Subject: File No. S7-28-99 Internet Date: 03/31/2000 5:46 PM Ladies and Gentlemen I am writing in reply to your request for comment on the SEC Concept Release on the Regulation of Market Information Fees and Revenues. The comments below are my views and submitted with the knowledge and support of Lazard. They are a culmination of my own experience and information collected in my role as executive member of the Information Providers User Group (IPUG). Since its launch IPUG has evolved into the principal organisation representing users of Market Data services in the UK. IPUG acts as a pressure group on behalf of its member firms, with the major information service vendors such as Reuters, Bloomberg, and Bridge/Telerate. We are recognised by these vendors as the user's legitimate voice, and are frequently consulted and asked to contribute to their policy decisions. IPUG has approximately 100 member firms of all sizes - banks, insurance companies, brokers, fund managers and building societies. Both myself and my fellow members of IPUG appreciate the opportunity to be involved and would be happy to provide input into further discussions on this or related topics. Please use me as the liaison for this if required. A basic premise from user perspective is: Customers wish to see competition in the markets for their business based upon the highest quality at the lowest cost. We regard market information, in the context of the SEC paper, as the advertising which attracts customers to trade on various exchanges and, as such little or no fee should be attached to it. It is understood that further recovery may be required to cover trading, regulation, other service costs and, maybe, 'for profit' revenue goals but we believe this recovery should be through trading fees. This should be kept in mind when reviewing the comments below. SEC Concept Release Regulation of Market Information Fees and Revenues Responses to section V - Request for Comment: V.A.1. Flexible, Cost-Based Approach to Market Information Fees and Revenues Comment is requested on all aspects of the concept of setting a cost-based limit on Market information revenues: The cost based model proposed above does not appear to be very different to the model in place today as detailed in the ?Plans? which the SRO?s work to. Today the Networks' revenues are distributed first to cover the direct costs incurred in performing the ?Plan? functions and the remainder to the SRO participants in a network in accordance with the percentage of trading volume in the Network?s securities. To quote; ?The plans also govern two of the most important rights of ownership of the information ? the fees that can be charged and the distribution of revenues derived from those fees?. As this appears to work today any changes must be considered very carefully. The regulatory control of the Exchange Act ensures the fair distribution of market information and this includes fees. We do not agree that the model outlined would put the Networks on a more equal footing as this should be happening now under the current distribution. Are the categories of costs listed sufficiently distinct to provide the basis for a workable internal cost allocation? These categories are distinct enough and should be easily identified from other costs for the SRO?s if this model were adopted. What specific types of costs should and should not be classified as substantially contributing to the value of market information? Only costs specifically associated with market regulation and operation of market information should be included. These would be costs for the systems needed to collect and distribute the consolidated feed and the costs of making sure the Plan for the SRO is adhered to. What percentage should be used to obtain the net common cost pool from the gross common cost pool as the gross costs cover listing and transaction services also? A much smaller percentage should be funded by market information revenues as we feel the costs associated with listing and transaction services are higher than those needed to provide the consolidated feed. Transparency in cost and revenues would help determine what this percentage should be. V.A.2 Fairness and Reasonableness of Specific Fees a. Professional subscriber Fees Comment on fairness and reasonableness and on whether these fees in practice limit the availability of market information? If the fees are charged on a recovery of cost basis then it is difficult to argue that they are unreasonable except that if the costs were lower more users would have access to ?real-time? feeds and the costs would still be recovered. It does limit the availability of market information as many users will not pay the full price but ?put up with? delayed non-fee liable market information. The cost, to the networks, of providing the market information to the user does not change dependant on the number of users being supplied the information by the vendor. Perhaps, therefore, the recovery of costs should be limited to the amount required to distribute to the vendor rather than a per user fee. b. Retail Investor Fees Comment on whether the fees now are low enough and structured in such a way that they do not significantly limit the availability of real-time information to retail investors? The fees are structured in a way that should enable retail investors to still be profitable. Significant changes to the fees have taken place already to ensure this is the case. Any further movement could make the costs of recovery of the revenue more than the amount received. Comment on whether the fees applicable to retail investors are unreasonably discriminatory compared to those for professional subscribers? From the perspective of a professional subscriber, the fees become more discriminatory as more opportunities develop for non-professional investors to make significant profits without recourse to the services of a professional. Comment on whether the difference in rates between professional and non-professional subscribers adequately reflects the difference in use? Again, the preference for recovering costs of distribution to vendors only (and excluding value costs etc) should mean the end use of the data need not be a consideration. c. Comment on whether discounts are consistent with the Exchange Act objective that exclusive processors of information should remain neutral in their treatment of firms and customers? It does not seem consistent with the Exchange Act if end user charges vary dependant upon factors such as size of organisation etc. Again, the issue of recovery of costs based on user count is highlighted; if all users paid the same, and no discounts were available, everyone should pay a lesser per user fee. The fees for market information should not be related to how many users a firm has. Indeed, if a large firm incurred sufficiently high total costs, based on per users fees, that it would limit the number of people able to view the market information, then that is not in keeping with the Exchange Act either. The argument that the difference is related to admin costs is not substantiated. If this was, then it would be a fair method of compensation. V.B. Distribution of Network Revenues & SRO Funding 1. Comment on whether certain individual SRO costs that most directly enhance the integrity of market information should be funded as a part of the direct distribution in addition to Plan costs? Accepting the model of restricting market information costs to distribution alone, the current model in the securities market works well as the best regulated and monitored SRO?s will get the highest volumes of trades and therefore recover the additional costs accordingly. 2. Comment on whether the formula for making the Proportional Distribution should be revised to reflect more directly the value that each SRO?s information contributes to the stream of information made available? No. As stated above, the current formula works because the transaction volumes reflect the best-regulated SRO?s as market forces show the appreciation for a well-controlled environment. The idea of developing a method of rewarding based on a pragmatic formula seems to increase the costs for very little gain. The cost of regulation should be a very small part of the market information costs as mentioned in V.A.1. From the perspective of a user of market information, we should not have to pay for the costs of regulating the trading and listing functions. If these are regulated properly they are the core to providing timely and accurate consolidated feeds. We would therefore get the benefit of regulation without having to set up separate regulation allocation models in the market information distribution recovery model. 3. Comment on whether rebates are consistent with the Exchange Act objective of fair competition? Rebates should be minimal in a cost based model without a ?per user fee? (as suggested above) as only the amounts required for covering costs should have been recovered. Rebates are not consistent with the Exchange Act as they are using revenues obtained from the user community and are being given back to only a small pro-portion of those users and with no ability for others to be given the same opportunity. If a rebate was available it should be held back to reduce the next round of fee setting (assumed to be an annual process) ? this would only be possible with greater transparency. V.C. Plan and SRO disclosure Comment on whether the Plans should be required to make annual filings for the Networks that would be available to the public? In the interested of transparency it would will be essential that the Plans provide filings that are available to the public not only the audited financial statements for the participants. The filings should include all the items mentioned and also be audited. Comment on whether the SRO?s should be required to provide greater disclosure of their financial condition including disclosure of the costs associated with the performance of their various SRO functions? Again in the interests of transparency of market information costs it would be essential for the SRO to provide this level of information. However if we adopted the model that the SRO market regulation costs do not need to be recovered by the revenues from market information users do not need to see the detail of their trading related expenses. V.D. Plan Governance, Administration, and Oversight Comment on whether the governance structures for the Plans should be broadened to include such parties as vendors, broker-dealers, and investors? In principle it would be useful for this to happen but in practice it would impossible to run this ?by committee? without coming across the problems of each party having their own agenda. Improved transparency would enable interested parties to have a closer understanding of the reasons behind Plan governance. The SEC should continue to have an overall regulatory view and groups like the FISD who already debate the issues should work closer with the SEC in an advisory role. Comment is requested on whether the Plans should establish industry-wide standards for administering their fee structures and if so the most appropriate means for the Plans to act jointly in developing such standards? Yes, the Plans should establish standards. The amount of time spent on the administration of fees by the exchanges, vendors and user firms is far too high. The user perspective on this is that the easier and more straightforward the agreements are with the exchanges the quicker it is to do business and ensure compliance with those rules. With the Plans working together to provide a standard it would not mean they lose control of their market information only that the time wasted on admin and reporting is reduced and therefore so are costs to both exchanges and users. The Information Providers User Group is working with the FISD on the important task of trying to streamline the business process related to admin and reporting for all types of market information. Comment on whether the terms and conditions of all pilot programs should be made available to the public in some fashion prior to initiation of the program? Yes, the terms and conditions should be made public as they are currently often used as a way around the regulations on fees. Some flexibility to experiment without going through the process of filing with the Commission should be available. It will help both the exchanges and the user to agree a best practice before the additional time and costs associated with filing. This will be useful to ensure changes are workable and acceptable before being imposed. Louise Bulley LAZARD Telephone 0171 448 2430