Financial Information Forum 40 Exchange Place New York, NY 10005 (212) 422-8568 October 3, 1997 Mr. Jonathan G. Katz, Secretary Securities and Exchange Commission 450 Fifth Street, N.W. Washington, D.C. 20549 Dear Mr. Katz: Reference: Release No. 34-38672, File No-S7-16-97 Regulation of Exchanges The Financial Information Forum is an organization which focuses its attention on information systems in the financial markets. Participants include brokerage firms, information vendors, exchanges and other organizations. Particular emphasis is given to issues involving the dissemination of real-time market data and other investment information as well as systems which transmit and process brokerage transactions. We are pleased to submit these comments regarding your Concept Release concerning the oversight of alternative trading systems, national securities exchanges, foreign market activities in the United States and other related issues. Consistent with our organization's objective, our comments are not directed at the regulatory changes effect on the markets themselves but on the impact that such changes may have on the information systems which serve these markets. Specifically, we address the following questions as noted in the Concept Release: Question 23 Alternative trading systems should be subject to guidelines regarding systems capacity, contingency procedures and general security arrangements. However, in the spirit of the proposed three tiers of exchanges, any regulatory requirement should not be unreasonably burdensome. We believe that criteria can be defined that would be part of the corporations current business practices. Question 61 Since information vendors are adding more transaction services and exchanges are providing more information services, it is important to discuss this issue. We suggest that the statement contained in the Concept Release at the bottom of Page 100 and continuing onto Page 101 provides a good starting criteria for distinguishing information vendors and other entities from exchanges. Questions 71 - 75 The CTA, CQS, OPRA and OTC-UTP plans systems have served the markets well in providing transparency and timely transaction reporting. However, as the markets have grown, the regulatory requirements placed upon these systems have produced market data traffic of such high levels that the communication and systems costs are becoming increasingly difficult to justify. As more markets are added to the systems, the technology, communications, regulatory and administrative systems are becoming even more complex. We suggest that the SEC should consider revising regulatory requirements for securities quotation and transaction data so that more sophisticated data processing approaches may be developed. Question 100 Our analysis indicates that approximately 75% of the quotation traffic in the CQS system does not serve to create better bids and offers. Rather, much of this traffic is generated by regional exchange auto quote systems to avoid becoming the best market when primary exchange quotes change. This is because current regulations require exchanges to maintain a continuous two-sided market. We suggest that an approach could be developed which allows exchanges to enter quotations only when they are equal to or better than the primary market. Such a change could significantly lower the cost of disseminating real-time market data. Questions 110-113 We suggest that the exemption statement on Page 100 and 101 of the Concept Release be applied to organizations which provide information from foreign markets. This would serve to identify SIPs who provide information or communication and processing services only and not trading services. Such SIPs should not be required to register. Question 134 We concur that investors should be alerted to certain characteristic of foreign markets which differ from those of our domestic markets. We suggest that the SEC or other industry organizations might develop standardized statements which could then be made available to investors through information vendors, service bureaus or Internet sites. We would be happy to elaborate on any of the comments made herein. The Financial Information Forum holds regular meetings on topics related to information systems in the financial markets. We recommend that you consider an interactive process to consider the concerns and recommendations expressed above. The Financial Information Forum and its participating organizations would be pleased to be a part of cooperative discussions to pursue innovative technical and regulatory solutions. Sincerely, Thomas J. Jordan Executive Director