MessageFrom: Peake, Junius [Junius.Peake@unco.edu] Sent: Monday, October 20, 2003 1:06 PM To: rule-comments@sec.gov Subject: File No. S7-17-03 October 20, 2003 Jonathan G. Katz, Secretary United States Securities & Exchange Commission 450 5th Street, NW Washington DC 20549 Subject: File No. S7-17-03 Policy Statement: Business Continuity Planning for Trading Markets Dear Mr. Katz: This represents my comments on the above-captioned Policy Statement. I agree the securities industry in the United States needs to be prepared for any unforeseen catastrophe such as the September 11, 2001 attacks on the World Trade Center and the Pentagon, and commend the Commission for addressing this issue. The Release states, in part: “…Commission staff has been reviewing, on an ongoing basis, the efforts of the organized securities markets — the exchanges, Nasdaq, and ECNs — to strengthen their resilience in the post-September 11 environment. To date, these markets have taken a variety of steps to improve their physical security, information system protections, and business continuity capabilities. For example, the New York Stock Exchange (NYSE) has taken substantial measures to physically secure its Wall Street trading floor, and has established an off-site alternative trading floor that could be activated on a next-day basis if the NYSE's Wall Street trading floor was rendered inaccessible. Commission staff continues to work with the organized markets to further increase the robustness of their individual plans. In addition, Commission staff has been exploring with the markets the possibility of mutual back-up arrangements. For example, at the staff's urging, the NYSE and Nasdaq have agreed to serve as back-up trading platforms for each other's securities if a catastrophic event forced an extended closure of one market.” [Emphasis added.] It goes on to state: “…while there is little doubt that the trading markets collectively are critical to the U.S. financial system, the Commission is of the view that, individually, the markets present a lesser degree of systemic vulnerability than the key clearance and settlement utilities. For one, trading activity is relatively fungible across markets. In today's diverse U.S. national market system, very few securities are traded only in one market. As a result, the Commission believes that, were any single securities market to become incapacitated, trading could be shifted to one or more of the remaining markets.” [Emphasis added.] Assuming the United States has the national market system the Commission was directed by the Congress to facilitate in 1975, as the Commission itself states, the loss of one exchange, ECN or Nasdaq should not severely damage our equity trading systems. That said, however, communications order entry and reporting systems need to be modified to permit the seamless transfer of bids and offers from one market center to others. I would also note the Release states: “…the New York Stock Exchange (NYSE) has taken substantial measures to physically secure its Wall Street trading floor, and has established an off-site alternative trading floor that could be activated on a next-day basis if the NYSE's Wall Street trading floor was rendered inaccessible.” I understand the NYSE wishes to keep the location of this backup facility a deep dark secret. However, surely the 3,000-plus people who work daily at the present location must know where the backup location is. In addition, the people who designed and built the backup location also know its location. American investors also should be able to know its location so they can evaluate whether it is far enough away from 11 Wall Street to be a viable alternative. On a more somber note, let me also comment that if the unexpected catastrophe were an explosion or crash on the existing NYSE’s building and trading floor, similar to the one at the World Trade Center towers, the death and/or incapacitation of members, clerks and other floor personnel would render useless any backup floor. While I certainly agree with the intent of the Policy Statement, I believe moving from floor-based trading systems to electronic execution systems would enable superior backup facilities to be installed. It would also provide a far better market mechanism for investors. Very truly yours, Junius W. Peake Monfort Distinguished Professor of Finance Kenneth W. Monfort College of Business University of Northern Colorado Greeley CO 80639 970-351-2737 Home page: http://mcb.unco.edu/facstaffdir/peakej.htm