May 10, 2000
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549
Attention: Mr. Jonathan G. Katz
Re: SEC File No. 4-430
Ladies and Gentlemen:
BRIDGE Information Systems appreciates the opportunity to provide feedback to the Securities and Exchange Commission in response to the Order, Securities Exchange Act Release No. 34-42685, (dated April 13, 2000) staying the July 3, 2000, deadline for decimal trading of some equity securities, as well as the January 3, 2001, deadline for trading all options and equities in decimals. The release also solicits responses on the feasibility of two alternative schedules for implementing decimal pricing in the US equity and options markets.
We hope that the attached responses to the questions provided in the Order are helpful. If members of the Commission or the staff believe that we may be of further assistance in these matters, please feel free to contact me at (314) 468-8314 or via e-mail at email@example.com.
Jeffery C. Wells
Senior Vice President
BRIDGE Information Systems
On April 13, 2000, the Securities and Exchange Commission (SEC) issued an order (Release No. 34-42685, File No. 4-430) staying the July 3, 2000, deadline for decimal trading of some equity securities, as well as the January 3, 2001, deadline for trading all options and equities in decimals.
In that notice, the SEC also offers two alternative schedules for the implementation of decimals in the US equity and options markets. The first schedule calls for the trading of ALL exchange-listed securities in decimals by September 4, 2000, with NASDAQ prepared to initiate decimal pricing by March 31, 2001. The second schedule offers a "Decimals Pilot", which would involve a small subset of exchange-listed equities and options trading in decimals by September 4, 2000, with a subsequent phase-in of all exchange-listed securities by March 31, 2001.
The SEC is soliciting responses on the practicality and feasibility of the two above schedules, particularly as those comments relate to the bifurcation of securities pricing (the simultaneous pricing of exchange-listed securities in decimals and NASDAQ securities in fractions, referred to as "Dual Pricing" in this notice).
1. Is it feasible to begin Dual Pricing by September 4, 2000? If it is feasible, should trading in all exchange-listed securities be in nickel or penny increments? If it is not feasible to begin Dual Pricing by September 4, 2000, why not?
The Dual Pricing proposal is technically feasible. BRIDGE is committed to preparing our systems, networks and products to successfully collect, process and distribute all financial market data in the world. In particular, as US market data traffic grows, BRIDGE has spent a great deal of time and resource to continue to add capacity to further solidify our position as the largest market data vendor in this hemisphere.
However, the Dual Pricing proposal introduces a situation that we feel is less than optimal for our clients. A phased-in solution to the introduction of decimal pricing will enable all participants to adequately prepare.
2. What, if any, system changes or other steps would be necessary to implement Dual Pricing by this September 4, 2000 deadline? What type of changes would need to be made to the systems of securities firms, investment companies, and vendors? What would be the impact on systems capacity? In light of your answers to the foregoing questions, what changes would need to be made to the current decimals testing schedule?
BRIDGE has budgeted a great deal of time, manpower and resources to prepare for the increase in market data traffic that is forecasted as a result of pricing securities in decimals. Massive system and network upgrades, as well as changes to our delivery technology will continue to be the focus of our development efforts during the next several months. We are making these changes to ensure our readiness for trading in decimals.
Concerns have been raised in the industry as to how the market will handle "net change" on the first day of trading in decimal format. Since there is not a standard method for rounding or truncating data during the conversion weekend, it is likely that different systems will reflect different "net change" values for the first day of trading. This may cause some confusion and in our opinion, it would be best to have an "official closing price" sent out by the originators in decimal format on the last day of trading in fractions. This would provide a singular reference point for all participants.
BRIDGE plans to have more than sufficient capacity, both in bandwidth and storage, to handle any of the projected increases in market data rates as a result of decimal trading. To curb a potential explosion in OPRA quote rates, BRIDGE recommends that options exchanges be limited to a quoting structure that is similar to today's marketplace. For example, any option with a price greater than $3.00 should be quoted in a minimum of a $0.10 spread. Any prices below $3.00 could be quoted at a finer spread, like $0.05. This system parallels the current spread limitations in the marketplace and reduces the likelihood of a flood of artificial quotes from the options markets.
3. Is the risk of customer confusion because of Dual Pricing significant, and if so, how should it be addressed?
BRIDGE is concerned that our customers could be confused by the bifurcation of securities pricing in the US equity markets, where some equities and options are priced in fractions, some in decimals. This is another reason that BRIDGE supports a phased-in approach to the introduction of decimal pricing.
4. If commenters believe that implementing Dual Pricing by September 4, 2000 is not feasible, what date(s) is(are) feasible to implement Dual Pricing? Commenters should include a discussion of the systems changes and testing schedules that would be needed for their alternative implementation date(s).
While BRIDGE feels that Dual Pricing is technically feasible, we advise the alternative Decimals Pilot to implement pricing in decimals. A phased-in introduction of decimals is a prudent approach.
5. In addition, if commenters believe that implementing Dual Pricing by September 4, 2000 is not feasible, is the alternative Decimals Pilot proposal feasible or preferable? If commenters believe that the Decimals Pilot is feasible, what, if any, systems changes or other steps would be necessary to facilitate this schedule? In particular, what changes would need to be made to the current decimals testing schedule? What type of changes would need to be made to the systems of securities firms, investment companies, and vendors? What would be the impact on systems capacity? Is there a risk of customer confusion, and if so, how should it be addressed?
For the many reasons stated above, BRIDGE supports the Decimals Pilot proposal.
6. If commenters believe that the Decimals Pilot is not feasible, what alternative would expedite the implementation of decimal pricing in exchange-listed and NASDAQ securities? Commenters should include a discussion of the systems changes and testing schedules that would be needed for their alternative, including implementation date(s).
BRIDGE believes that both of the project plans are technically feasible, but supports the Decimals Pilotplan. Therefore, we would not advise alternative proposals.
7. Commenters are requested to offer specific views on the optimal schedule for implementing decimal pricing in options based on exchange-listed and NASDAQ stocks subject to decimal pricing.
BRIDGE feels very strongly that options should be moved to decimals simultaneously with their underlying securities.