Sent electronically to: email@example.com
November 22, 2003
Mr. Jonathan G. Katz
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549-0609
Subject: File No. SR-NYSE-2003-34
Notice of Filing of Proposed Rule Change by the New York Stock Exchange, Inc., Relating to the Amendment and Restatement of the Constitution of the Exchange to Reform the Governance and Management Architecture of the Exchange.
Dear Mr. Katz:
This letter contains my comments on the above-captioned rule change proposal by the New York Stock Exchange ("NYSE").
I have been involved with issues of market structure ever since the passage of the Securities Acts Amendments of 1975. In April 1976, together with two colleagues, I presented to the National Market Advisory Board of the Commission a proposal for an electronic auction market.
As the staff and members of the Commission are well aware, I have commented publicly in responses to Commission market structure releases ever since that date. In addition to proposing a visual, electronic market, I have ever since that time been advocating for a change from fractional price minimum increments to decimals, and have testified before Chairman Oxley's committee on that issue.
The events of the past several months have overwhelmingly demonstrated the dysfunctionality of the NYSE and its governance structure to the American people and the world.
The proposal made by Mr. John Reed, Interim Chairman and CEO of the NYSE, which is the subject of this Release, has a number of serious flaws, and if implemented as proposed, will neither rectify the present regulatory problems at the NYSE, not solve its market structure deficiencies, which are severe.
I am troubled by published comments which suggest the Commission will go along with the proposals to give them a chance to see if they work.
Traditionally, the most technical aspects of any enterprise are usually left to the experts. However, some of the NYSE's "experts," floor traders and specialists, have been the ones who have created the most serious problems to date. Given their economic self-interest, there is no reason to believe their remedies will serve the investing public alone, rather than their own.
In 1976 I, together with two others, performed a study for GNMA on regulatory alternatives. In our report, we pointed out that self-regulation is almost always "selfish-regulation."
In the early 1970s I served on the board of the National Association of Securities Dealers ("NASD"), and as Vice-Chairman. Looking back on my service on that board, I can see where, from time to time, decisions made by our board may have not solely been motivated to serve the public interest.
I believe regulation of the NYSE should be either by the Commission directly, or by merging the regulatory function of the Exchange with that of NASDR, which is today almost a completely divorced from the NASD, and is intended to become completely separate.
Unfortunately, history has already demonstrated self-regulatory problems at the NASD. Today we now have such problems at the NYSE. Any solution short of separation will fail, despite the good intentions of those who support such a route.
Members of the Commission, while I realize it will not be "politically correct" to make sweeping changes to the NYSE's proposal, I believe this is a golden opportunity to take the key steps needed to create the national market system the Commission was directed to "facilitate" in 1975, more than 28 years ago.
Enough time has been wasted. If the Commission fails to act appropriately, the Congress should take legislative steps to correct the problems. We all know Congress can move swiftly if it wishes. The problems with certain mutual funds, and the governance issues of the past few years were addressed quickly and forcefully by the House and Senate. The NYSE's problems have a similar dimension, and need to be fixed. I trust the Commission will be able to do the job without congressional prodding.
Once again, may I ask that all SRO rule change commentators be permitted to file them electronically; that all entities regulated by the Commission be required to submit their comments on proposed rules electronically; and that all electronic comments be made available on the Commission's web site, as well as listing the identities of those who reply only by regular mail. I am submitting these comments electronically.
Thank you for reading and best wishes for making the right decisions.
Very truly yours,