January 13, 2000

Mr. Jonathan G. Katz
Securities & Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549-0609

RE: File No. S7-25-99

Dear Mr. Katz:

I am in my fortieth year as a registered representative and am also the majority owner of a ten-year old brokerage firm, First Dallas Securities, which employs thirteen brokers.

I read with apprehension the proposed rule on "certain broker-dealers deemed not to be investment advisers." There are two things that concern me. One is what appears to be an official stance sanctioned by the SEC that the industry is separating execution and other services. That perhaps is true of the large brokerage firms such as Merrill Lynch and Charles Schwab. However, the industry is made up of a whole smorgasbord of different types of brokerage firms, many of which do not separate execution and other services. In other words, we operate as we always have, charging a commission for providing both execution and the variety of services that go with that. A firm such as ours can only compete "the old-fashioned way," and we still do it very successfully in spite of the trends that are underway at some of the larger firms.

To compete, we are just attempting to add more and better service as our "value-added" to continue to charge commissions the way we have in the past. Our firm could not exist in an execution-only environment, and I feel it puts us at a distinct disadvantage being regulated by an agency that sees execution and all the other services as separate interests. In an effort to accommodate the large firms and the trends they are taking, I think you are forgetting small firms like mine that are a significant part of the business, and which provide a relevant service to our clients.

The other thing that concerns me that would be disastrous to a firm like First Dallas Securities is found in the question you raised (16) "Should all discretionary accounts of broker-dealers be treated as advisory accounts"? Any action taken to make discretionary accounts, advisory accounts, would penalize our firm, and I think all small firms which over the years have had clients choose to have their accounts managed on a discretionary basis for commissions - just another value-added service for the same commission dollar. Frequently, a commission-only account is much more economical for the client than a fee-based account because commissions are only charged when market activity dictates a transaction, as opposed to an expense charged every quarter regardless of what is going on in a portfolio or the market in general.

Fee-based accounts normally look attractive in a period of rising stock prices. My years of experience tell me, though, that many of the fee-based accounts disappear when the markets turn south because clients do not like to pay fees when their portfolio is declining in value. Fortunately, we haven't seen markets like that for awhile, and the industry has tended to forget what happens to fee-based accounts in a bear market.

Knowing that the large firms tend to have a better audience with the SEC than smaller firms like ours, I feel as though I am "crying in the wilderness" in urging you not to adopt number 16. Adopting such a stance would be unfair to small firms such as ours. Please, before you adopt such a stance of adding another wrinkle to the rules about discretionary accounts, determine first what effect it would have on smaller firms that have professional brokers who provide a discretionary service for their clients. If, in your studies of making such a change, you would like additional input, I would be more than glad to go into much greater detail of the negative implications of such a proposal.


Don Hodges