Letter Regarding Comments on Second Draft of Report

Date: August 30, 2001

To: Market Data Fees Advisory Committee

From: Jerry Putnam

Re: Comments on Second Draft of Report

Archipelago appreciates the opportunity to provide comments on the second draft of the Advisory Committee Report. Our comments focus on the draft's discussion of the display of market-related information. The draft indicates that the Committee generally supports making no change to SEC Rule 11Ac1-2 ("Display Rule"); that is to say, SEC regulation should require vendors to publish a consolidated best bid or offer ("BBO") if they choose to publish any single market center's bids and offers. The Committee also recommends that market centers and self-regulatory organizations ("SROs") be permitted to provide their own market-related information on their web pages or through a proprietary feed.

Permitting SROs and market centers to publish their own market data is a positive, if incremental, step towards adding to the sources of market data of value to investors. Archipelago fears, however, that any benefits from permitting this narrow exception to the Display Rule will be outweighed by the remaining constraints of the Rule. Any market centers or SROs who wish to provide integrated quotation information provided by different market centers must build the technology in-house; depth of book integration services would be prohibited by an outside vendor. In effect, the only providers of market center display will be those that have either technologically savvy or are willing to pay for the entire consolidated quotation stream. As a result, this exception to the Display Rule will not realize its potential to reduce market data prices, promote data efficiency, or promote new forms of data transparency.

Archipelago believes there is an alternative solution that both promotes market transparency and efficiency and retains the benefits of quote consolidation. In its previous submissions to the advisory committee, Archipelago has proposed a framework that includes the following components: ¹

1. Mandatory participation of SROs (and SRO-sponsored market centers) in an exclusive market data processor (until such time as this exclusive processor becomes unnecessary);
2. Optional participation by any market participant in any no-exclusive market data processor;
3. The ability for vendors to disseminate either consolidated or non-consolidated market information and the right for informed investors to choose non-consolidated data;
4. Mandatory affirmative disclosure by vendors that do not publish consolidated information; and
5. Fair access standards for vendors that distribute market information.

Archipelago strongly believes that this proposal will promote the ideals outlined in support of the Display Rule but, at the same time, will introduce investor benefits-efficiency, value-based pricing, and breadth of information-only possible in a competitive environment.

Archipelago urges the Committee to consider alternatives to the recommendations described in the draft report. The current recommendations in the draft report will not realize the full benefits of competition.

Endnotes

¹ See, Archipelago Proposal to Modernize the National Market System, December 2000. See also, Responses to questions Concerning Archipelago's Proposal to Update the National Market System, February 28, 2001.

http://www.sec.gov/divisions/marketreg/marketinfo/dd.htm