of the existing system is that it's not necessary to achieve the statutory objectives. Given that it is a sort of artificial contrived anti-competitive kind of model, if in fact it's not necessary, how do you rationalize its continuation?

Mr. Colby:   Well, I think there is some doubt about your initial assumption, and that is – and Ed addressed it by saying that consolidation – delivery of consolidated information is not important. I think that is –

Mr. Britz:   That's not what we said.

Mr. Colby:   Well, I know, but you didn't explain how it would ultimately work out. Because as Joel, who's now left, said that if you have mandatory delivery of consolidated information, then that means that you've got a market power issue for every single component of that information. And so that comes as how do you deal with that market power issue? If you don't have it, then you still have the market power issue for markets that are – and you don't even have to be dominant, you just have to be significant. And then you have the question of what is going to assure that customers have a full picture of the market when they're trying to decide the terms of entering their order. And perhaps, as you suggested, best execution will do it. But I think that's still a subject for question.

Because of those concerns, I don't think it's at all sure that these proposals actually – that moving from the other proposal necessarily isn't – I'm sorry – that moving from the existing – the existing system is not important for achieving goals. You have to know that the other systems do it better in order to make sure that you're achieving the statutory goals.

Mr. Britz:   Better or as well?

Mr. Colby:   Well, as well would do.

Mr. Seligman:   Let me at this point offer anyone not on the committee, "members of the public in the room," an opportunity to pose questions if they wish, make comments.

Mr. Ketchum:   Can I just ask what do you conclude from what we just went around? Are we going to go by dual tracks or what are going – are we going to go single track first?

Mr. Seligman:   Before I reach conclusions, I think consistent with the Federal Advisory Act, I want to be sure I'm not leaving anyone out of the discussion.

Mr. Ketchum:   Fair enough.

Mr. Seligman:   If you could identify yourself, and you may need to come forward and speak into a microphone so your comments can be captured for our court reporter here.

Audience:   Thank you very much for the opportunity to speak. My name is Richard Levine. I'm Assistant General Counsel and Regulatory Officer for Knight Securities.

I'd first like to pass on my apologies for Kenneth Pasternak who is unable to be here today due to inclement weather.

We are very excited about participating in this committee. And sitting back as an observer today, I was happy to hear the way the discussions progressed. The one question that has been raised on several occasions – I believe Bob raised it and also one other panelist has raised it – is who owns the data? And while we've asked the question, I've heard no initial statements from any of the participants as to their views. And I think that that may be something that in order to go forward with our discussion intelligently, we need to vet that either at this time or very soon and determine where everybody is coming from. Because prior to 1975, I believe the Exchanges thought they exclusively owned the data.

I think today, listening to Carrie's comments and the comments of others, I think we have a question, and I think Ed would agree, that panelists here, and their companies, may own part of the data based on what they do with it. And we at Knight believe we do own part of the data, and that will help to shape our decisions in this process. So I'd love to hear from any of the panelists who are willing to speak at this time on that issue. Thank you.

Mr. Seligman:   I appreciate that. My suspicion is we will have to address that to some degree in the ultimate report. It was also obviously touched upon by the SEC concept release in other quarters.

Are there other members of the public or quasi public I guess in the case of Rich Levine who would like to speak?

(No response.)

Mr. Seligman:   Okay. Let me offer a partial answer to what Rick said, and then we can take certain aspects under advisement.

I think we will need to address what's been called both tracks of a Dual Track Proposal before we're done. I think there have been enough proponents of new forms of consolidation, indeed new forms of data aggregation from a variety of constituencies that it's important we do so.

I think at the same time that there's a very important sequencing issue here in terms of reaching the most intelligent conclusions. I would like our next meeting, the March 1st meeting, to focus on ways in which we could improve the existing system. And there have been a number of topics that have been placed on the table for us to consider. Let me just state some of them without binding myself to this list, because I will have a chance to review transcript and conceivably correspondence from you to be sure we get a full listing.

But it seems to me you have on this table at least the following concepts. Number one, should there be some minimal level of mandated data? We have an NBBO system at the moment. Implicit in this question are a number of derivative concerns including, I would suggest, perhaps who owns the data, whether or not we assume it's an unregulated field for additional data dissemination.

Number two, I suggested in terms of fixing the existing system, we would assume there would be a mandated consolidation. But I do think that as part of that consideration, a number of people have made the suggestion that we should replace the existing structure with some system that's put out for bid. And I think we should consider that.

Number three –

Mr. Roiter:   Dean Seligman, is that bid for an exclusive SIP, right, as opposed to competing SIPs?

Mr. Seligman:   Yes. I think at the moment within the existing system, we're focusing on that. And competing SIPs, well, we'll get to potentially.

Number three, there are a number of comments made about governance, and they were somewhat different in kind. A number of people, in all sorts of contexts, have said "there should be no veto." That's one kind of issue.

There's a separate kind of issue as to who should be the governors. Should it be the existing pattern of entities? Should it be broadened? And I think I am not going out on a limb in predicting there will be disparate opinions with respect to that issue.

Forgive me while I leap through my notes. There is obviously lurking in the background if we preserve the existing system, the question of fees, the question of SEC role in regulating it.

I think The New York Stock Exchange has been quite candid that they are troubled by the notion of a new system impliedly, if not explicitly stated, in the concept release which would have a more aggressive form of rate regulation. I don't think there is necessarily an inevitable outcome here, but I think we need to focus on questions as to how fee levels should be determined in this kind of monolithic system, whether or not we should focus in essence on a governance solution. Perhaps with different governance – with an ultimate SEC review, which would presumably be as rare as it has been recently in this area, whether or not we want a different kind of SEC role in the process.

This is a very complicated discussion, because it's not just a question of the SEC role, it's a question what are your standards. How do you determine what appropriate costs are? And the 1975 Act, at least in my opinion, was not as detailed as it might have been in a statutory or legislative sense here, so there's a good deal to work through.

There were questions on other topics that I could recover if I had more time to review my notes. But I would suggest that where I think we should go forward in a process sense would be the following: Let me have a few days to review my notes and put out a letter requesting from you, in terms of the first issue, fixing the current system, what other topics should be on our agenda. And I'll get to you in one second, Ed.

My belief, and I need to take this under advisement, is I need to think through hard whether or not we proceed with an Advisory Committee before – I'm sorry, with a subcommittee before March 1 or just work up through the SEC staff an articulation of policy choices for us to focus on.

I would submit to you I would like our meeting on March 1st to be an all day meeting. We're going to cover a lot of territory. I want to go through on a systematic basis, you know, the most significant issues in terms of fixing the system.

I will submit to you it is my current anticipation, and the Committee may want to reach a different determination later, that we will go on to a certain point on focusing on alternative models. But before we reach that, we'll have focused on such questions as what kind of data are we talking about, how comfortable or uncomfortable we are with possible improvements in the current system.

I do not know, focusing on the March 1st meeting, whether we'll be able to cover all of the territory involved in the improvements to the current system. I do think it is appropriate, given the of events in the industry, the significance of everything from decimalization to de-mutualization to new technology, that we have as part of our ultimate report a serious discussion of what a new model might look like. And I would suggest to you before we are done, we will have a meeting that will focus on that.

I will submit to you, before we get to that discussion, I will want a subcommittee to work to prepare a draft document. I need to take under advisement whether it would be wiser to constitute that particular subcommittee before or after March 1st. I think there may be a real practical advantage to having that effort informed, if you will, by our discussion on March 1st before we move to it.

I will, in a fairly rapid period of time, circulate to you a relatively skeletal draft letter under my current thinking which would basically say let's meet on March 1st. Here are the issues I would suggest should be on the agenda and then the order. What other ones do you want to suggest we put on? I will, in a fairly rapid period of time, come to a conclusion whether or not we should have a subcommittee to help prepare the discussion. I think it's more useful if it's not ultimately a discussion based upon just a skeletal agenda but it's based upon a more articulate discussion of the policy choices for us.

If there is a subcommittee, I will, I think in fairness, suggest that perhaps the best way to proceed would be to accept volunteers. I will need to work to schedule a meeting. I am uncertain as to when that would be, but obviously it's better to have it earlier rather than later because we may need more than one subcommittee meeting before we proceed to the March 1st date.

Let me hear any comments or thoughts on this approach to where we're going next. I think the next meeting will be one that has a lot more nuggets. We're going to cover very specific issues. We'll cover them in order, and we'll start with presumably what data should be mandated, or should data be mandated, and work through.

Ed, I think I saw your hand.

Mr. Nicoll:   I just wanted to say that it seems to me that just one sort of – in discussing the current CTA ICQ plan, one of the first order questions which you just left out on the new list, is the composition of the community itself, and we talked about the governance of that committee. Who's in, who's out is an important question. Who belongs to it?

Mr. Seligman:   Excuse me for a second. The composition of which community?

Mr. Nicoll:   Who's in the CTA-CQ plan? Who are we governing in the first place in terms of who's producing that data and who are we governing, and who should we be governing, as a first order question, before we get to governance.

Mr. Seligman:   I think that's a fair point. I think I'd like to take a quick stab at answering that. Anybody that helps generate market data, last sale, trade, anything, needs to be included or ought to be included.

Mr. Nicoll:   Well, I just think it's a question to be put. I mean if we're going to fix the system, we ought not to accept necessarily the boundaries of the existing system.

Mr. Seligman:   I think that's fair. And again, when we say this system, it's this notion of the exclusive consolidator. New models will propose alternative models of consolidation which we will focus on. But let's push the existing model as far as we can to see if we can build consensus for some alternatives.

Before we adjourn, let me just ask if anyone at the moment wants to just add additional topics for us to contemplate for the March 1st meeting which I can integrate into my letter. And if you can't think of them now, believe me you'll have more chances.

Ms. Dwyer:   May I break the rules again and answer the wrong question? I seem to be doing this a lot today.

Addressing the fixes to the existing model, and then at some point getting to what a different model would look like sounds an awful lot like a threshold, fork-in-the-road decision too, and I don't think you meant it that way.

We don't have a lot of time. I think that if we're going to do a two track exploration, we ought to do a two track exploration instead of one, and then if we have time maybe the other.

I heard an awful lot of confusion today around the table about, you know, concerns – legitimate concerns about how you would implement one of these new models. I don't think anybody who proposed one assumes that we would do it in a dumb way that would blow up the system, that would degrade the quality of data, that wouldn't be evolutionary and so forth. I think that there would be value in a subcommittee exploring exactly how you would do a new model and to answer some of the SEC's questions. But I think we're going to run out of time if we take this sequentially and favor the fix approach to the new model approach.

Mr. Seligman:   I thought about that, Carrie, a lot while we were speaking. And the reason I would – I think I want to go forward nonetheless, but the fix approach – first, I did get a certain number of overlap issues, and I think we'd be wiser to try to resolve them. It may be, as Bernie said, and I think I agree with this. You try to fix the system at the end of the day. You may say we can't fix it, or we may say we think the problems are so serious, we need to go on to a different model. But I think going on would be better informed by that discussion.

I worry when we look at how disparate the topics were and have – it's a real challenge frankly to focus the discussion with as many constituencies and many points of view that we have here.

I'd like to have a sequencing in which we can have a more structured discussion and feel like we're making more specific progress.

Now when you say we will run out of time, believe me, that is a consideration. I've published in my life and lost track of how many books. I've never missed a deadline, so I'm used to playing by temporal rules. But I will tell you we have an alternative that perhaps not every actor in the American political scene has, which is if we need more time we can ask for it.

I'd rather do this right, though, and do it systematically than place ourselves under artificial pressure so we can't really talk things through.

Ms. Dwyer:   I also want to do it right. I just – I worry that market events are going to overtake us. I think that was mentioned by several people here today. The markets are changing very, very quickly. I'm not sure that isn't an external time pressure. We ought to be very mindful of it as well.

Mr. Putnam:   I agree with you, Carrie. I didn't keep a tally of the votes, but I think most people suggested a dual track approach. And if we're going to do that, then why don't we do that?

Mr. Seligman:   We are doing it. But as – we will pursue both tracks. I've posed a sequencing consideration, and it's simply because I think it will be more efficient in pursuing the second track if we work through how we fix the current system before we go on to the second one.

Ms. Nazareth:   Without prejudicing or opining as to which approach is –

Mr. Seligman:   Yeah.

Ms. Nazareth:   I still think it would be helpful if the Commission dealt with each of the people who proposed models and shared with them sort of what our open questions are.

Ms. Dwyer:   I was just going to ask if we had additional –

Ms. Nazareth:   So that the additional thought and work could go into – we could share it with everybody – with everyone. So some of us would continue to be making progress in our thinking with respect to some alterative models.

Ms. Dwyer:   So you'd have no objection if some of us worked together to put a little more flesh on the bones in the meantime.

Mr. Seligman:   Let me be really clear. Number one, I think it would very appropriate for the Commission, which did develop questions on each of the five proposals, to circulate them to the proponents.

Number two, I think both the questions and the answers should be circulated to everyone. And that should certainly go on simultaneously. I don't want to cut that off, and I wanted to be as open as possible.

I saw several hands. Let me start with Michael. And I saw some hands here, and then finally I saw David.

Mr. Atkin:   Just two issues maybe to add to your "fix existing system list."

Mr. Seligman:   The first one was administration. Didn't get talked about a lot here today, but it is a big issue. Contracts, billing, reporting, exhibits, all of that stuff does have some impact if there is a split in the CTA.   And then there's the second one would be the technologies of dissemination for light formats and things of that nature. Those are the two things that are on my list.

Mr. Seligman:   Okay. I think I saw Peter –

Mr. Quick:   I would just like to suggest, Dean, that you might include in the next package that goes out, the SIA comment to the whole concept release – because I think it points out everybody in this room I think is from large firms or large exchanges. I think there's a concern when you get down to a lower level of, you know, what the impact might be and what their thoughts might be on changes to the system also.

Mr. Seligman:   I believe, and Bob, correct me if I'm wrong, that the comment letters are available through an SEC website. And we will take it upon –

Mr. Colby:   We'd be glad to distribute any comment letter –

Mr. Quick:   I have a copy in my – I've got it.

Mr. Seligman:   But I know that it's certainly accessible. And If anyone wants that website, we'll give it to you before you leave today. And let's take it upon ourselves to also include that website reference in the next letter that goes out.

Eric and then David.

Mr. Roiter:   Okay, Joel, in the interest of maybe narrowing some discussion, ownership of data – obviously, if people want to address that question they will address it. I think a couple of points could be made at the outset.

Number one, whatever claim might be made to the data that emanates from a single market center, no one had a claim of ownership of consolidated data or has a claim on being the owner of the function of consolidating data.

And secondly, it's a legal question – I'm a lawyer, so I'm happy to try to wrestle with this – maybe you – I, for one, think the SEC answered the question appropriately in the concept release. And that is, even assuming that there is an ownership interest, you have clear authority under the 34 Act to regulate the manner of providing data and in pricing it. And unless you get to the point for Fifth Amendment purposes of a taking, I think that you're on pretty solid ground that the Commission has pretty wide leeway to determine how appropriately to price data or how to create a system for the pricing of data.

How much further you're going to get beyond that I think is problematic. And short of going to counsel and asking for an opinion, I think it's a legal question. And I'm sure this group has a lot of strong views on the matter, but I suspect that some of their views might be who ought to own the data rather than who, as a legal matter, does own the data.

Mr. Seligman:   Thank you, Eric. I will say that there was a great SEC Chairman, Manny Cohen, who used to say to answer any problem he had to go back to Genesis. And there's a little bit of that spirit in going back and re-examining who owns the data. But it might be worthwhile before our next meeting if some on the committee who were particularly interested in that to take a look at the SEC analysis in the concept release and think through to what degree they're comfortable or uncomfortable with that.

I think I saw David.

Mr. Hunt:   Sorry, Dean. I just wanted to make a couple of suggestions on the approach going forward. First, I'd just throw my lot in with Carrie and some others here that I think that actually examining both new models as well as fixes to the existing one together in terms of time makes a lot of sense, partly because each will learn from each other. There is obviously some element of will we have enough time. But I think the most important issue is that we'll actually learn from looking at new models an awful lot, which I think might inform the other group. So I would just encourage that as one input to your considerations.

Secondly, I would encourage, as you take under advisement the use of subcommittees, you to do that. It strikes me just today, looking around, there's an awful lot of very talented people who are operating at well below their capacity just because it's so hard to actually, you know, really have input in discussion in such a large group. So I think we'd get a lot more out of the donation of people's time that we have here.

And third, if there is any way in which we can get some staff work done ahead of time for our next session, I think it would be terrific. I think that part of the reason that people had a hard time grappling with the issues is that we dealt with them on many different levels, and it wasn't a clear – I know you felt this too in your comments.

So I think with actually a little bit of structuring time up front, we can actually get a lot more crisp around what we're actually debating and what are the pros and cons of one issue and then be able to move to another, and it will just be more effective.

Mr. Seligman:   David, let me just respond. And I suppose in part I'm responding to Carrie a little bit further.

I do think I am skeptical to be able to cover everything I hope to cover even a full day meeting on March 1st. I want to have not so much an agenda but an agenda backed up by a memo laying out a series of choices for us on what seem to be the core issues here.

Let me take under advisement when it would be appropriate to appoint an advisory committee on alternative structures and whether it would be appropriate to appoint one for the purposes of focusing on the current model and improving it.

If we proceed on March 1st, as I suggested, to go through the current system, I am quite skeptical we'll have time at that meeting to simultaneously be comparing and contrasting alternatives. On the other hand, clearly there will be circulation of responses by the five proponents of alternative models that should be available long before then. But let me take it under consideration. There's a lot for me to process here and I don't want to shoot from the hip too much and have a little time to reflect and frankly review the transcript before I reach ultimate conclusions.

Mr. Feuer:   I wonder if it would make sense – if it might focus our efforts in receiving those questions from the SEC and preparing responses and trying to ensure that each or all of the alternative models meet the concerns that the SEC might identify, would it make sense to try to shoot for the April 12th meeting in terms of trying to lay those questions and answers before the advisory committee?

Mr. Seligman:   Let me take under advisement that. I think – let's see how we do on March 1st. We will get to consideration of alternative models. I don't want to pin us down precisely to April 12th because I don't know where we're going to be at 5 o'clock on March 1st or whatever time we're getting ready for conclusion, and whether or not you'll be saying at this point, and others will be saying, we need six more hours or three more hours to really work through some lingering issue. But we do have to, it seems to me, in fairness to the discussion and the disparate views, at a certain point in our deliberations very seriously work through the concept of an alternative model.

Are there other comments?

Mr. Colby:   Joel, can I ask what if people come up with other alternative models in the meantime? Are they free to submit them?

Mr. Seligman:   Yes. I mean, but at some point I think – we're one committee, and the effort will be to see if we can build consensus for one alternative. While there were certain commonalities in the five proposals, there were also a lot of different treatments on various topics. There were also a lot of issues that weren't talked about that were – that would have to be teased out before we're done.

My sense would be when we get to considering an alternative model, just as at our March 1st meeting we'll be going kind of issue by issue and trying to work it out at a committee level, we'll be working through it at that kind of level how we feel.

Mr. Colby:   It just struck me, as David said, there's an extremely talented group of people, and it may be someone's noodling over it, the structure – a brain wave that says, you know, if we only just did it this way, it would solve all 10 issues. We haven't come up with that yet, but it may happen and so –

Mr. Seligman:   Write to me.

Thank you all for coming. I know some of you struggled with some inclement weather. I'll look forward to seeing you on March 1st, if not sooner.

(At 5:11 p.m., the meeting was adjourned.)

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