Corporate Capital Securities, Inc.

222 W. Comstock Ave., Suite 221

Winter Park, FL 32789


July 27, 1998

Mr. Jonathan G. Katz


Securities and Exchange Commission

450 Fifth Street, N.W.

Washington, D.C. 20549

Re: S7-12-98 "Regulation of Exchanges and Alternative Trading Systems"

Dear Mr. Katz and Members of the Commission:

The following comments are in response to the Commission's request for comment regarding the proposed repeal of 17a-23 and the implementation of proposed Regulation ATS combined with additional proposed changes to the regulation of existing and future exchanges.

First, I commend the Commission in seeking to advance current exchange and market regulation into the modern era of ever changing technology. I particularly commend the Commission for addressing certain forward-looking issues in the Concept Release dated May, 1997. These issues, in part, included the possibility of exchange access or "membership" being open to the retail investor (see questions 43,47,48 and 49 of the Concept Release, May, 1997), the consideration of for-profit exchanges, and the consideration of publicly held exchanges. Sadly, I do not believe that the proposed Regulation ATS and accompanying changes to exchange regulation has brought about the realization of the promise held forth in the Concept Release.

The Commission has proposed that one of the criteria that would force a system to register as an exchange is whether or not it performs a regulatory function over its trading activity. According to the proposal, if an ATS performs a regulatory function or surveils its own market, it must then register as an exchange. Given the results of a three year investigation by the Department of Justice of one SRO, as well as the Commission's own findings in its 21a Report, I find it difficult to understand why any ATS would want to delegate the responsibility of regulating its market solely to that SRO.

It appears that the Commission is overlooking the fact that trading systems of the future will have an oversight capability far exceeding what conventional exchanges and markets can exhibit today. In addition, these new systems will be introducing new trading concepts that will advance the public investor interests beyond the scope of anything available today. Specifically, the Commission's staff will be able to review ALL data on EVERY trade as it occurs, including contraparties by means of a dedicated regulatory server that collects and processes all data as the trade occurs and places it on the segregated server at the same time the data is transmitted to the clearing agent. That same server will also provide analytical functionality whereby reports can be issued which will discover particular trading patterns that may be indicative of potential abuses for further investigation. Why should an ATS with such capability be confined to relegating surveillance of its market to an overburdenedd entity with a track record of non-compliance and censure?

It would appear more logical to require ANY entity that seeks to maintain a marketplace, whether it be an exchange or an ATS, to also ensure the highest standards of trading integrity through a constant and diligent practice of market surveillance. The evidence of history regarding trading abuses clearly leads to the conclusion that the SRO's and the Commission need all the help they can get when it comes to maintaining the highest standards of fair and orderly markets.

A major concern that I have with regard to the proposed Regulation ATS and exchange regulatory changes is that an exchange may conduct "pilot trading system" for up to two years as an exempt entity thereby having the opportunity to field-test its system under live conditions before assimilating the system into its main operations. Yet, given the above surveillance discussion, if an entity wishes to introduce a new marketplace which may exhibit certain exchange specific criteria it must immediately file Form 1 for which approval could take from 3 months to as much as a year without ever having the opportunity to have its technological and methodology subjected to actual market conditions. This is clearly counter to the Commission's stated objective of encouraging technological and other forms of innovation which can improve investor access, price improvement and investor protection.

I submit that the decision to register as an ATS or as an exchange may not be simply an "either/or" choice. New systems that have yet to be introduced may conceivably wish to take a stepped approach to registration whereby they initially file Form ATS and then begin the process of gathering the documentation in order to file Form 1. It is further conceivable that the stated objective of the system may be to become an exchange even as it files Form ATS. This may become an extremely important issue since the Commission and the investing public would be better served in their consideration of Form 1 during the public comment period if the proposed exchange were operating as an ATS. In that way, actual experience, at least in part if not entirely, will replace idle speculation as to the various functionalities, technologies, procedures and processes. If the current proposal is implemented without consideration of the above issue, the Commission will flip the bias of trading from the alternativee trading systems to the exchanges and effectively reduce or eliminate the prospect of innovation except as it is born of an existing exchange.

Therefore, I am opposed to the proposal under proposed Rule 301(b)(11) where the Commission would prohibit an ATS from using the term "exchange" in its name. If the ATS files Form 1, the term "exchange" should be permitted since it is part of the application. The issue of investor confusion I believe to be overrated if not non-existent. After more than 25 years of professional securities experience with the investing public, I have never encountered an investor who was concerned about whether his/her order was represented on an "exchange," "market" or "stock market." His/her concern is the issue of best execution and access to same. If the "investing public" were that concerned as to terminology and its implication relative to the substance of a marketplace your 21a Report in August, 1996, should have successfully frightened the "investing public" away from anything calling itself a "market." Clearly, such has not been the case. What is of concern to the "investing public" and what I do heaar about is that they can't get orders executed after the close when they hear on CNBC about after hours trading on Instinet by the "institutions." I assure the Commission that the "investing public" is not confused; they're angry that they have had to play on a two-tiered playing field and they're on the bottom!

There are other issues which the Commission did not effectively take into consideration in the proposed regulation. What if a marketplace was introduced that traded in decimals? It is possible to conduct such trading today through the use of an intermediary procedure. Would that market be able to file as an exchange? How would integration with CQS and CTA be accomplished? Add to the mix the fact that this market is Internet based where the entire world can observe the trading activity, including the Commission and SRO's. Would such a condition qualify for transparency? And what if this market were to be exclusively oriented to the individual investor where trading was according to non-discretionary rules including time and price priority in a true auction setting without intermediary interference and where there are no impediments to any individual investor opening an account and trading. Would the Commission view the "access" issue differently when it's the individual investor and not the broker dealer who is receiving the preferential treatment for the first time in over 200 years?

The above issues may on the surface seem to be far fetched or, at least, in the realm of the Star Trek. However, I assure the Commission each of these issues will come before the Commission in a matter of months. Since these issues are intricately woven into the fabric of the proposed Regulation ATS and accompanying exchange regulatory changes, it would appear to be in the Commission's interest to reopen its vistas in the context of the Concept Release and make the appropriate adjustments. The alternative is for the Commission to be prepared to prolifically employ its Section 36 powers.

The Concept Release dealt extensively with the issue of definition regarding the terms "exchange" and "membership." Though the proposed Regulation ATS also dealt extensively with the definition of "exchange" and its proposed changes in that area, the Commission dispatched the issue of "membership" with sharp brevity. Though leaving the door ajar as to further comment on institutional membership to exchanges, there was no discussion of individual investor membership to an exchange. The Commission is still blatantly protecting the broker dealer interests without providing adequate justification as to why a "member" of an exchange must be a broker dealer or an affiliate of same. My experience has been that the vast majority of litigation, sanctions, admonishments, expulsions, etc. have been against broker dealers, not institutions or individual investors.

The history of the securities industry has its inception with the broker dealer. The broker dealer is the center of the securities industry. Historically, the dominance of the broker dealer element in the securities industry can be attributed to the fact that it has been able to control all communications regarding virtually every facet of the industry, including its relations with the financial media. The advent of the Internet has, over the past few years begun, to erode the power base of the major wirehouses and even the regionals. This may not be immediately evident due to the vibrant and extended bull market that we have enjoyed for the past 16 years. What is undisputed is the fact that the Internet is causing a major sea change in the securities industry. It also appears evident that the industry does not fully understand the Internet. Prior to the Internet, it was physically impossible for the individual investor to interact directly with each other without going through the conventiional complex of broker dealers and exchanges. The Internet changes all that since for the first time in history fully 2/3 of the country has ready 24/7 access to broadcast communications technology. ANYONE, ANYWHERE, ANYTIME! It is imperative that the Commission and the industry fully, thoroughly and completely understand the dynamics of this relationship. Failure to do so is to subject the current dominance of our markets to premature obsolescence within a matter of a few short years.

I strongly support the Commissions desire to advance securities regulation into synchronization with current technologies and, to the extent predicable, those of the future. Unfortunately, the proposed Regulation ATS and its accompanying exchange regulation modifications fall far short of that objective. Furthermore, the proposed regulations may well inhibit the very innovation that the Commission seeks to promote.

Therefore, I strongly recommend that the Commission revisit BOTH the proposed Regulation ATS and exchange regulatory changes along with the original Concept Release of May, 1997, with the possibility of moving beyond the immediate issue of alternative trading systems to the vision of the marketplace in the next millennium. Since much of the premise of issues under debate emanate from Congressional influence and mandate dating back over two decades, I further recommend that Congressional input be sought formally and directly rather than in the context of a public comment period. What the Commission seeks to do today will dramatically effect the competitiveness of our markets in the context of world commerce in the future. I urge the Commission to broaden its scope back to the Concept Release and resubmit the matter for expanded public comment.

Respectfully submitted,

Louis C. Magill