From: Leslie Seff [lseff@brokerageamerica.com]
Sent: Friday, June 04, 2004 1:56 PM
To: rule-comments@sec.gov
Subject: File No. S7-10-04 (Comment Letter on Reg NMS)

BrokerageAmerica is an active market maker that specializes in providing 
liquidity in both small cap NASDAQ stocks, and Bulletin Board issues. As such, 
we applaud the Commission's effort to address the controversial issues raised in 
Reg NMS. The impact of some of these proposals, in our opinion, could be far 
reaching, affecting both the public and the market making community. We 
respectfully submit comments in the accompanying letter, targeted to address one 
specific section of the document, the "Market Access Proposal" section that 
discusses access fees. 

Access fees are the current "hot potato" that is being passed among current 
market participants. The structural imposition of access fees, in our opinion, 
has created market imbalances creating economic disincentives to access the 
marketplace. In addition, as stated in Reg NMS "there is a view that the 
dramatic rise in locked and crossed markets in recent years can be traced to the 
proliferation of access fees, charges, and liquidity rebates offered by ECNs, 
and NASDAQ". It is our opinion, that the current access fees blur the best 
execution obligation of the liquidity providers as they must access markets on 
behalf of their customers that are priced without the inclusion of true costs of 
access, which are oftentimes substantial. The Reg NMS Proposal is an effort to 
level the playing field with respect to access fees, on two counts. The first 
count is an effort to limit the fees charged by ECNs to $.001, and the second 
count allows the market makers to charge the same $.001 to those participants 
that access their market. 

In an effort to level the playing field, it is our opinion that the Commission 
has simply passed this hot potato to the market makers, who, should be unwilling 
participants in this no win situation. Access fees are a market structure issue. 
In their current form, they have distorted the market and interfered with the 
efficient interaction between market participants. To solve the problem the 
Commission is taking what seems to be the logical step of allowing market makers 
to do the same, rather than eliminate access fees altogether, which would truly 
serve to level the playing field. Instead, the Commission has opened the door 
for another layer of complexity, but, curiously enough, with conflicting logic. 
For example, it describes the new proposed fee structure as a "de minimus" 
charge, but allows market makers to institute this "de minimus" charge and 
collect resulting revenue. In effect, it is inviting market makers to collect 
small revenue, but makes no mention about the cost of the collection facility, 
personnel, and systems enhancements that would be necessary to support this 
effort, all for "de minimus" incremental revenue. The economics of this 
opportunity, may, in fact, not support the effort that has to be made on behalf 
of the mid size to smaller market maker. There is no proposed creation of a 
central billing system, for example. 

On the other hand, the ECNs already have this facility, having created it 
internally to respond to the allowable fees that were not de minimus, but in 
fact, large enough to date to create pockets of participants that only seek to 
trade to receive the fees rebated them. In short, the effort to act in the 
spirit of fairness may in fact, fall flat. 

Past efforts to regulate market structure changes have resulted in unintended 
imbalances. The creative mind has, in the past, taken advantage of these 
inefficiencies. Witness the volatile effect that SOES had on the marketplace for 
so many years until the introduction of SuperMontage, which allowed access by 
all participants. Witness the aforementioned unintended results of ECN 
participation with accompanying access fees, fostering locked and crossed 
markets, and creative participants in the rebate game. 

While we support the effort to level the playing field, the Commission states 
that it "does not believe, on balance, that the benefits of an absolute ban on 
access fees would justify the potential economic costs to the markets," citing, 
in the same paragraph that "the business models of many ECNs depend on access 
fees". The Commission has curiously taken on the role of protector of ECNs at 
the expense of being the protector of the public. If a structural change 
benefits the public, that is of paramount importance. When the SEC Order 
Handling Rules were rolled out, it was determined that they were in the public's 
best interest. I do not believe that any regulators balked because of the 
resulting effect on the business model of the market makers. The assumption was 
that they would find a way to survive, instead. That is the approach that should 
be taken with respect to access fees. They should simply be eliminated. The way 
the Commission is proposing to level the playing field simply introduces another 
layer of complexity into an unnecessarily complex environment, creates a 
collection quagmire, and opens the door for imbalances that inevitably do not 
benefit the marketplace. 

Leslie Seff
Chief Operating Officer
BrokerageAmerica LLC