Subject: File No. SR-NASD-2004-130
From: Grant Vingoe, Esq.
Affiliation: Partner, Arnold Porter LLP

November 21, 2006

My comment relates to Footnote 13 in Release No. 34-54650, dated October 25, 2006.

The proposed amendments are designed to obviate the need to comply with the "three quote rule" for many international stocks by recognizing the liquidity of stocks included in the FTSE All-World Index. Footnote 13 indictates that existing NASD exemptions for foreign securities, particularly those given for Canadian exchange-listed securities, are intended to be rescinded. However, the proposed amendments are more limiting with regard to Canadian-listed securities than the status quo since very few Canadian stocks are included in the FTSE All-World Index, and many of these are interlisted on US markets in any event. There are only 61 Canadian stocks presently included in this Index. However, there are many more very liquid stocks traded on Canadian stock exchanges. The liquidity in Canadian markets far exceeds the liquidity that would typically be available from US-based OTC market-makers in non-interlisted Canadian stocks. Insisting on NASD members obtaining OTC quotes in these cases will involve time delays and can be expected to result in inferior prices. OTC market makers will, in fact, rely on Canadian exchange quotes in supplying quotes to other dealers and will seek an unnecessary spread at the expense of cutomers seeking to execute transactions in these securities. If the three quotes merely affirm the Canadian exchange quotes, then no purpose is served and delay will result. Since the Canadian BBO will virtually always represent the best price for Canadian solely listed stocks, OTC dealers are unlikely to provide any price improvement or to even match Canadian prices, so again no legitimate purpose is served. This result would be contrary to principles of best execution, which should require US broker-dealers to seek the best available prices in liquid, transparent and readily accessible trading venues, such as the Canadian exchanges. The exemptions for Canadian listed securities granted by the NASD staff in the past should be preserved, and, in fact codified in NASD rules.

The fact that the FTSE All-World Index is used to determine ready market for net capital purposes and margin eligibility is irrelevant. Many Canadian stocks are inappropriately denied ready market treatment and margin eligibility through the use of this Index. This has been a long standing problem that is without economic justification. Extending the use of this Index as the sole criterion for exemption from the three quote rule merely extends this unjustified criterion to another set of broker-dealer operational rules, creating an unncessary barrier to efficient cross-border trading.

Please do not hesitate to contact me if I can provide any further information.