11 Wall Street
New York, NY 10005

Darla C. Stuckey
Corporate Secretary
(212) 656-2060

New York Stock Exchange, Inc.

Via email to www.rule-comments@sec.gov

May 1, 2003

Mr. Jonathan G. Katz
U.S. Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549-0609

Re: NYSE Petition Relating to Participant Fee Exemptions
Release No. 34-47571 (April 1, 2003); File No. S7-07-03

Dear Mr. Katz:

The Commission recently published a concept release requesting comment on a petition by which the Exchange requests the Commission to amend the CTA Plan and the CQ Plan (the "Plans") to delete the provisions that exempt any Participant in the Plans from paying market data fees for the receipt of data on its trading floor for regulation or surveillance or for other specifically approved purposes (the "NYSE Petition"). As a result of the deletion, all Participants would pay for their receipt of market data under the Plans, regardless of where the Participant receives the data or how the Participant uses it. The Commission seeks comment on whether it should act on the NYSE Petition and on the effects that eliminating the participant fee exemption would have on participants in the national market system.

As the petition reflects, NYSE is of the view that the fee exemption has long out-lived its usefulness. NYSE further believes that the elimination of the participant fee exemption would have a de minimis effect on the Participants and would level the playing field for other participants in the national market system. Indeed, eight of the nine Participants began paying device fees as of July 1, 2001. Each has individually determined to absorb the charges, to pass them through to end-users or to do a combination of both. The Chicago Board Options Exchange ("CBOE") alone has not been paying the device fees. It has also appealed the administrative determination pursuant to which the other eight Participants make their payments. The appeal is currently the subject of separate Commission review.

Since NYSE filed the NYSE Petition more than two years ago, subsequent events have strengthened the arguments that the petition marshals for deleting the device-fee exemptions:

  • Deleting the exemption would resolve an issue that has now spawned seven years of dispute and two appeals to the Commission.

  • Deleting the exemption would "right" the CBOE's abuse of the Plans' "open membership" and "amendment-unanimity" provisions when it vetoed the amendment that is now before the Commission via the NYSE Petition. Since NYSE filed the NYSE Petition, CBOE activity has fallen from de minimis to zero: CBOE has not traded a single Network A security for over nine months. Thus, even though CBOE contributes nothing to the Network A data stream, it has thwarted the efforts of the contributing Participants to remove the exemption from the Plans.

  • Deleting the exemption would eliminate the competitive advantage that the exemption gives CBOE over its biggest competitor in the options arena, the International Securities Exchange ("ISE"). ISE has grown from a new start-up market at the time NYSE filed its petition into the largest stock options market. The Plan's device-fee exemption does not apply to ISE.

  • Deleting the exemption would resolve the issue of whether the device-fee exemption should apply only for devices located on physical trading floors. The dispute began when the Cincinnati Stock Exchange questioned why its remotely-located specialists did not enjoy the exemption. The last two years have seen the adoption of remote specialist programs by other regional exchanges, increasing the ranks of the exchanges adversely affected by the exemption.

  • Deleting the exemption would avoid a potential issue regarding the Boston Options Exchange, a new options exchange that the Boston Stock Exchange and the Montreal Stock Exchange are seeking to form. If the Commission approves that new market's exchange application, it will join the ISE in its inability to avail itself of the exemption.

In summary, the anticompetitive, distorting effects of the exemption have only gotten worse since we filed our petition, and further negative effects loom on the horizon.

For the reasons stated in the petition, as well as these additional exacerbating effects that this letter notes, we urge the Commission to delete the exemption from the Plans.

We thank you for this opportunity to comment and would be pleased to respond to any questions that you may have.

Sincerely yours,


cc: Chairman William H. Donaldson
Commissioner Paul S. Atkins
Commissioner Roel C. Campos
Commissioner Cynthia A. Glassman
Commissioner Harvey J. Goldschmid
Annette L. Nazareth
Lawrence E. Harris
Robert L. D. Colby
Stephen Williams