October 2, 1997
Mr. Jonathan Katz, Secretary
Securities and Exchange Commission
450 Fifth Street N.W.
Washington, DC 20549
Re: File No. S7-16-97
Dear Mr. Katz:
The Chicago Board Options Exchange ("CBOE" or the "Exchange") is pleased to submit its comments in response to the Concept Release on the regulation of securities markets and related matters (Release No. 34-38672). CBOE is a national securities exchange whose market is largely limited to securities options consisting of put and call options on individual equity securities or on indexes of securities, although it also provides a market in other types of securities. Securities options are not included within the definition of "national market system securities" set forth in Rule 11Aa3-1 under the Securities Exchange Act of 1934 ("Exchange Act"), and thus are not a part of the national market system. CBOE understands that, for this reason, much of the discussion in the Concept Release concerning the integration of alternative trading systems ("ATSs") into the national market system was not written with options in mind, and CBOE will not comment in detail on many of the specific questions raised in the Release concerning such integration.
On the other hand, if and when ATSs do propose to provide a market for securities options (one exempt exchange, Delta Government Options, already does, and one ATS, ProTrade, applied in 1996 for various exemptions that would have allowed it to issue and trade options), it is likely that the regulatory structure developed for stock ATSs will serve as the model for options ATSs. Furthermore, it has been CBOE’s experience that even if options continue to be outside the coverage of specific rules that apply to trading in national market system securities, comparable rules or policies applicable to options are eventually developed, either by the Commission or by the options exchanges themselves. 1
CBOE is therefore interested in many of the questions raised in the Concept Release even though they may not have been raised with options in mind, because, directly or indirectly, sooner or later, how these questions are ultimately answered for stocks will strongly influence how options are traded and how options markets are regulated. CBOE is also interested in these questions because it trades securities other than options, and because options market makers on CBOE are major buyers and sellers of stocks in conjunction with their options trading activities, both on traditional exchanges and through ATSs. CBOE’s comments on the issues raised in the Concept Release are presented from all of these perspectives.
CBOE will not attempt to answer all, or even most, of the 143 enumerated questions raised in the Concept Release. It will, however, express its views on some of the fundamental policy issues that underlie these questions. Before doing so, however, CBOE would like to present a summary of its views concerning how U.S. securities markets should be regulated in light of the changes that have taken place since the Exchange Act was first enacted in 1934, and since it was significantly amended in 1975.
CBOE’s views concerning market regulation start from the premise that self-regulation of securities markets, subject to Commission oversight, has served this country well over the past sixty plus years, and should continue to be regarded as the basis for regulating U.S. securities markets for the foreseeable future. When it adopted the Exchange Act in 1934, Congress determined to preserve the existing system of exchange self-regulation, but to make it subject to reserved governmental oversight and control (the proverbial "shotgun behind the door") in order to assure that the exchanges would meet their responsibilities. The kind of self-regulation that had existed prior 1934, and that Congress intended to preserve, had at its core the basic concept that markets themselves and their members would have primary responsibility for their own regulation. Congress incorporated self-regulation in the Exchange Act because it recognized that giving regulatory authority to the persons who best understand the operation of securities markets was not only the best way to achieve effective regulation, but also to assure that regulation could be adjusted rapidly and dynamically to meet the needs of changed market conditions. This, in turn, has permitted U.S. markets to innovate effectively and efficiently in meeting the challenges presented by new developments in markets and technology, even though the exact nature of these challenges in today’s environment could not then have been foreseen.
This basic approach to securities markets regulation has been followed throughout the world, and it was confirmed for U.S. markets forty years after the adoption of the Exchange Act when Congress adopted the 1975 Amendments to that Act. As stated in the Senate Report to S. 249:
Although self-regulation has not always performed up to expectations, on the whole it has worked well, and the Committee believes it should be preserved and strengthened. S. 249 is designed to accomplish this, not only by clarifying regulatory responsibilities at all levels but also by assuring that the self-regulatory organizations follow effective and fair procedures, that their activities are not anticompetitive and that the Commission’s oversight powers are ample and its responsibility to correct self-regulatory lapses is unmistakable. The intent of the bill is not to diminish the role of self-regulation but to strengthen the total regulatory fabric." (Emphasis supplied) 2
Recently, there have been some well-publicized "self-regulatory lapses," one of which might also be characterized as a lapse in the Commission’s performance of its oversight role. The seriousness of these incidents should not be diminished, and the Commission should take such steps, both internally and in respect of the self-regulatory organizations involved, as may be thought necessary to prevent their reoccurrence. But even these kinds of problems do not justify any fundamental departure from the scheme of self regulation embodied in the Exchange Act in the absence of Congressional action. In particular, we do not believe the Commission should now be engaged in an effort to micro manage or control the way exchanges are governed or how they respond to the competitive challenges they face, and we agree with the suggestions in the Concept Release that the Commission might further enhance the self-regulatory process and encourage innovation by eliminating some of the excessive regulation over exchanges that has accreted over the decades.
On the other hand, the Commission must itself be careful not to compromise investor protection in an excess of zeal to promote innovation. That is, while we would be the first to agree that some significant relaxation of the Commission’s role in regulating the introduction of new products and trading systems would be beneficial, we would caution against applying entirely different standards of regulatory oversight to different kinds of markets, depending on their size, or whether they function as exchanges with physical trading floors or as computer-based trading systems, or the degree to which they are deemed to "impact" the securities market as a whole.
The above point is especially pertinent to the market for standardized, listed options. As we will describe in greater detail below, the special risk characteristics of options, and the manner in which the risk of options positions may be transferred among market centers, means that even the smallest market in which standardized options are traded can have an enormous impact on the entire standardized options market. Because the integrity of the standardized options market as a whole is only as strong as its weakest component, there is no such thing as a "low-impact" options market that can safely be exempted from regulation.
This does not mean that innovation and regulation are inconsistent goals. As noted above and discussed in greater detail below, we concur with the suggestion in the Concept Release that there is considerable room for the Commission to encourage innovation with no lessening of regulatory standards by simplifying and speeding up the filing and approval requirements applicable to SRO rule change proposals. Nevertheless, and regardless of what the Commission might do in this regard, CBOE itself is the best evidence of how the securities industry, operating under the statutory scheme of self-regulation, has been able to innovate effectively in response to change. When the development of new theoretical approaches to the valuation of securities options and the invention of new computer technology combined to make possible the creation of an exchange market in standardized options, CBOE was able to invent itself as the world’s first options exchange, and to do so as a fully regulated national securities exchange within the structure of self-regulation embodied in the Exchange Act. The rest of the world has followed CBOE’s lead, and today options and other types of securities derivatives are traded in every developed country and even in many emerging markets, but CBOE remains the leader both in the size of its market and in its continuing ability to bring new innovative concepts to options and the way in which they are traded. CBOE has been able to do this while continuing to maintain the highest standards of investor protection.
With the foregoing as preamble, in the remainder of this letter CBOE will present its views on some of the issues on which comment was requested.
I. Alternative trading systems should be regulated as market centers within the framework of a national market system, and not as broker dealers. Although certain structural and governance requirements applicable to member-owned, not-for-profit exchanges may not be appropriate for private trading systems, those fundamental regulatory safeguards that assure the fairness, integrity and reliability of established market centers should apply to all markets, including new, alternative markets.
CBOE agrees with the arguments presented in the Concept Release to the effect that the regulation of ATSs as broker dealers has not been effective, because it has attempted to apply a scheme of regulation to trading systems that was designed for a wholly different purpose. As evidence, one need look no further than numerous recent occasions when even the largest of these systems has been overwhelmed and rendered inoperative by trading volume that exceeded its capacity. Because ATSs are regulated as broker dealers and not as exchanges, and thus are not subject to Section 6(b)(1) of the Exchange Act, which among other things requires that exchanges have the capacity to carry out the purposes of the Act, the Commission lacks the regulatory tools to deal effectively with these problems when they arise.
CBOE also agrees that the development of ATSs should occur within the framework of a national market system. For reasons discussed below, CBOE believes this can best be accomplished, with the least risk to all market centers, by regulating all such markets the same, whether they are characterized as exchanges, automated quotation systems, electronic communication networks, or alternative trading systems, except for those differences in regulation that are necessary in light of basic structural or organizational differences among the different types of market centers.
The Concept Release suggests that it might be desirable to exempt certain trading systems that are small or start-up entities, or that do not serve a price discovery function, from exchange registration requirements altogether, and to exempt other "non-traditional" exchanges from many of the burdens of exchange regulation, in order to encourage the development of these kinds of market centers and thereby foster innovation. In making this suggestion, CBOE believes the Concept Release does not sufficiently acknowledge the tension that exists between the goals of developing a national market system and the goals of encouraging innovation and competition through the development of a large number of competing trading systems, all trading the same securities. The goals of a national market system, including transparency of markets, centralization of trading to maximize best execution opportunities without the need for dealers as intermediaries, and markets characterized by a high degree of integrity and reliability, are in many respects inconsistent with the development of numerous, separate ATSs, especially if these alternative systems are less regulated than the larger, more established markets that constitute the backbone of the national market system. A proliferation of less regulated ATSs is likely to result in more fragmentation and less centralization of orders, less transparency, less reliability and less security.
With respect to non- price discovery markets, the Concept Release gives reasons why these may not need to be subject to the same degree of regulation that applies to markets that do provide price discovery. However, the Release also suggests that such non-price discovery markets should nevertheless be included within the linkages and other facilities of the national market system. CBOE does not agree, and suggests that a better approach might be not only to exempt these kinds of trading systems from certain aspects of exchange regulation, but also to exclude them from the national market system altogether. This would insulate those markets that are part of the national market system from any adverse consequences from their being linked to less regulated markets. Since by definition these trading systems do not provide price discovery, the objectives of transparency and best execution do not mandate their inclusion as participants in national market facilities and plans that are intended to achieve these objectives for full-function market centers. As discussed below, CBOE believes that a national market system is only as strong as its weakest component. Thus even the least significant ATS, if not adequately regulated, could present unacceptable risks to the other markets in the system. This would be the case whether or not the less regulated ATS performed a price discovery function. But, if non-price discovery markets are separate from the national market system, it may be possible to exempt them from some regulation without adding significant risk to those markets that operate within the system.
Turning to those alternative trading systems that do provide price discovery but have low trading volume or come within one of the other categories which the Concept Release characterizes as "low impact," CBOE respectfully disagrees with the assumptions implicit in the suggestion that exchange regulation of such trading systems is not justified by traditional regulatory concerns, and that such regulation is likely to stifle innovation. First, CBOE does not believe there is a correlation between an exchange’s "impact," as measured by the number of securities it trades or its trading volume or the extent to which it serves a price discovery function, and the need for its activities and the activities of its members or other participants to be subject to regulation, especially if it is part of a linked national market system. Second, for reasons presented in the following section, CBOE does not agree that new, small ATSs have served or will serve as major sources of innovation. Thus exempting these systems from regulation is not likely to have any significant effect on promoting innovation in U.S. securities markets.
The first point, that even so-called low impact markets, if not sufficiently regulated, can adversely impact all other markets to which they are linked, is especially true for options markets. Options are traded in a large number of series all covering the same underlying interest, which differ from each other in respect of such variables as the expiration date and exercise price. The price at which any one option series trades depends not only on the price of the underlying interest, but also on the prices for other options series on the same interests, which are used by market makers to hedge the risk of their market making activities. For this reason, all things being equal, options markets operate most efficiently and customers are most likely to receive the best executions if all related options series are traded in the same place, where hedging opportunities can be priced and established most efficiently.
We would also point out that the wide availability of sophisticated technology has eliminated the informational advantages once held by traders on exchange floors as compared with investors trading from off-floor locations. Today, even small off-floor investors have access to real-time information of all types, and to the sophisticated high-speed computers and programs needed to analyze this information in microseconds in order to identify trading opportunities. Thus, while it may once have been thought necessary to sacrifice some the efficiencies of centralized trading in order to achieve the competitive advantages of multiple trading on more than one fully regulated exchange market, today there are no countervailing benefits to options investors if trading in related options is fragmented among a number of dispersed, less regulated alternative trading systems. Instead the result of such fragmentation is simply to afford inferior executions to options investors in all markets, while exposing all options markets to greater risk.
As explained in more detail below, because of the inter-market laying off of risk that is characteristic of options trading, and because all options markets rely on the financial strength of a relatively few clearing firms and The Options Clearing Corporation, risk in one options market can affect other markets trading the same or related options. The result is that a failure in any options market can have an immediate and devastating effect on all other options markets. This makes it a critically important function of regulation of all options market centers to minimize systemic risk. Such risk, by its nature, is measured by the weakest link in the regulatory chain. Because the weakest players will naturally be attracted to the least regulated market, and because a failure in any market can directly impact other markets, it would imperil even the largest options exchange if regulation of alternative trading systems for options were to be reduced in such critical areas as financial standards and surveillance, customer account handling, manipulation, misuse of inside information, and the like.
Regulating all market centers, including ATSs, as exchanges, in addition to avoiding the systemic risk of unregulated or insufficiently regulated markets, will assure that those securities that are traded on ATSs will be integrated into the national market system in the least disruptive fashion, since as fully regulated exchanges, ATSs will have access to all national market system facilities, including those designed to assure transparency of markets and linkage of market centers.
II. Contrary to the suggestion in the Concept Release that established markets have not been innovators and are likely to stifle innovation, CBOE and other established markets have been and will continue to be responsible for much of the innovation in securities markets worldwide, and should be the focus of the Commission’s efforts to encourage innovation.
CBOE agrees that one of the goals of rethinking how securities market centers are regulated should be to encourage innovation. However, CBOE disputes the notion that innovation is more likely to come from smaller alternative trading systems than from larger, fully regulated exchanges. CBOE believes it can state without exaggeration that it has been the single greatest innovator in securities markets worldwide over the past quarter of a century, beginning with its coming into existence as the world’s first market in standardized put and call options, and continuing to include not only a large number of new products, but also many new trading systems and facilities as well as innovative regulatory initiatives. Among the products created by CBOE following its invention of the listed options market are: cash-settled index options, long-term options (LEAPS), flexible-term listed index and equity options (FLEX Options) and packaged spread options. Systems and facilities developed by CBOE include its electronic central limit order book, its RAES system, which constitutes a fully automated execution system for small retail customer orders, hand-held workstations that allow floor brokers to receive and represent options orders, and an electronic order routing system that provides for the efficient delivery of orders to CBOE-developed execution facilities. CBOE has also developed sophisticated, "cutting edge" technology in support of its market-maker community, including wireless hand-held terminals used in trade execution and reporting as well as to place hedging orders, and PC-based systems that assure the accuracy and timeliness of market-makers’ disseminated quotations. Finally, CBOE has been a leader in such innovative regulatory initiatives as perfecting its unique competing market-maker system, and developing the rules to implement risk-based capital and cross-margining among options and futures. These innovations continue to be a primary focus of CBOE, as evidenced by CBOE’s ever growing, multimillion dollar annual budgets for new product and systems development. Most important, all of this innovation has taken place in a fully regulated exchange environment, with no compromise of the statutory requirements to maintain fair and orderly markets and protect the interests of investors.
Thus, contrary to the apparent assumption of the Concept Release that established exchanges are able to ignore and even stifle innovation, U.S. exchanges exist today in a highly competitive environment where they must compete not only with each other but also with a growing domestic over-the-counter institutional market and rapidly expanding exchange and over-the-counter markets in other countries around the world. In this environment, exchanges have no choice but to innovate or perish. Not only do established exchanges have the need to innovate, but they have the resources to do so, consisting of their active and involved memberships, their knowledgeable and experienced staffs, and their substantial financial resources.
We agree with the suggestions made in the Concept Release that, in order to encourage even more innovation by established markets, the Commission should reduce or eliminate many of the regulatory burdens on all market centers. Many of these regulatory requirements do not contribute to investor protection, but instead impose costs and delays that serve only to limit the ability of U.S. markets to innovate, and thereby make them less competitive with other, markets here and around the world that do not face these obstacles to innovation. To this end, we would suggest that the Commission should devote less effort to establishing new categories of exempt exchanges and low impact exchanges, and instead should concentrate more on the steps it might take to encourage all markets to innovate. For example, the Commission might consider using its authority under Section 19(b)(3)(A) of the Exchange Act to permit a far wider range of SRO proposals to become effective on a "file and use" basis. This could apply not only to the introduction of trading in new products, but also to the effectiveness of new rules and procedures for trading existing products in appropriately monitored pilots of limited scope and duration. SROs proposing such pilots could be required to monitor them closely during an initial test period of, say, one year, and to report to the Commission at the end of the pilot period. Any such programs for the expedited effectiveness of SRO proposals should not be undercut by imposing pre-filing notice requirements and post-filing deferrals of effectiveness, as was done when the Commission adopted subparagraph (e)(6) of Rule 19b-4 under the Exchange Act.
Adopting new file-and-use procedures would represent a major, positive change from the Commission’s current practice, where it can take six months or more for a proposed new product or system to be approved. While such a proposal is awaiting Commission approval, other competing markets have an opportunity to copy and file the same proposal themselves for concurrent approval with the initiating exchange, thereby depriving the initiating exchange of the natural advantages of its innovation. In fact, if "copy-cat" exchanges are not subject to Commission filing and approval requirements (e.g., if they are off-shore or are exempt from Exchange Act filing requirements), they may even be able to put a proposal into effect before the initiating exchange is able to do so. Obviously, this kind of regulatory delay can be a major disincentive for any U.S. exchange to innovate.
In any event and at a minimum, if alternative trading systems are ever permitted to introduce new products or trading systems subject to reduced filing or other regulatory requirements, established exchanges should be permitted to do the same. That is, any exchange ought to be able to establish its own ATS, and thereby gain the same regulatory advantages of other ATSs not affiliated with established exchanges. Conversely, if an ATS proposes to trade products that are the same as or similar to products already traded on established exchanges, the ATS should be subject to the same kind and extent of regulation in respect of these products that apply to the established exchanges. Not only will this assure competitive equality between ATSs and established exchanges, but it will also satisfy the legitimate regulatory need for equal regulation of all markets that trade comparable products. This is especially pertinent in the case of products that have the risk characteristics of options, where even the strongest markets and participants in those markets may be placed in jeopardy by the failure of what might otherwise be viewed as a small and insignificant market.
III. CBOE generally opposes the creation of separate SROs that would not operate market centers but would only perform regulatory functions. However, it may be appropriate to create such independent, regulatory SROs to regulate small or start-up alternative systems that do not themselves have the resources to be responsible for their own regulation.
As discussed above, CBOE believes it is inherent in the concept of self-regulation that market centers, including exchanges, should be primarily responsible for their own regulation, subject to the oversight of the Commission. An exchange should not be disqualified from acting as a regulator simply because it is responsible for operating the market it regulates. To provide otherwise would not only call for the creation of duplicative, costly "regulation-only" SRO bureaucracies, but would deprive the regulatory SRO of the knowledge and expertise of those persons who are most intimately involved with the operation of the markets being regulated. In the case of CBOE, which operates a market in complex derivative securities, its regulatory staff works closely with member committees and other exchange departments that have operational responsibilities in order to obtain the technical understanding necessary to effective regulation. We believe this is how self-regulation was intended by Congress to work.
On the other hand, it must be recognized that smaller market centers, such as most ATSs, have neither the resources nor the breadth of activities that are necessary for a comprehensive and effective program of self regulation. Because of this inherent weakness of most ATSs, and because of the importance of providing adequate regulation of all interrelated market centers for reasons discussed above, the Commission’s response should either be to provide for more, not less, governmental oversight of ATSs, or alternatively to require that the activities of ATSs be subject to the oversight of some other SRO that does have the resources to do the job. In this special case, where the markets themselves may not be able to provide adequately for their own self-regulation, it may be appropriate, for the reasons noted in the Concept Release, to create a separate, independent SRO to perform this function rather than to subject ATSs to regulation by SROs that operate competing market centers. However, it would be contrary to the basic concept of self-regulation as embodied in the Exchange Act to separate the functions of market regulation and market operation for those markets that do have the resources to be effective self-regulators.
IV. Access to established markets should be provided only to those trading systems that constitute "real" markets, and not to those whose main purpose is to obtain the advantages of such access at low cost and without having to assume the obligations of membership in those markets. In any event, options should continue to be excluded from the national market system on account of their derivative nature and unique risk and trading characteristics.
As already noted, options have never been treated as national market securities, and are not subject to the rules governing most national market initiatives and facilities. Thus CBOE’s main concern in matters having to do with access to national market facilities is to be certain that the reasons why options are properly outside of the national market system continue to be understood. Nevertheless, CBOE will first make a few observations on the general subject of access to exchange facilities before discussing why special treatment for options continues to be appropriate
As a theoretical matter, it may seem to make sense to speak of a national market system in which all orders in the system may interact with all other orders, subject to system-wide rules of time and price priority. As a practical matter, things are not so simple. The operation of an exchange market must be recognized as a business that competes with other markets worldwide, and at the same time maintains regulatory and surveillance procedures that are designed to provide adequate assurances of fair and orderly markets and the protection of investors. Thus the operation of an exchange is a costly endeavor, and most of these costs are borne by exchange members. So that members may have an incentive to bear the costs and to accept the performance obligations of membership under exchange rules and the Exchange Act, they must have some expectation of an opportunity to trade with the order flow that comes to their exchange in preference to nonmembers who also might like to trade with this order flow, but who bear none of these costs and shoulder none of these obligations. Thus while it is entirely appropriate to develop rules and procedures designed to assure that all orders entered into a national market system are able to trade at the best prices in the system (e.g., ITS-type linkages, and "trade or fade" rules), it would be contrary to the efficient operation of exchange markets as contemplated by the Exchange Act if every participant in even the smallest, lowest cost alternative trading system could have the same access to orders sent to exchanges that is enjoyed by members of those exchanges. Otherwise, there will be a cost-driven race to the bottom, and exchange members will feel pressure to leave their exchanges in order to obtain access to order flow in the national market system through the lowest cost, least regulated trading system available.
Even where limited rights of access may be appropriate, such as access to national market systems and facilities in order to disseminate consolidated market information and to clear transactions in an effective and efficient manner, market centers granted such access should be not only be required to pay their fair share of the costs of developing and maintaining the facilities in question, but should also have to satisfy the same regulatory requirements that apply to the established exchanges in order to safeguard the reliability and integrity of these systems and facilities.
As for the application of national market system concepts to options markets, a starting point is to observe, as noted above, that the unique risk characteristics of options make the soundness of the options market as a whole depend upon the soundness (in both financial and nonfinancial respects) of each separate options market, and even each major participant in each separate market. Whenever an option is traded in any market, the seller (writer) of the option assumes a continuing obligation to perform upon exercise, whereas the holder of the option has the right to exercise but is not obligated to do so. Because of this asymmetric risk profile of options buyers and writers, and because option writers often hedge the risk of their positions in other markets, the failure of any one writer to perform upon exercise can directly impact option holders and their clearing firms in other markets that trade the same product. In this manner, all options markets are linked from a risk exposure point of view, and all must share a concern over the operational and financial integrity of every other market and market participant.
This may be illustrated by reference to The Options Clearing Corporation ("OCC"), which, as issuer and guarantor of all listed options, provides the "triple-A credit rating" reliability to these options. In meeting its commitments in respect of the options it issues, OCC must rely on the liquidity of the markets that trade its options in the event it should ever be necessary to close out short options positions at times of market duress. It also must rely on the ability of all participants in all options markets to meet their obligations to maintain adequate margin and to perform upon exercise, since that is how OCC meets its obligations on the options it issues. Thus it would not be sufficient if an ATS were to agree to pay a fair share of the costs of developing and operating OCC as a condition to access. In addition, any trading system allowed to have access to OCC must have rules and procedures comparable to those of the established options exchanges designed to assure the liquidity of its market and the adequacy of surveillance and regulation in order to avoid subjecting OCC, other options markets, and participants in those markets to undue risk.
V. In dealing with difficult issues of foreign access, the Commission must avoid creating economic incentives for U.S. investors, retail and institutional, to trade offshore securities that heretofore have been traded primarily in U.S. markets.
CBOE’s principal interest in issues pertaining to foreign access is to be certain that U.S. markets are not competitively disadvantaged by high regulatory costs that are not justified by legitimate regulatory needs. CBOE is concerned that to the extent the Concept Release appears to focus on the "impact" of foreign markets in the United States, and on the need for different categories of U.S. investors for the protection provided by regulation under the Exchange Act, it ignores the competitive effect on U.S. markets if orders are more easily able to be sent offshore for execution. This effect is likely to be the greatest in respect of institutional orders, which are better able to access foreign markets than are retail orders, contrary to the suggestion in the Release that foreign access might be less problematic for institutional investors, who are presumed to have less need for the protection provided by more complete Commission regulation.
Of course, for both practical and legal reasons, it will never be possible for the Commission to regulate access to foreign markets as completely as it can domestic markets. This is another reason why, in the interest of making domestic markets competitive on a global scale, the Commission should carefully review the costs and benefits of all of its regulations that apply to domestic broker dealers and exchanges in order to assure that they are no more burdensome or costly than is necessary for the protection of investors and to assure fair and orderly domestic markets.
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In conclusion, we commend the Commission for devoting its resources to the preparation of the Concept Release, which presents an extraordinarily comprehensive and thorough review and analysis of how communications and other technologies affecting securities markets have developed since the existing regulatory scheme was put into place, and of the ways in which regulation of these markets should be changed to reflect these developments . We are pleased to have been given the opportunity to present our views on these issues, and we look forward to working with the Commission as it seeks to implement the changes that are necessary to modernize securities regulation so that U.S. securities markets can remain the most liquid, most efficient and safest in the world.
Very truly yours,
Charles J. Henry