The Nasdaq Stock Market
Observations and Approaches on Market Structure
Submission to the SEC for Discussion at Market Structure Forums
October 29, 2002
Nasdaq appreciates the opportunity to participate in the SEC's Market Structure Forums. Given the abundance of complex issues to be discussed at the forums and the limited amount of time available to discuss them, we thought it would be useful to provide the SEC with Nasdaq's views on a number of the key issues to be discussed to further assist the SEC in its decision making process as these issues come before it. This memorandum addresses each of the subject matter categories that the SEC has indicated it intends to address at the forums: collection, consolidation, and dissemination of market data; best execution and related agency issues; and exchange registration and the self-regulatory system. Although we understand the necessity of organizing these subject topics separately to facilitate discussion, as the discussions will no doubt highlight, many of these issues are interrelated and changes to one area will greatly impact the others.
In commencing any market structure debate, it is important first to focus on the statutory framework that Congress developed to guide the SEC in its role in facilitating a National Market System ("NMS"). In adopting Section 11A under the Securities Exchange Act of 1934, Congress recognized that the U.S. markets, including Nasdaq, are national assets that must be preserved and strengthened. Nasdaq believes that this Congressional recognition serves as a guide to the SEC that to the extent that regulation is necessary in facilitating an NMS that regulatory environment should ensure that competition among market participants, no matter what their regulatory status, should remain fair. In practical terms, this means that regulation should not unfairly disadvantage exchange markets vis-à-vis alternative trading systems or markets abroad. For as the SEC is well aware, competition is global and an important part of preserving U.S. markets requires that they be allowed to compete on a level playing field with other markets, both at home and abroad. An important aspect of a level playing field entails ensuring that the regulatory programs and essential technology initiatives of markets are appropriately funded. Competition can only be fair to the extent that there is a level playing field among exchanges and other market participants with respect to fees and regulatorily imposed requirements. Moreover, fair competition must be reestablished among all market participants, including between market makers and alternative trading systems.
In Section 11A of the Act Congress also recognized the benefits of technology in improving the efficiency of the markets. Technological advancements have allowed retail investors to gain a level of access to the U.S. capital markets that is historically unprecedented. In turn, the demand of retail and institutional investors for enhanced market information and more efficient access to the markets has fundamentally changed the capital creation process to the benefit of issuers and investors alike. Nasdaq has played a key role in expanding access to the markets through technology and, in this respect, Nasdaq has democratized the markets. By expanding market access, Nasdaq has also made it possible for investors in Nasdaq securities to receive execution quality for their orders, according to the measures set forth in the SEC's Rule 11Ac1-5, that equals or exceeds that available for comparable stocks listed on other markets.
Congress's directive in Section 11A was that the SEC facilitate the establishment of an NMS. From Nasdaq's perspective this directive suggests that the SEC should maintain maximum flexibility in its regulatory approach, recognizing that markets are ever-changing entities that must be given the freedom to innovate and change as the competitive environment requires. The SEC has consistently employed that flexibility to avoid forcing rules designed for floor-based markets on electronic markets or vice verse. The resulting diversity in market structures that have developed has encouraged competition, provided issuers with a clear choice of listing venues, and generally operated to the benefit of investors. We are confident that the current Commission will continue to exhibit the same foresight and flexibility in addressing market structure issues-including those presented by Nasdaq's exchange application--that have been the agency's hallmark since its inception.
Nasdaq applauds the great amount of hard work and attention that the SEC has already expended on market data issues both in the preparation of its concept release on market information as well as through its formation of the Advisory Committee On Market Information chaired by Washington University School of Law Dean Joel Seligman. Nasdaq supports the findings of the Seligman Committee, of which Nasdaq was a member. In particular, we support the Seligman Committee's majority conclusions that:
- Price transparency and consolidated market information are core elements of the U.S. securities markets;
- The SEC should continue to require the national best quote and last sale data to be provided to market participants in a consolidated format;
- Market participants should have the flexibility to distribute separately (i.e., not be mandated to do so) additional market information beyond the core elements; and
- The SEC should permit a new model for consolidating and distributing market information under which each market center would be allowed to sell its market data separately to any number of competing consolidators.
We believe support for these positions is well-documented in the Seligman Committee's September 14, 2001 report, A Blue Print for Responsible Change, as well as in Nasdaq's February 19, 2001 White Paper entitled "New Approaches to Market Information," which is included as Appendix J to the Seligman Committee Report.
Moreover, on the fundamental issue of who owns the data, Nasdaq believes that the markets own the data from the quotes and orders that are entered into their markets and the trades that occur on their markets. While individual orders provide information alone, the value of that information is truly created when it is consolidated and validated by a market, thereby allowing investors and market participants to determine the best price and monitor the quality of the executions they receive.1 We believe the important role that markets play with respect to data earns those markets the right to charge for the data based on the value that the data provides to the industry and the investing public.
The revenue earned from consolidated national quote and trade data as well as from market data that is proprietary to a specific market serves as a critical resource to fund the regulation of the markets. It also helps to fund the capacity and back-up facilities essential for maintaining the integrity of the markets. While we support continuing efforts to make data affordable to all investors, either through responsible market data rebates of the consolidated national data to brokers based on their liquidity enhancing trading activity, or continued vigilance on pricing, Nasdaq opposes pricing programs that provide rebates that are so high that they create perverse incentives to enter into non-bona fide trades. In addition to degrading the quality of market information, such pricing plans, by diverting much-needed resources away from self-regulatory organizations ("SRO"s), can create a regulatory race to the bottom, compromising all markets' regulatory programs. Therefore, it is crucial that SROs and the SEC continue to be vigilant in this area to ensure that data pricing programs are responsible.
Finally, we believe that the proper regulatory structure is in place for ensuring that the markets' pricing of core data products (i.e., the best quote and last sale) is fair. We do believe, however, that markets should have more flexibility in pricing data products beyond the minimum requirements. Nasdaq and other markets should be encouraged to find innovative ways to provide their proprietary, "enhanced" data to investors and market professionals. Because data is a key driver of market transparency, the SEC should encourage markets to increase their data offerings by allowing the markets to compete on a level playing field with other data vendors in adapting their data to meet investors' and other market participants' needs and demands.
Therefore, Nasdaq recommends that the SEC (1) allow SROs to file market data fee proposals with the SEC that are effective upon filing; (2) create a Market Data Pilot Program, similar to the SEC's existing Trading System Pilot Program that allows SROs to forego the filing process to enable them to test innovative market data products in the marketplace for a specified period of time before making a formal filing; and (3) relax the filing requirement entirely for data products that do not go to the core of the markets' business. We also agree with the conclusion of the Seligman Committee that markets should not be forced into single National Market System plans and that competing consolidators of market information should be permitted. We believe these positions would enhance competition in the market information area without compromising important regulatory protections placed on the dissemination of core data elements.
BEST EXECUTION/AGENCY ISSUES
With respect to best execution, we support many of the public pronouncements that the SEC has made, including those made in its February 2000 Fragmentation Release where it stated: "The duty [of best execution] requires a broker to seek the most favorable terms reasonably available under the circumstances for a customer's transaction."2 The SEC continued: "Price is not the sole factor that brokers can consider in fulfilling their duty of best execution with respect to customer market orders. The Commission has stated that a broker also may consider factors such as: (1) the trading characteristics of the security involved; (2) the availability of accurate information affecting choices as to the most favorable market center for execution and the availability of technological aids to process such information; and (3) the cost and difficulty associated with achieving an execution in a particular market center."3
From Nasdaq's perspective, the terms "reasonably available" and "the cost and difficulty associated with achieving an execution in a particular market center" mean that in conducting a best execution analysis a broker must consider, among other things, whether an away market's quotes are readily accessible. A superior quote on a market that cannot be easily accessed can hardly be viewed as truly superior. In other words, although price is a critical issue in analyzing best execution, speed and certainty are also key, particularly in the context of today's volatile markets where the price of a stock can move up or down several ticks in a matter of seconds.
In determining whether a firm should send its orders to away markets, the firm must assess what the likelihood is that its orders will be executed at the displayed price or better and whether they will be assessed fees for accessing that liquidity. Accessibility is critically important in trading Nasdaq securities where there is active competition between markets with very different market models. Currently, there is no adequate linkage between markets that trade Nasdaq securities, which has created numerous problems for the markets in terms of locked and crossed markets as well as for firms that are trying to fulfill their best execution obligations.
Nasdaq believes that markets should be linked but only in a manner that does not degrade the quality of executions received in any of the linked markets. That an unlinked market creates chaos that can injure investors is clear. Unlinked markets that are not otherwise immediately accessible can produce scores of locked and crossed markets, trade throughs and unfulfilled customer limit orders. The effect of locked and crossed markets is especially insidious. In dealing with locked or crossed markets, brokers are forced either to freeze the execution of retail orders while the broker goes about the laborious task of accessing unlinked markets, or executing the customers' orders and risking confusion or, worse, disillusionment of investors. Neither choice is optimal, particularly in a time, such as now, when we are all seeking to rekindle investors' faith in the equity markets.
It is not enough, however, that there simply be a linkage between markets-that linkage must also be fair, efficient and effective. The Nasdaq Stock Market is characterized by an open competitive environment for market makers and ECNs where orders and quotes are immediately accessible. Any linkage with another market must not degrade that environment. The best way to achieve that result would be for other markets, as some like the Chicago Stock Exchange already do, to participate in SuperMontage where all orders and quotes can be consolidated and immediately executed against. But if a market chooses to opt out of SuperMontage, then any link to that market must provide an automated execution. We believe that anything short of automated executions would be fundamentally unfair to those market makers that currently accept them and to the investors' orders they represent. The first maxim for any new competitor should be to first do no harm. If that competitor is unlinked or linked with a manual interface, the speed and certainty that characterize Nasdaq executions is destroyed. That is neither progress nor fair competition.
We believe that linkages themselves should not be mandated by regulation but rather should be negotiated by the individual markets that want them. Nasdaq is currently in active discussions with a number of markets that trade Nasdaq securities about developing mutually beneficial linkages, and we ask that the SEC support the fruits of these discussions when they come before the Commission.
One of the most important principles of Section 11A of the Act is that the National Market System must be developed in a way that ensures fair competition among all market participants. Two of the most critical areas that the SEC should review in this respect involve access fees and regulatory arbitrage.
In examining the development of the NMS, we strongly urge the SEC to study the impact of allowing some market participants, but not others, to charge access fees and to change those fees at will. In our view, competition among market markers and ECNs and among ATSs and exchanges can only be fair if there is a level playing field for fees. Unfortunately, we believe that the current system favors ECNs over market makers and exchanges.
Best execution requires that firms access ECNs even if they are not subscribers, but ECNs may charge high fees for this access. In this respect, best execution removes an element of competitive discipline from the process of assessing access fees. In addition, as the SEC is aware, ECN access fees, while capped, are not otherwise regulated by the SEC. We believe these differences place market makers at a competitive disadvantage versus ECNs. In Nasdaq's view, Section 11A of the Act and principles of fundamental fairness require that all liquidity providers be placed in the same position with respect to fees. Therefore, the SEC should either bar ECNs from charging access fees or allow market makers to charge them.
Liquidity rebates are another form of access fee deserving review. Currently, ECNs and other ATSs may raise or lower their fees at will while regulated markets must go through lengthy comment periods that the SEC review process requires. Any change in fees profoundly adjusts the competitive landscape among ECNs, market makers and order entry firms. Nasdaq and other regulated markets cannot be expected to compete with alternative trading systems that are not subject to the same regulatory restrictions relating to fees and other regulatorily imposed requirements. Therefore, we urge the SEC to level the playing field either by carving out certain areas that will allow markets to change fees without filing them with the SEC or to impose similar filing requirements on ATSs.
Another key issue related to fair competition deals with markets' arbitration on regulatory costs. NASD, pursuant to strong SEC oversight, collects from its members order information and operates both order and transaction audit trails. These trails permit NASD, with some exceptions, to track orders through their receipt at a firm to the trading desk and to their final execution. NASD also uses this data in numerous algorithmic programs to detect suspicious practices occurring in the market. For the system to be fair, competing markets must perform the same functions with the same care. Even more importantly, for regulation to work, the data must all flow to a single venue, preferably with a single regulator making the judgments about how that data should be analyzed. We are genuinely skeptical that such even regulation can occur today across the many venues that trade Nasdaq securities and believe that, absent fundamental changes in the current self-regulatory structure for Nasdaq securities, regulatory arbitrage is inevitable.
Therefore, as discussed below, Nasdaq believes that there should be a single regulator for critical, universal regulatory functions involving trading in Nasdaq securities, whatever the exchange or system upon which the securities are traded. In our view, NASD is the best-suited regulator. All markets could fund regulation by NASD of rules that impact multiple markets, and the funding could be derived from market data fees. Whatever the structure of regulatory oversight, however, steps must be taken now to avoid the primary markets bearing a disproportionately high share of regulatory costs. If the SEC believes that audit trails and rigorous reviews of trading activity are important, then all markets must perform the same functions and fund them separately or on a consolidated basis. We welcome the opportunity to discuss our views on regulatory arbitrage with the SEC in detail.
AND THE SELF-REGULATORY SYSTEM
In the proposed discussion outline that the SEC staff provided to all participants for these forums, the SEC staff posed a number of questions regarding whether all exchange markets should be required to satisfy certain minimum rule requirements. Among the requirements noted were questions of order priority and the ability of brokers to intermediate their customers' orders. These issues can only be effectively examined by studying how the National Market System has evolved.
We believe the development of the National Market System can be characterized by the SEC's admirable flexibility in supporting the coexistence of diverse market models. The SEC has long recognized the value to the marketplace of having many competing business models. In particular, the SEC has acknowledged the value to investors and to the marketplace of electronic dealer markets, such as Nasdaq, competing with floor-based auction markets, like the New York Stock Exchange ("NYSE").4 This increased competition has resulted in improved execution quality due to, among other things, the SEC's recognition of the value of allowing market makers to commit capital to their customers' orders, the SEC's enhanced order handling rules, technological advancements such as the ability of investors and other market participants to receive near-immediate, automated executions of their orders through systems such as SuperMontage, and the linking of ECNs to those systems. These execution quality improvements may be witnessed through SEC-approved, objective market quality measures contained in Exchange Act Rule 11Ac1-5.
In particular, Nasdaq examined Rule 11Ac1-5 market quality statistics compiled by an independent third party5 for Nasdaq-listed and NYSE-listed stocks that are components of the Standard & Poor's ("S&P") 500 Index and found that:
- Trades in Nasdaq stocks had an average execution time of about 2.5 seconds across all market centers, while trades in NYSE stocks had an average execution time of about 16.4 seconds across all market centers, with trades on the NYSE itself generally taking longer.
- Moreover, the average effective spread, which incorporates the net effect of the quoted spread and any price improvement/disimprovement, was 2.0 cents for Nasdaq stocks and 2.6 cents for NYSE stocks.
In today's market the price of a stock can change several times in a second. The vast difference in execution times discussed above suggests that there is less execution price uncertainty on Nasdaq compared with the NYSE. Reduced uncertainty is valuable to investors as are reduced effective spreads. These measures are fluid and are certainly not the only measures of execution quality. Moreover, Nasdaq acknowledges that in the past other markets had better effective spread measures than Nasdaq. Therefore, the more important point is not Nasdaq's superior execution quality at a particular point in time but the fact that the SEC's flexibility in allowing different market models to co-exist and providing them with a transparent, objective way to measure execution quality, has enhanced competition in the markets, which has enhanced transparency, depth and accessibility to the great benefit of investors. In considering Nasdaq's exchange application, we are confident that the SEC will appreciate the great value that its regulatory flexibility has brought to the markets and to investors.
The SEC's flexible approach with respect to the recent merger of the Pacific Exchange and Archipelago also demonstrates that the SEC's consistent regulatory approach toward Nasdaq need not change as a result of its application to register as an exchange.6 Indeed, the SEC has indicated exactly that in the 1998 release adopting Regulation ATS where it stated:
Nasdaq's use of established, non-discretionary methods bring it within the revised interpretation of "exchange" in Rule 3b-16. The NASD imposes basic rules by which securities are traded on Nasdaq. Specifically, it imposes affirmative obligations on market makers in Nasdaq National Market ("Nasdaq NM") and SmallCap securities, including obligations to post firm and two-sided quotes. It also operates the Small Order Execution System ("SOES") and SelectNet systems, requiring market makers to accept executions or orders for execution in these securities.
Through Nasdaq, market participants act in concert to centralize and disseminate trading interest and establish the basic rules by which securities are traded. The Commission believes that Nasdaq performs what today is generally understood to be the functions commonly performed by a stock exchange. Nasdaq, however, is currently registered as a securities information processor under Section 11A of the Exchange Act and is operated by the NASD, a registered securities association under Section 15A of the Exchange Act. Because the requirements currently applicable to a registered securities association are virtually identical to the requirements applicable to registered exchanges, the Commission does not believe it is necessary or appropriate in the public interest to require Nasdaq to register as an exchange. Under the rules the Commission is adopting today, however, Nasdaq could choose to register under Section 6 of the Exchange Act as a national securities exchange.7
In short, the SEC has taken the position publicly within the last few years that Nasdaq meets the SEC's definition of an exchange and may register as an exchange if it so chooses but is not required to do so as long as it is a facility of NASD. In fact, since 1998, Nasdaq has continued to evolve its market consistent with factors indicative of an exchange, as reflected in the SEC's recent policy statements and precedents. For example, the recent implementation of SuperMontage reinforces those aspects of Nasdaq that the SEC has viewed as consistent with an exchange. With SuperMontage, for the first time Nasdaq market participants are able to view the top five price levels aggregated across all participating market participants, including market makers, ECNs and regional exchanges. More importantly, order entrants are able to access that liquidity rapidly, often realizing executions in less than a second. The SEC-approved SuperMontage order routing algorithm allows order entrants to choose the priority under which their orders are executed, either under strict price/time priority (which is the system default), under price/size/time priority, or under price/time priority taking into account ECN access fees. As such, SuperMontage brings together the orders for securities of multiple buyers and sellers and uses established, non-discretionary methods under which such orders interact with each other and the buyers and sellers entering such orders agree to the terms of a trade.8 In short, Nasdaq performed the functions of an exchange in 1998 and does so today in an enhanced manner.
The success of the Nasdaq market, which has added transparency and efficiency to the securities markets, has been built on, among other things, a structure that permits competing dealers to add liquidity to the markets by interacting with their own order flow. This interaction with order flow is an integral part of our exchange model and, like SuperMontage, is critical to our service to investors and to the quality of our market. To a greater or lesser extent firms on all exchanges commit capital to their customers' orders. Such innovations benefit investors and the markets by enhancing liquidity, but they would not be possible if the SEC imposed strict price/time requirements on all exchanges. Moreover, such a policy would amount to a diversion from a long-held SEC position that Nasdaq already performs what are generally understood to be the functions commonly performed by a stock exchange-which is to say, bringing together buyers and sellers of securities and administering rules dictating how the orders of those buyers and sellers will interact--thereby making it an exchange, notwithstanding the absence of strict price/time priority rules.
Finally, we congratulate the SEC on its willingness to commence a serious dialogue on the need for a unified regulatory approach. After careful consideration, we believe that such an approach is necessary in the market for Nasdaq securities. As the SEC is aware, each SRO has rules in place for regulating trading on the market that it oversees. Often these rules are inconsistent across markets and even identical rules may be applied differently by different SROs. The disparities can be costly to firms that are members of multiple markets, but they also present opportunities for nefarious firms to carry out trading abuses over multiple markets. The lack of consistency of rules and regulatory programs across markets also creates the more subtle problem of allowing markets to compete, not on the quality of executions that they offer, but rather on the laxity of their regulatory programs. At a time when firms are scrutinizing every cost item, a more lightly regulated market that can offer lower cost executions or more generous rebates will look more attractive.
Nasdaq believes that it has the premier regulatory program in the world in NASD, but such a high-end regulatory program does not come without great cost. In 2002, Nasdaq has budgeted over $70 million for regulatory services provided by NASD. Half of this amount goes to acquiring and maintaining the sophisticated surveillance systems that are critical to a robust, real-time regulatory program. Historically, Nasdaq had virtually the entire market share in Nasdaq securities and therefore rightfully paid virtually the entire cost of regulating trading in Nasdaq securities. Over the past several months, however, the percentage of trading taking place outside of Nasdaq has grown exponentially. For example, in addition to Nasdaq, firms may trade Nasdaq securities in any of a number of other venues, including the American Stock Exchange, Chicago Stock Exchange, Cincinnati Stock Exchange, PCX/ARCA Exchange, NASD's Alternative Display Facility, and others.
While fragmentation in trading is often viewed as "competition" and therefore valuable in lowering trading costs, this trend toward fragmentation in the regulation of trading of Nasdaq securities creates a number of problems. First, much of the work that NASD performs for Nasdaq in surveilling its market requires NASD to view all or virtually all trades in a given security. For example, in surveilling for "wash sales," wherein brokers enter into non-bona fide trades to earn liquidity provider rebates or for some other reason, NASD must be able to view all trades that a firm effects in a security. Where a firm trades in multiple markets, however, NASD's ability to gather comprehensive trade and order information is hindered, thereby making it much more difficult to surveil for many types of trading abuses.
Moreover, Nasdaq continues to pay virtually all costs involved in regulating trading in Nasdaq securities, even though a significant portion of that trading does not take place on Nasdaq. Nasdaq cannot long sustain a business model where it subsidizes the regulatory costs of its competitors.
As a result, Nasdaq supports the concept of a single SRO for Nasdaq securities with respect to those rules that impact trading across multiple markets (e.g., insider trading, wash sales, and late trade reporting). For the self-regulatory system to work properly, all markets must perform basically the same regulatory functions in substantially the same manner. The SEC must be mindful that the same firms that trade in Nasdaq, and are therefore subject to NASD oversight, are able to easily move their trading activity to other venues in which they have a low-cost membership and where they may be able to avoid effective scrutiny. For example, in regulating Nasdaq, NASD maintains order and transaction audit trails. NASD uses data it derives from these audit trails in computer programs to detect suspicious practices in the market. Competing markets should be performing the same functions with the same care.
In the absence of consistent rules and systems for regulation, there needs to be a single SRO overseeing all trading in Nasdaq securities. We believe that NASD is currently the only SRO with adequate resources and systems to provide this comprehensive oversight. Under a single SRO approach, all regulatory data (order and trade information) would flow to NASD and NASD would make judgments about how that data will be used to carry out regulation of the markets that trade Nasdaq securities.
NASD's regulatory program could be funded through market data revenues earned by each of the markets that trade Nasdaq securities under a formula designed to allocate fairly regulatory costs based on a market's trading activity in Nasdaq securities. We believe that a single SRO for universally applicable regulations may be the only fair way to address weaknesses and inequities in the present regulatory environment for Nasdaq securities, and we encourage the SEC to continue a dialogue on adopting a single SRO for universally applicable rules for Nasdaq securities.
Again, we appreciate the opportunity to participate in this forum and look forward to a continuing dialogue with the SEC on these critical issues.
|1|| That being said, however, we believe that any broker should be permitted to sell or make available for free its own order information without being required to include consolidated information. Investors and markets should benefit from the broader availability of data in a way that does not hinder the dissemination of consolidated market information from all markets.
|2|| Exchange Act Release No. 42450 (Feb. 23, 2000) (soliciting for public comment SR-NYSE-99-48).
|3|| Id. at text accompanying n. 50.
|4|| For a discussion of the complementary improvements of auction and dealer markets see SEC, Division of Market Regulation, Market 2000: An Examination of Current Equity Market Developments (January, 1994) (hereinafter "Market 2000 Report") ("Market quality has improved substantially within the existing competitive environment. For instance, over the past several years, spreads for NYSE stocks have narrowed and depth has increased .... This is true both for Standard & Poor's ("S&P") 500 stocks and non-S&P 500 stocks. Although the percentage of volume and trades captured by the NYSE in stocks listed on that exchange has declined somewhat during the past eight years, the market quality of NYSE stocks has not been affected negatively. Similarly, the growth of NASDAQ has improved the liquidity and efficiency of the OTC market over the past 20 years.")
|5|| The comparison was performed using analytics available from Market Systems, Inc. for May 2002. The results presented here are for retail size (i.e., under 2000 shares) market and marketable limit orders covered by Rule 11Ac1-5.
|6|| The PCX/ARCA merger is also important because it marks the first time that we know of that a non-U.S. entity-in this case, Reuters, acquired a significant, indirect ownership interest in a U.S. exchange. Rather than requiring the directors or officers of each affiliate, including the foreign affiliates, to become employees of the U.S. exchange, the SEC was content that the officers and directors be "deemed" those of PCX/ARCA Exchange for certain regulatory purposes.
|7|| Exchange Act Release No. 40760 (Dec. 8, 1998). Compare "Market 2000 Report: Study II, Structure of the U.S. Equity Markets" in Market 2000 Report, supra note 4, wherein the SEC staff stated: "At the time of the Securities Acts Amendments of 1975, Congress and the Commission found it unnecessary to regulate NASDAQ as an exchange. Although certain trading characteristics of NASDAQ are functionally similar to those of the traditional exchanges, the Commission believed that these similarities did not transform NASDAQ into an exchange. Nevertheless, the NASD is subject to regulation under Section 15A of the Exchange Act that is substantively similar to the regulation for national securities exchanges under Section 6 of the Exchange Act." Id. at text accompanying nn. 48-49, notes omitted.
|8|| See Exchange Act Section 3(a)(1) and Exchange Act Rule 3b-16.