May 24, 2000

Jonathan G. Katz
Securities and Exchange Commission
450 Fifth Street, NW
Washington, D.C. 20549-0609

Re: Schwab Response to Market Data Concept Release
(Release No. 42208; File S7-28-99)                

Dear Mr. Katz:

By letter dated April 10, 2000 (the "NYSE Response"), the Exchange responded to the Commission's requests for comments regarding market data pricing, governance and administration (the "Concept Release"). So did many other commentators.

Of course, we recognize that other commentators may have different points of view. However, the response of Charles Schwab & Co. misstates many important facts or uses many facts in a misleading manner.1 While the correct facts can be discovered in the NYSE Response, we wish by this letter to identify and correct six of the most egregious of these inaccurate or misleading statements so that the Commission's continuing consideration of this issue is accurately informed.


"Schwab has over 3.3 million Web-enabled accounts. To offer dynamically updated market data products and services for all Networks to all these customers would cost a staggering $200 million a year. Whether that cost would be assumed by Schwab or passed on to the customers, it would be prohibitive."2


Schwab's financial exposure for market data for NYSE-listed securities ("Network A") is capped at $6 million per year. For that amount, Schwab receives market data:

Schwab can disseminate this data to all of its retail brokerage customers through all channels, and can use the data for its back-office, research, proprietary trading and other internal purposes.

Schwab's inaccurate calculation ignores not only the $6.0 million Network A enterprise fee cap, but also the various fee caps of the other networks.


"The CTA offers no ... service to the public [equivalent to NASDAQ Level II market information available at $50 per month per account] that can even be priced."


Network A does offer such a service, and at no incremental cost.


"Unless the current fee structure is changed, the growing "non-professional" subscriber base will result in ever-increasing profits for the exchanges. This is already the case. As the concept release notes, retail fees have expanded almost ten-fold, while professional fees have increased only about 1½ times over the four years from 1994 to 1998".


Network A retail investor fees have not gone up ten-fold (they have fallen precipitously). Network A professional subscriber fees have not increased one-and-one-half times (they have remained unchanged nominally and declined in real terms). Network A charges fees to Schwab, not to its retail investor customers.

As to "ever-increasing profits":


"The mark-ups on market data are enormous. In 1998 Network A incurred only $18 million in costs but charged $143 million in market data fees, a mark-up of almost 800 percent...."


The $18 million represents only the costs that Network A incurred in 1998 to consolidate the data submitted by the eight markets and to administer the distribution of that data to vendors, brokers and other data recipients. Consolidation is the last step in a process that begins with entry of an order into a Network A market. The steps include validating and safe-storing the order, routing it internally, including it in the market limit order display and the market quotation, forwarding the quotation to the Consolidated Quotation System, executing the order, reporting the execution to the entering broker, and forwarding the trade report to the Consolidated Tape System. Absent the individual markets' investments in the capacity, redundancy and reliability of their own systems and technical infrastructure, there would be no market data to consolidate. Not surprisingly, the expenses that the NYSE alone incurs in developing, maintaining and operating its order processing systems and other infrastructure dwarf the $18 million in shared costs and indeed, greatly exceed its share of Network A revenues.


"[M]ost individual investors today cannot efficiently and readily access the most vital market information of all: consolidated, dynamically updated real-time quotations." "Although broker-dealers with an online channel offer customers the ability to request or "query" a real-time quote, typically they can only request one quote at a time for a single security after typing in that security's symbol. This essentially manual process is a barrier to accessing what could be a free-flowing data stream from the markets."


For no more than 8.3 cents per month per account, Schwab may provide the most sophisticated services (including streaming, dynamically-updated and customized services) every day, all day, to every one of its retail accounts. Indeed, as it adds accounts, the cost per account is reduced due to the Network A enterprise fee cap. Today, many broker-dealers, at no charge to their retail customers, provide them the very services that Schwab claims are not available.

For no additional amount, Schwab may also use Network A data on an unlimited basis for its internal purposes.


"The lack of retail access to the full range of market data available to professionals is the greatest barrier to market transparency and fair competition. That barrier is created by the current market data fee structure."


Retail investors do not lack access to real time Network A market data. As the year 2000 began:

Individual investors have access to unlimited real-time data through a wide variety of delivery systems - PC's, telephone, television, PDA's, pagers, automated teller machines, to name the most common. Market data is available in the home and in public places -
libraries, schools, airports, restaurants, train stations, shopping malls and literally on the street. It is hard to avoid and, from many sources, absolutely FREE.

* * *

While we take strong exception to many of Schwab's general observations, positions and conclusions, the NYSE Response presents our views on these matters. Our goal here is to simply and directly correct the record regarding specific, objective facts that are important to the issues presented in the Concept Release.

Thank you for allowing us to set the record straight. Please do not hesitate to contact us if we can provide any additional information.

Sincerely yours,


1 March 14, 2000, letter from Charles S. Pottruck, President and Co-Chief Executive Officer, Charles Schwab & Co. Inc. ("Schwab"), to Jonathan G. Katz, SEC.

2 Emphasis added.