The Rock Island Company 175 W. Jackson Blvd. Chicago, IL 60604 (312) 895-2670 September 8, 2000 Securities and Exchange Commission Attention: Jonathan G. Katz, Secretary 450 Fifth Street, N.W. Washington, DC 20549-0609 By E-mail to: rule-comments@sec.gov Re: Disclosure of Order Execution Information File No. S7-16-00 Ladies and Gentlemen: Thank you for the opportunity to comment on full disclosure of order execution information. We welcome the commission's efforts to clarify the parameters which measure quality of execution. The Rock Island Company consists of three broker dealers who together are members of the American, Boston, Chicago and New York Stock Exchanges and the NASD. Two of our subsidiaries operate as specialists on the Chicago and Boston exchanges and receive electronic orderflow from more than 150 broker dealers. We also route our proprietary orderflow to many market centers. As a significant provider of liquidity on regional markets and an order router, we are anxious to comment on the proposed rule requiring standardized disclosure of quality of execution data. Our comments will be focused on three areas: 1) Need for the production of standardized summary reports 2) Comments on particular statistical measures 3) Specialists filling market orders at better prices than limit orders in their book Uniform Statistical Measures and the Need for Summary Reporting: We applaud the commission's proposal to adopt uniform statistical measures of execution quality. Uniform measures applied across all market centers for all transactions, is the only way to make valid comparisons. Given the breadth of the data, we are concerned, however, that interpreting the data will present a substantial cost to market participants, as well as decreasing the timeliness, and thus the usefulness, of the reports. The alternative of each market center producing individual trade records would only worsen the situation. We are also concerned that for many of the issues we trade, which average less than 1000 consolidated trades per month spread across multiple market centers, the almost 300 categories will produce meaningless results. For that reason, this structure fairs poorly in a cost benefit analysis. As a possible solution to both of these concerns, we recommend that market centers produce standardized summary reports for groups of issues in addition to producing the individual issue reports. The summary reports should consolidate like issues together so that the statistics become more meaningful and consistent. With summary reports, market participants could grasp overall understanding of relative quality provided by market centers on a timely basis. The individual issue detail would be available for analysis when necessary. While groupings could certainly be determined in several different ways, setting categories by CTS activity seems to be the most straightforward. Possibly placing low priced issues into a separate category would also be advisable. With the market centers producing standardized summary reports, the consultant's role could then move from interpreting the results of the raw issue data to providing an independent audit of the results as well as auditing compliance with the standard methodologies. This would certainly cost the industry less, and improve the timeliness and usefulness of the data. Particular Statistical Measures: The commission's proposal to measure the average realized spread is a valid concept. However, given the volatility in the marketplace, 30 minutes is far too long an interval to be a useful measure of the quality of execution. We propose that a time frame of five minutes would generate a more meaningful result. We also propose that the commission consider an additional valuable statistic which reflects the quoting activity improving the best bid or best offer for each issue. Possibly showing the percentage of time that each market center is displaying the best bid or best offer in the consolidated marketplace, would be a valid measure of price competition. Price Improvement Considerations with Decimals: Given the shrinking minimum increment, the commission is concerned with the potential growth of the practice of market centers improving the price that an incoming market order receives, rather than permitting that order to execute against another customer limit order resting in the book at a worse price. While this practice does reduce the probability of a limit order being filled, it does not harm the investing public on an overall basis. The incoming market order received a better price than it would have without the interaction of the market center. It would be arbitrary and ill advised to unilaterally mandate that one sort of customer order be advantaged at the cost of another type of customer order being disadvantaged. Just as sixteenths changed certain dynamics in the marketplace, so will the move to decimals. There have always been risks and benefits of all types of orders. The change in trading increments may change some of these risks and benefits on a relative basis. Conclusion: We are impressed with this ambitious proposal to finally provide the parameters necessary for all market participants to measure quality of execution. We encourage the commission to consider our comments to refine these much needed quality of execution measurement guidelines for order sending and liquidity providing firms. Yours truly, Andrew A. Davis William R. Surman Chairman & CEO Senior Vice President - Equity Trading The Rock Island Company Rock Island Securities, Inc.