Pershing Trading Company, L.P.
One Pershing Plaza, Jersey City, New Jersey 07399 (201) 413-2000
December 12, 2000
Mr. Jonathan Katz
Securities and Exchange Commission
450 Fifth Street, NW
Washington, DC 20549
Re: SR-NASD-99-53 - Amendment No. 8
Dear Mr. Katz:
Pershing Trading Company, L.P. ("Pershing") respectfully submits its comments to the most recent amendment (the "Eighth Amendment") to the Nasdaq Stock Market, Inc's ("Nasdaq") proposal to the SuperMontage trading system ("SuperMontage").
Pershing is writing in its capacity as a Nasdaq market maker. As of October 31, 2000, Pershing made markets in 393 Nasdaq securities. Pershing's market makers traded approximately 362 million shares during the month of October. The structure of the Nasdaq market is of critical importance to Pershing and our customers.
Nasdaq initially submitted its SuperMontage proposal to the Commission on October 1, 1999. Since that first comment period there have been two additional comment periods, thus making three in total. Nasdaq has modified its proposal through seven amendments to respond to the issues raised by market participants. While we have always supported the concept of SuperMontage as a way to provide retail investors with a more transparent and efficient market, Pershing has thus far remained on the sidelines as the issues have been debated.
We applaud the NASD's efforts over the last year to work in a cooperative effort with all market participants in order to address concerns over the fairness and accessibility of the system. However, we strongly object to two provisions that the NASD has included in this Eighth Amendment in order to assuage the concerns expressed by several electronic communication networks. In response to the ECN's efforts,the Eighth Amendment would (1) allow the display of ECN quotations without the inclusion of ECN access fees, and (2) give ECN's the ability to deny access to their quotes to those parties who have refused to pay access fees. Pershing believes that ECN access fees are unjust and invalid. We cannot lend support to a proposal which may legitimize the payment of these fees.
In support of their position that they can charge non-subscribers access fees, ECN's cite a footnote (Footnote No. 272) in the September 12, 1996 SEC Release adopting the Limit Order Display Rule and amending the Firm Quote Rule1. We believe that the ECN's are misguided. Nowhere in either the Limit Order Display Rule or the amendments to the Quote Rule adopted by the SEC is their anything about the ability of an ECN to charge an access fee. The issue of access fees was never the subject of a formal rule proposal with a right to comment by interested parties which is typical of significant rule making proposals. Accordingly, the force and effect of the footnote as a basis for charging a fee is substantially in question.
We do not wish to use this letter as a forum to challenge the legality of ECN access fees. However, the Commission must be cognizant of the fact that this is one of the most hotly contested issues in the securities industry today. There are many legal questions that have not been conclusively determined. We hope that the Commission will look at this issue in the future and provide much needed guidance to the industry. In the meantime, this Amendment as proposed cannot be allowed to be adopted as it may legitimize a practice that has heretofore never been deemed legally valid.
Pershing wishes to thank the Commission for the opportunity to express its views. Please do not hesitate to contact the undersigned should you have any questions regarding these comments.