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From: George Rutherfurd
December 5, 2006 (This matter has also been submitted under 2006-107) Dear SEC: The above-referenced rule submission, which extends the "pilot" effectiveness of 2006-76 until December 8, 2006, is yet another example of both the NYSE's refusal to conform to clearly applicable legal requirements, and the SEC staff's disinclination to enforce the requirements of form 19b-4. With respect to the requirement of Form 19b-4 that an SRO clearly explain the basis under the 1934 Act for its proposal, the NYSE has merely made pro forma conclusory assertions. What is particularly troubling is the NYSE's meaningless assertion that its proposal is consistent with Section 11A of the act in that it promotes the efficient execution of securities transactions. As the NYSE well knows, this is not the Section 11A issue that has been clearly raised in public commentary before the Commission, and the one to which the NYSE needs to respond. The NYSE needs to explain how its proposal is consistent with Section 11A(1)(C)(v) of the Act, which mandates, to the maximum extent possible in an electronically efficient marketplace, that investors' orders be executed "without the participation of a dealer." This is the critical "basis under the Act" question, and the NYSE has steadfastly refused to discuss it. The clear inference to be drawn is that the NYSE well knows that it can make no case whatsoever that its proposal is consistent with the Act. As I pointed out in my December 4, 2006 comment letter on 2006-76, the NYSE's continued and obviously intentional lapse in this regard appears to constitute a serious breach of legal ethics. The SEC staff cannot possibly determine that the NYSE has demonstrated that it has met its legal obligation to demonstrate that 2006-76 is consistent with Section 11A of the 1934 Act. The SEC staff need to seriously re-examine their legal responsibility to enforce the requirements of Form 19b-4. The NYSE's refusal to present anything other than meaningless conclusory assertions about "basis under the Act", its refusal to discuss in Form 19b-4 public comments adverse to its proposals, and its refusal to discuss "burden on competition" except by way of meaningless conclusory assertion all suggest a mockery of what in fact are very specific requirements in Form 19b-4. Nothing calls a regulatory process into disrepute faster than a regulatory agency's promulgating specific requirements which it then declines to enforce. The NYSE's "hybrid" market submissions have made a mockery of the SEC's rule approval process, and the SEC staff's disinclination to enforce the Commission's requirements is absolutely inexplicable. I will not repeat my very specific, substantive objections to 2006-76, except to re-emphasise that the NYSE has been entirely unable to rebut a very detailed showing of exactly how, specifically, NYSE specialist's will enjoy highly anti-competitive informational and trading advantages over other market participants. There is a serious credibility issue here for the SEC staff. If they accept and repeat the NYSE's assertions once their falsity has been demonstrated in specific detail, a demonstration the NYSE has been singularly unable to counter, the SEC staff will stand rightly accused of dereliction of duty. The NYSE proposal clearly contemplates a transfer of wealth from public investors to the specialist community, in blatant disregard of the requirements of Section 11A and the negative obligation. The SEC staff have a stark choice: protect public investors or protect the NYSE's dealers. It is absolutely astounding to me that it even comes to this, when the Commission's long and honourable history has been entirely about putting the interests of public investors first. Sincerely yours,
George Rutherfurd |