Subject: File No. SR-NASDAQ-2010-089
From: Anonymous Anonymous
Affiliation: Compliance Officer for Broker-Dealer

August 28, 2010

The following is in response to NASDAQs letter dated August 25, 2010:

NASDAQ is proposing this fee to promote efficiency in MPID use by its member firms in an effort to reduce its administrative and regulatory burden costs without fully considering the implications or unintended consequences of the proposed fee on small and mid-sized firms or those firms presently assigning unique MPIDs to each line of business and also without taking into account the ideas and proposals involving MPIDs currently under serious consideration by FINRA and the Commission, one of which has been publicly endorsed by the head of FINRA (which, by the way, performs many of the regulatory functions for NASDAQ).

NASDAQ is clearly attempting to reduce the number of unused or underutilized Supplemental MPIDs through which little to no order flow is received, and to compel firms to consolidate (or reconsider using) multiple MPIDs by imposing substantial fees. However, in doing so, NASDAQ shall be discouraging small and mid-sized firms from utilizing multiple MPIDs for bona-fide business and/or regulatory purposes (e.g., the separation of different business lines for Reg SHO or information barrier purposes) due to the high costs associated with maintaining one or more Supplemental MPIDs. While large firms can easily bear these costs, small and mid-sized firms (those with likely much less order flow/activity) will be unfairly burdened and disadvantaged by this fee, and will be much more likely to consolidate MPIDs or refrain from requesting additional MPIDs in an effort to reduce costs.

Using a unique MPID for each line of business is arguably efficient, and frankly, is an excellent means of maintaining the separation of business lines/aggregation units for both business and regulatory reasons. The use of multiple MPIDs for such purposes should be supported by NASDAQ rather than discouraged through the assessment of substantial fees (per Supplemental MPID, per month) and promotion of efficiency in the use of MPIDs. NASDAQ does not explain why imposing this fee is even necessary when its own data shows such low average and median numbers of MPIDs per member firm. The target of this fee is clearly not only those firms with unused or underutilized MPIDs, but also those firms using multiple MPIDs for bona-fide business and/or regulatory purposes. While this proposed fee may improve MPID efficiency for NASDAQ, it shall have the opposite effect on member firms currently using (or planning to use) multiple MPIDs as an effective means of separating different lines of business.

NASDAQ is quick to cite current statistics regarding MPIDs of its member firms, but offers no data to identify the number of Supplemental MPIDs firms would have to request if ultimately required to maintain a unique MPID for each separate line of business/aggregation unit which, without question, would be substantial. In fact, in an apparent contradiction of its response, NASDAQs filing notes that it has seen a large increase in the number of Supplemental MPIDs requested by individual member firms, yet in its response letter cites a notably low average and median number of MPIDs held by its member firms. Furthermore, NASDAQ makes a point of citing the number of member firms with 1 or 2 assigned MPIDs, but does not disclose the number of member firms with more than two assigned MPIDs (i.e., those member firms that shall be impacted the most and incur the greatest expense), nor if those firms are small or mid-sized firms. Where is this data and why has it not been provided? Moreover, it is unlikely that NASDAQ has or made any attempt to obtain data from its member firms with multiple MPIDs to see if they are, in fact, being used to separate different (walled-off) lines of business.

NASDAQ attempts to disregard the opposition simply because there is currently no requirement to have unique MPIDs for each walled-off business line, but gives little consideration to the fact that FINRA is strongly in favor of such a requirement and that the Commission (and regulatory community as a whole) is presently reviewing and discussing market participant identifiers. While in agreement that much debate remains, this proposal should be considered in conjunction with such discussions, and should not preempt existing and active discussions concerning market participant identifiers by the industry.

While NASDAQ states that it has seen no increase in requests for MPIDs, it does not consider the fact that many firms would be forced to request additional MPIDs if the current discussions regarding market participant identifiers lead to a requirement that firms assign unique MPIDs to each walled-off business line nor does it acknowledge that certain member firms may already utilize this structure, notwithstanding the comments made by FINRA.

It should be noted that NASDAQ first filed this proposal with the Commission in July 2010 only two months after the comments made by FINRA. Given that FINRA performs many of the regulatory functions for NASDAQ including for (multiple) MPIDs it is reasonable to assume that NASDAQ was well aware that FINRA was/is publicly endorsing a requirement that broker-dealers assign unique MPIDs to each walled-off business line. Yet, NASDAQ made no reference to this fact in its filing or the active industry-wide discussions and analysis concerning market participant identifiers. Had NASDAQ made reference to these material facts in its filing with the Commission, a reasonable person would expect NASDAQ to have received a much different response from its member firms.

We respectfully ask that the Commission not approve NASDAQs proposal. Clearly, NASDAQ has not fully considered the financial, operational and regulatory implications of its proposal on small and mid-sized firms with multiple MPIDs/multiple lines of business, the proposals currently under consideration by FINRA and the Commission involving market participant identifiers, or those member firms currently assigning unique MPIDs to each walled-off line of business. As stated earlier, NASDAQs proposal should be placed on hold and incorporated into the larger analysis and discussion by all SROs, the Commission and industry participants concerning market participant identifiers. Furthermore, should this fee be approved, any future attempt by FINRA or the Commission to enact a requirement that firms assign unique MPIDs to each walled-off business line shall be undermined and met with fierce opposition by NASDAQ member firms due to this fee structure.

NASDAQ should consider a flat (monthly or yearly) fee for member firms to maintain any number of Supplemental MPIDs used for bona-fide business and/or regulatory purposes subject to the approval of NASDAQ, of course, or consider putting its proposal on hold until the industry and regulatory community have concluded reviews and discussions concerning MPIDs. Surely, if the average number of MPIDs is so low (less than 2.5) and the median even lower (approximately 1) a flat fee is not unreasonable and would reduce the financial burden on and disincentive for those firms actively employing a structure which provides for unique MPIDs with each line of business/aggregation unit or multiple MPIDs for other bona-fide business and/or regulatory purposes. Alternatively, NASDAQ could target the Supplemental MPIDs it highlights in its filing (those that are unused or underutilized) rather than those actively used by a firm separating its business lines by imposing fees on inactive or infrequently used MPIDs. These are realistic and reasonable alternatives while those suggested by NASDAQ in its response letter are clearly not realistic or practical for small and mid-sized member firms.