From: H. Callcott
Sent: February 4, 2005
Subject: File No. SR-NASD-2004-177

I am a partner in the Broker-Dealer group of Bingham McCutchen LLP, and I write solely on my own behalf.

I fully endorse the comments on the ABA Business Law Section, Committee on the Federal Regulation of Securities, on which I serve as vice-chair of the Market Regulation subcommittee. But I write here to make a broader and more basic point. The NASDs Corporate Financing Rule, Rule 2710, is a price-fixing rule. It sets a maximum price that a brokerage firm can charge for arranging capital for a corporate issuer. Absent the implied immunity provided by Commission approval of the rule, Rule 2710 would clearly violate the federal antitrust laws. If we have learned anything from the past 30 years of antitrust scholarship, it is that price fixing - even a rule setting maximum prices - almost invariably harms consumers. Price fixing conspiracies are difficult to maintain, and as the history of Rule 2710 itself demonstrates, generally must become more and more elaborate before they ultimately collapse.

The Commission has a clear mandate in the Exchange Act to consider the competitive effects of proposed rule changes, and to disapprove rules which impose unnecessary or inappropriate burdens on competition. If there were no NASD Corporate Financing Rule, more entities would be willing to provide more capital to American businesses. Admittedly, some of that capital would be provided at a higher cost than Rule 2710 currently permits. But that is a matter about which sophisticated parties such as corporate issuers can make a reasoned business decision, subject to the requirement of full disclosure to their investors. While there is some residual risk that brokerage firms would take advantage of a relaxation of the rule to promote securities of such issuers inappropriately to their clients, that risk is substantially mitigated by the NASDs suitability requirements and the SECs antifraud principles.

In short, the SEC should not just tinker with the Corporate Financing Rule. The SEC should commence proceedings to repeal it. The result would be enhanced capital formation and enhanced competition both among brokerage firms and among issuers. Enhanced capital formation and competition would provide more jobs in the US economy. The existing rule, with its great and increasing complexity and substantial compliance burdens on brokerage firms and issuers, is a substantial drain on capital formation. The rule is also a significant and anti-competitive barrier to entry into the investment banking business. I urge the Commission to take more seriously its statutory mandate to promote competition - a mandate inconsistent with the continued existence of the Corporate Financing Rule.

I thank your for the opportunity to comment on this important issue.