December 12, 2000
U.S. Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549
Attention: Mr. Jonathan Katz, Secretary
Re: SEC File No. SR-NASD-99-53
Ladies and Gentlemen:
Bloomberg Tradebook LLC ("Bloomberg Tradebook") appreciates the opportunity to comment on Amendment No. 8 to the SuperMontage proposal ("Amendment No. 8") of the National Association of Securities Dealers, Inc. (the "NASD"), which the Commission published for comment in Securities Exchange Act Release No. 43514 (November 15, 2000).
Bloomberg Tradebook is writing to express its support for the significant and positive modifications to the SuperMontage proposal contained in Amendment No. 8.
Bloomberg Tradebook opposed the original SuperMontage because it had many elements of a CLOB, that is, a Central Limit Order Book, that would have competed unfairly with ECNs and other market venues and would have represented an abuse of the NASD's power. In response to the anti-competitive aspects of SuperMontage and the manifest abuse of regulatory power the original proposal represented, Bloomberg Tradebook called for the NASD to abandon those aspects of the SuperMontage proposal that would use NASD regulatory power to give the proposed "Nasdaq ECN" order book unfair competitive advantages over clients of ECNs and to give an unfair priority over ECN participants, through the Nasdaq ECN order book, to the 450 market makers that apparently supported the original SuperMontage proposal. In addition, Bloomberg Tradebook called for a full explanation, either in the rule filing itself or on a Web site or other identified, publicly available source, of how the SuperMontage system would function, including the text of the specifications or, in the NASD's case, system requirements.
Bloomberg Tradebook believes that the modifications contained in Amendment No. 8 level the playing field among market participants in the specific context of SuperMontage. Specifically, Bloomberg Tradebook believes that Amendment No. 8 takes the following significant steps toward making SuperMontage fair to all participants:
The corrective measures contained in Amendment No. 8 restore investor choice, competition among market participants and an element of transparency that previously had been deliberately withheld in an effort to centralize all routing and execution processes through Nasdaq's SuperMontage. In short, as a result of the adjustments provided in Amendment No. 8, SuperMontage has been transformed from a revolution in fundamental market structure to an incremental evolution in market technology characterized by a marketplace that preserves investor choice and competition.
Together with the publication of Amendment No. 8, NASD also has provided, for the first time ever, a detailed, functional description of how the SuperMontage system will operate that is available for public inspection on nasdaqtrader.com. The filing of Amendment No. 8 and the publication of a functional description of the proposed system are significant steps in resolving the problems of disclosure unique to SuperMontage and have provided the public with a more complete basis for understanding and commenting on SuperMontage. We believe that the changes introduced in Amendment No. 8 and the publication of a functional description of the SuperMontage system address satisfactorily the substantive concerns we had earlier raised.
Bloomberg Tradebook recommends against the adoption of the "trade-through" rule alternative set forth in Amendment No. 8 for the same reason we were opposed to the original SuperMontage proposal. Under the proposed rule, all orders, no matter what their size, would have to be executed at a given price before any orders could be executed at an inferior price. In effect, the proposed "trade-through" rule would constitute a first step in transforming SuperMontage into a CLOB. Moreover, we note that currently there is no trade-through rule in the Nasdaq market and we suggest it does not make sense to initiate such a rule in the SuperMontage system. Particularly in a decimalized market, a trade-through rule would work without bringing the market to a halt only if the execution of all orders at a given price could be done sufficiently quickly that a trader seeking speed rather than absolutely the best penny ticks could achieve immediate liquidity. Given the technological difficulties Nasdaq has faced in implementing SuperSOES and in preparing for decimalization, a "trade-through" rule would place further strains on a system that already is at considerable risk of being a single point of failure.
By restoring choice and making SuperMontage voluntary, we believe Nasdaq has successfully modified SuperMontage to make it a positive, incremental evolution in market technology. Furthermore, we believe that Amendment No. 8 has addressed the substantive objections that marked the NASD's previous SuperMontage filings with the Commission. The current filing, together with publication of a functional description of the SuperMontage system, gives the public an appropriate basis for evaluating the SuperMontage and it gives the Commission a more procedurally sound basis for approval of the SuperMontage.
We recommend that the SEC approve SuperMontage as proposed in Amendment No. 8 without the "trade-through" rule alternative.
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We appreciate the opportunity to make our views known to the Commission and the staff and we hope that our letter is helpful. If members of the Commission or of the staff believe we may be of further assistance in these matters, please let us know.
Very truly yours,
BLOOMBERG TRADEBOOK LLC
Kevin M. Foley
cc(w/att.): The Hon. Arthur Levitt, Chairman