From: email@example.com [mailto:firstname.lastname@example.org] Sent: Wednesday, February 12, 2003 1:54 PM To: Nazareth, Annette L. Cc: pitth@SEC.GOV; atkinsp@SEC.GOV; camposr@SEC.GOV; glassmanc@SEC.GOV; goldschmidh@SEC.GOV; ameels@SEC.GOV; delatorrel@SEC.GOV; headm@SEC.GOV; sternb@SEC.GOV; traegerh@SEC.GOV; nazaretha@SEC.GOV; ColbyR@SEC.GOV; adkinsA@SEC.GOV; williamsst@SEC.GOV; preziosog@SEC.GOV; harrisl@SEC.GOV; email@example.com; ABlocker@nyse.com; firstname.lastname@example.org; email@example.com Subject: Liquidity Quote: Joel Seligiman Annette, Thanks for coming back to me about Joel. It is, of course, your call. However, please understand that Joel does not feel he can ethically express an opinion except to you. SMOKE SCREEN That said, I passionately (can you tell?!) disagree with the view that the analysis need go beyond what the committee addressed. If you reach for this issue now and preclude differentiation at the screen, it's over. You will be rejecting the Seligman Committee's competitive model for the market for depth/enhanced data before the Commissioners ever gets a chance to understand what the committee thought -- and why it thought it -- after a year of argument and debate and many trees giving their lives. And given the energy and investment that we have expended, I don't think we'll be coming back for another round of regulatory roulette any time soon. As to the granular discussion that we have been having about screen real estate, that issue turns out to be a smoke screen. Breaking out the "where's the beef" quote from the autocrap on the screen sacrifices no utility in the NYSE-listed market. Why? Because answering the question "Where can I find the best price?" and "Where can I find the depth I need?" are separate inquiries. Besides, no one uses the montages for NYSE-listed stocks anyway. Why would they? The montage is nearly useless: as the chart in the covering email to our 2/7/03 letter shows, the average spreads between the periphery markets' "best"-priced quotes range from 22 cents to 78 cents -- against our 6 cents. We have further shown that if, in the future, another market -- say Island/Instinet -- ever came up with a "where's the beef" quote, it's no big deal. Adding another line in addition to the NYSE Liquidity Quote line is both in Island/Instinet's interest and loses little utility. Moreover, we have shown that time helps resolve the differentiation(brand)/utility trade-offs anyway. Just imagine if we were trying to sort this issue out when the inside market was at an eighth and when screens were monochromatic and didn't do "windows". We can assume that changes in technology and productivity will only make the resolution even easier going forward. Besides, utility concerns do not begin to arise until you have several lines of depth quotes. That's a highly unlikely scenario given that no market maker in its right mind would provide liquidity to its customers by standing up naked on both sides of the market for depth. So the smoke is gone. We're back to the basic "market solution" precept of the Seligman Committee's recommendation and to the question of whether the periphery markets should be able to "brand rub" their autocrap on our firm, executable, size quote. ANOTHER COMMITTEE?! As to taking our chances with a reconvened Seligman Committee (I know it was not a serious question, but you put your finger into an open wound around here), I am confident that we would "win" again. We did not "pull the wool" over anyone's eyes or "pull a fast one" on anyone. Our consistent, principled approach would again be vindicated. What I am concerned about is having to re-educate another group of competitors (remember NASDAQ's "180" on these issues at the Seligman Committee?) and to knock the stuffing out of the kind of straw men that Roger Blanc set up in his letter for Bloomberg. (It's nothing personal against Roger -- I am having lunch tomorrow (although I refused to buy) -- but he did miss a few meetings!) We're tired of being dragged back to the starting line every 18 months by competitors throwing ropes your way and urging you to tie and truss old Gulliver so they can get a leg up. The consortia plans and the display rule knocked our Humpty Dumpty off the wall a generation ago. Now, with depth data deregulated, we finally have a shot at putting the execution and data pieces back together again -- in an oh-so-modest way. And yet I find myself reading about multiple trading cases decided when my Mom, rest her soul, was a teenager, and in a letter from an unregulated complex that, over the last decade, has vertically-integrated data distribution, order routing and execution. Why, Bloomberg/Tradebook's Humpty Dumpty has been on a roll for years! Commisisoners Campos told Bloomberg and the NYSE to "take it outside, boys" -- to work out our producer/distributor issues like normal business without involving the SEC. Well, we're doing that, and we are meeting with Bloomberg again tomorrow. (It's curious, by the way, how the Tradebook brass keeps showing up at our Bloomberg meetings!) And unless you guys pull the rug out from under our negotiation by barring our requirement for independent displays -- well, funny thing, but it seems to be turning out that Bloomberg can, in fact, put a little NYSE eyeliner and eye shadow on the face of their displays and make them look pretty good to their customers without diminishing the value of their services. (I keep having this vision of Gilda Radner, impersonating Kevin Foley, saying, "Never mind!") What I also am concerned about is that more than five years have passed since another entity unregulated in the data space wrapped itself in the NMS and pushed its business plan on the Commission by bushwhacking our pricing action that halved our revenues for self-help quotes. (Too bad Commissioner Campos wasn't around then!) Schwab characterized our pricing action as a doubling of our prices (that's no typo, Annette) and pretended that individual investors, and not Schwab (and Merrill), were paying for consumer data. It has been three years since the Commission floated a utility-ratemaking balloon that turned out to be made of lead. And it's been 18 months since a lot of time spent by a lot of senior people representing a cross-section of the industry (many exuding open hostility to the NYSE's approach at the beginning, I might add) culminated in the comprehensive and thoughtful report that Joel orchestrated and scribed. Yet, the industry remains mired in consortia and display rule dysfunction. And then, by the grace of God and the will of Allah -- or by happy unintended consequence -- the Commission deregulates depth quotes through decimalization. A 100 flowers bloom. Innovation springs forth. And where do we find ourselves this fine January day -- five years gone by? Borrowing a page from the Schwab play book, another entity unregulated in the data space presses its particular business model on you in the name of the national market system. An integrated vendor/ECN urges you to extend a de facto display rule to depth/enhanced data. (With deepest apologies to Bobby Kennedy), we're asking "Why regulate?" And they're asking, "Why not?" So, thank you very much, we'd like to pass on another opportunity to educate our competitors and finish the process that started at the market structure hearings. We'd like to stand on the platform of the Seligman Committee's thoughtful work and argue our case to the Commissioners on how to rid the industry of subsidies, rebates and the payment for order flow that they fund, as well as end the other consortia and display rule dysfunctions. This email represents my personal views, etc. and [USUAL SEC DISCLOSURE]. My colleagues can leave me twisting in the wind if need be, whereupon I will retire to the shores of Lake Ontario and shoreless Moscow. (Which is also why Britz made me sign last week's letter!) Rich Bernard NYSE 212 656 2222
"Nazareth, Annette L." To: "'firstname.lastname@example.org'"
Subject: RE: Liquidity Quote: Joel Selgiman 02/12/03 08:45 AM I do not believe his assistance is necessary. This issue involves a detailed analysis far beyond that addressed by the committee. Joel is always welcome to express an opinion, and I have the highest regard for his abilities, but I don't think it is appropriate to solicit his involvement here. Would you like to take your chances and reconvene the committee? Only kidding!
From: email@example.com [mailto:firstname.lastname@example.org] Sent: Tuesday, February 11, 2003 7:30 PM To: email@example.com Cc: firstname.lastname@example.org; email@example.com Subject: Liquidity Quote: Joel Selgiman Since Bob Britz and I have argued that what we are trying to do in differentiating and branding Liquidity Quote follows from the Seligman Committee recommendations, I sent a copy of our letter to Joel. I invited his thoughts on the issue if he could find the time and still had an interest. In his responding email, Joel said he found our proposal very interesting and was pleased with our development attempt, but felt he ought not to offer a formal opinion in view of that fact that his work had been performed at the request of the Commission. In a further exchange of emails, I expressed my regrests that he felt he could not engage. He repsonded by saying that, if you asked him to address the matter, he could do so. He also said that I could represent to you that he would be glad to help Market Reg in anyway he can and that you are welcome to contact him on this. If you think Joel's involvement would be helpful, he seems ready to respond to your call.