May 12, 2000
Mr. Jonathan G. Katz
U.S. Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549-0609
Re: File No. SR-NYSE-99-48
Dear Mr. Katz:
The Committee on Investment of Employee Benefit Assets (CIEBA) is pleased to comment on the U.S. Securities and Exchange Commission's Concept Release on Market Fragmentation and on the proposed rescission of NYSE Rule 390. CIEBA's 140-plus members are corporate financial executives who collectively manage, as fiduciaries, $1 trillion in employee pension plan assets on behalf of over 15 million plan participants. In our role as fiduciaries overseeing large institutional retirement plans, we have a vital interest in maintaining the fairness, transparency, and liquidity of securities markets.
First, we support the rescission of NYSE Rule 390. We view the rule as having outlived any useful purpose, and applaud the New York Stock Exchange for its decision to rescind it.
Secondly, and more importantly, we urge the SEC to tread lightly as they consider changes to market regulation. The pace of change in the securities markets is very quick. What is required is for the SEC to continue to encourage competition, while not dictating a solution.
We do believe that the SEC can play an important role in encouraging market participants to improve the transparency in the market place. While a central limit order book with complete time and price priority ought not to be dictated, we believe that the need to provide investors with better transparency, liquidity, linkage, and certainty of execution should lead to a voluntary multiple market solution which may well evolve to look like that central limit order book. We believe that the market participant who is willing to expose their orders to the market should be rewarded - and that is not necessarily happening today.
As investors of large institutional pools of capital, liquidity in size and depth is important to us. We are, therefore, concerned with fragmentation of the markets. We believe that initiatives that are driven primarily by the desire of broker dealers to internalize retail trades are intuitively unappealing, potentially unfair to the retail investor, and reduce liquidity by keeping retail order flow out of the system. Internalization impedes price discovery in the market, with prices coming from the primary market but not contributing to its flow of information or liquidity. The Commission should very seriously consider requiring price improvement as a condition of internalization.
Finally, as an organization whose members are fiduciaries investing on behalf of 15 million employees, we believe our participants' interests and those of the Commission are aligned. If the Commission would like to further explore the views of "buy side" investors, we offer our assistance in researching the views of the investment advisors who actually trade in the markets for our pension funds. We would be happy to survey these investment advisors on specific questions developed with the Commission's assistance, and provide their collective views to the Commission. As investors whose skill - and livelihood -- is judged based on investment results (which are importantly influenced by the ability to execute decisions in the marketplace), the pension fund investment advisors are close to the markets, but have a different perspective than most of the organizations from whom the Commission is likely to hear on this subject. CIEBA is uniquely positioned to collect these views and pass them on to the Commission. Please let us know if we can be of assistance.
W. Allen Reed