Dec. 13, 1998
Jonathan G. Katz, Secretary
Securities and Exchange Commission
Mail Stop 6-9, 450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Comments regarding proposed amendments to the NMS, File No. 4-208
Dear Mr. Katz:
I support the PCXs request to achieve access to the ITS systems with its Optimark system. Optimark is widely regarded in the securities industry as a potentially significant advancement in market function, and will likely be a key player in an effective national market system (NMS). Access by the PCX and Optimark to major market centers, as well as by other alternative trading systems, should be completely unfettered.
Clearly action by the Commission to encourage a true NMS is overdue. The SECs ability to stop the NYSE and other ITS members from continuing with anti-competitive practices is at a key historical juncture. This application by the PCX and Optimark has historic significance. Indeed, this issue is similar to the much larger fight engaged in between the SEC and the Big Board in 1938, when the SEC asserted its authority over the exchange. Then too, the NYSE was engaged in anti-competitive practices. But the SEC persevered and the investing public has been the beneficiary.
The NYSE simply has no argument for protecting the exchange from competition. It is critical that the Commission allow unfettered access through the ITS mechanisms to all major market centers, and actively engage itself in overseeing the ITS.
I complement the Commission and SEC staff for addressing the anti-competitive characteristics of ITS in, for example, the agencys concept release on the future of exchange regulation. This filing by PCX and Optimark is a specific "action item" the SEC can and should act upon in the affirmative, thereby implementing the NMS as foreseen in the 75 Act Amendments.
Also, in the interests of public debate, the SEC should post on its website all commentaries submitted by the NYSE. All posted letters at this point support the PCX application. We should have ready access to opposing arguments. The Big Board should be encouraged to file its comments electronically, and direct some of its tremendous investments in technology toward that capability.
Following are my July 1997 comments to the concept release that relate to the issue of ITS access:
With current dominant market centers (like the NYSE) , the Commission should ensure access to NMS facilities for all participants. Additionally, the SEC should facilitate as much as possible the development of alternative market-linkage systems. ... All dominant market centers, new or established, require a higher degree of oversight. ...
For any market that handles significant volume or makes meaningful price-discovery, the
Commission should ensure that facilities exist for reasonable access-- no more Instinet problems should be allowed to surface.
(Regarding fees for access:) Access must be available, and cost should be minimal or non-existent. If there were robust competition for order flow, rather than the cartel situation, markets would compete by offering the best access terms. Indeed, markets with the most efficient access would be expected to offer the best prices. ...
Quality of access and openness could be cause for Commission action when a system's orders meet a threshold of significance, such as percentage of time its orders set one side of the NBBO, or the system is the only facility or main facility for trading a particular instrument. ... The Commission must ensure that (major) markets do not inhibit access. ... The Commission must remain diligent in this regard--monopoly markets will tend to impede access. When alternative markets become available, access problems will diminish. ... The Commission can best address anticompetitive practices by focusing on the few exchanges and systems that do the bulk of volume or NBBO price discovery to ensure reasonable access to these markets. ... Special attention should be paid to any market that sets either side of NBBO for any period of time, especially if the public does not have easy access to that market. ...
The Commission should eliminate (19(c)-3) trading restrictions, which are blatantly anti-competitive. Alternative markets will trade different types of stocks more efficiently than existing markets and should have access to all issues. ... NMS plans will have to be amended to accommodate a free market, including changes in fee structures, qualifications, quote increments, etc. ... The Commission may have to actively encourage currently dominant market centers to link with alternative markets offering superior prices and access.
Huntington Beach, Calif.