Dear Mr. Katz:
Thank you for taking comment on Release No. 34-42450; File No. SR-NYSE-99-48, the NYSE's proposal to rescind Rule 390, and the Commission's Request for Comment on Issues Relating to Market Fragmentation. Few issues are as important or timely as market structure, and the Commission should be commended for its persistence in wading into this politically touchy area so near to the wallets of Wall Street power brokers.
I believe Rule 390 should be rescinded. The NYSE's suggestion to end non-NYSE internalization should be rejected as well because it would be anti-competitive. Finally, I offer comments on the concept release on fragmentation.
Comments on NYSE Proposal
Rule 390, and its predecessor rule 394, have long been seen as anti-competitive. (See generally "The Transformation of Wall Street," Joel Seligman, Northeastern University Press, 1995, Pages 387-395 and 509-534. Hereinafter "Seligman.") According to Seligman's seminal history of securities regulation, the Commission long ago recognized the limitations of single market makers or lone specialists to provide an adequate market. Seligman notes that Rule 394 is the "most significant restraint on ... competition" (Page 509), and informs us that the rule has been "repeatedly criticized by the SEC" (Page 510). He concludes repeal is long overdue: "[I]t is clear that Congress supported the SEC's intention to preserve third-market trading and eliminate Rule 394" (Page 511).
Reject the NYSE's Additional Proposal
Like a haggler at a bazaar, the NYSE offers the Commission a deal. The Big Board "urges that the Commission, in approving the rescission of Rule 390, adopt a market-wide requirement ... that broker-dealers not be permitted to trade against their customer orders unless they provide a price to the order that is better than the national best bid or offer. ..."
In arguing for this further proposal, the Exchange says it is concerned about "broker-dealer conflicts of interest in trading against their own customer order flow to capture the spread."
This argument can be dismissed. As SEC staff has noted:
"Trading as dealer can be very profitable to specialists. It enables them to capture all or a portion of the spread between the bid and ask price for a stock. The more order flow a specialist attracts, especially retail orders which do not strain a specialist's liquidity, the more profitably a specialist can perform its dealing activity. Hence, all specialists, both on the primary and regional exchanges, attempt to attract as much retail order flow as possible." ("Report on the Practice of Preferencing," SEC, April 15, 1997, hereinafter "Preferencing Study.")
The Exchange does not address why the specialists' business of capturing the spread is morally superior to the same practice elsewhere, other than the NYSE's claim of offering possible "price improvement." The Exchange makes a broad statement to the effect that: "Continuous interaction among broker-agents in an agency auction market frequently results in customers receiving better prices than the national best bid or offer."
Yet, the Big Board offers no data to support this statement. We also see no explanation or analysis as to whether all investors want their order delayed while Exchange floor insiders or specialists "go fish" for a better price. What percentage of orders are "improved," and exactly where did this improvement come from? Why wasn't the superior price displayed in the market? The Preferencing Study (Table V-8A) says that the Big Board improves only 15.4% of 100 share market orders for stocks with one-eighth spreads. By what rationale can specialists capture the spread on some 85% of 100-share orders of active stocks? Such meager "price improvement" on slam-dunk trades gives no weight toward the NYSE's call for a monopoly on internalization. Any number of competitors could do better than this.
The Exchange argues that, on the one hand, "continuous interaction" among competing participants promotes better prices, yet on the other asks the Commission to protect it from off-board competition. "Internalization" occurs because orders can be executed at NBBO at a cheaper cost than on the Exchange. Eliminate this form of competition, and the Big Board's costs are sure to rise. While a traditional, physical auction market might well offer investors certain advantages, it should not be insulated from competition. Investors and dealers should not be denied a choice in choosing, say, an immediate NBBO execution from a leaner, more competitive off-board trading facility that competes aggressively on the basis of cost, service and speed. Let investors or their brokers (not the NYSE) choose whether to take an immediate trade at NBBO execution versus paying a premium to wait for a 15% chance for price improvement at the Big Board.
The NYSE anti-preferencing argument rings hollow. The Big Board itself has proposed a system of preferencing to allow specialists to essentially "internalize" orders on its own floor, thereby "fragmenting" the Big Board itself. As Commission staff noted, "The NYSE's competing specialist program, if widely implemented, could have transformed the NYSE into a preferencing exchange as defined by Section 510(c)(3) of the NSMIA" ( Preferencing Study). If specialists must accept, in the Commission's words, "affirmative and negative market-making obligations," one would expect to see consistent losses from specialists' principal activities. But the Big Board's proposal fails to include any accounting of NYSE specialist profit-and-loss accounts. Further, the recent floor broker scandals make very clear the Exchange's lack of concern over principal trading on the Exchange floor (SEC Release No. 41574, June 29, 1999).
The current release says:
" ... the linkages among market centers that are currently in place do not require that market orders be routed to the market center that is displaying the best prices, even if that price represents an investor limit order. As a result, a market maker with access to directed order flow often may merely match the displayed prices of other market centers and leave the displayed trading interest unsatisfied."
The rancorous debate over "internalization," which is simply another word for competition in non-time-prioritized markets, disappears completely when marketwide time priority is respected.
But the NYSE's additional proposal is silent on time priority. After all, why change a good thing? It is no secret that the Big Board itself does not practice time priority on its own floor. The Preferencing study, at IIB(2), describes the NYSE's practice of allowing specialists to "size out" existing time priority on limit order books:
"Precedence based on size allows members with the largest-sized bid (offer) to receive an execution ahead of same-priced market interest that otherwise would be on parity. The NYSE has justified this practice on the grounds that:
in the NYSE market it is often a practical impossibility to keep track of successive time priorities. To keep the market moving, giving bids and offers precedence based on size is often a practical necessity. [NYSE Floor Official Manual (June 1996) ("NYSE Floor Official Manual") at 38.]
At the same time, it should be recognized that "sizing out" confers a significant advantage to members representing large orders. In this regard, "sizing out" allows for such orders to receive an execution ahead of smaller market and marketable limit orders routed to the exchange. In addition, as all bids and offers must be reestablished after a trade, including the limit order book, "sizing out" allows a broker-dealer to trade ahead of preexisting interest on the limit order book. [Under NYSE Rule 108.10, the specialist can combine a bid (offer) for his or her own account with orders on the book to take precedence based on size...) [For example,] A transaction occurs in which 100 shares of the book are executed against a 100 share offer. The transaction clears the floor, and the following bids are entered simultaneously: the specialist bids 400 at 20 on behalf of the book (consisting of the remaining four 100 share limit orders), Broker A bids 400 shares at 20, and Broker B bids 1000 at 20 on behalf of an order it had just received from a non-affiliated broker-dealer. If an offer for 1000 shares at 20 is made, Broker B would get the stock, being the only bidder equaling the offer size. Pursuant to precedence based on size, it would be irrelevant that the four limit orders at 20 were received on the exchange at an earlier time." (Bold emphasis added.)
The NYSE's proposal is discriminatory under the Act because it would create a one-way street. If the Big Board can match a non-time prioritized price, it gets the order. If a brokerage firm offered the same deal, it would lose the order to the Exchange. But what if a dealer or trading center created its own internal "auction" system, offering the hope of "price improvement" through a unique, new, competitive auction or matching process? Would orders held by this dealer or center still have to go to the Exchange? How is the Commission going to determine whether one trading center's chance for "price improvement" justifies its internalization of orders? What if a competing dealer or trading center offered price improvement on, say, 15.5% of small market orders, beating the Big Board's 15.4% rate-would fairness cause the rule to then be reversed, forcing the Exchange to send all its orders to the competing dealer or trading center?
Surely the Commission cannot eliminate competitive off-board trading at NBBO, while the Big Board disregards time priority, admits to being unable to establish time priority, and then gives an unfair advantage to larger traders. Such practices are discriminatory, anti-competitive, and in violation of the '34 Act. If the Exchange is truly concerned when it says that internalization "isolates segments of the total public order flow and impedes competition among orders," it should then promote strict and full price-time priority on its own floor, as well as marketwide. It should announce support for opening up ITS immediately to all participants, as well as modernizing the entire concept of ITS. The Big Board's deafening silence on these reform issues speaks volumes about its real agenda, which is to internalize all listed business to its own benefit.
Rule 390 should be eliminated.
Rather than grant the Big Board an internalization monopoly as it proposes with its additional request, remedial remedies are in order. Eliminating Rule 390 is just the start. Much progress toward a true national market system will occur when Commission focuses on: 1) full public and competitor access to primary markets; 2) full (non-sized out) marketwide price and time priority for the continuous primary markets, and 3) electronic order audit systems for all market to ensure such priority.
And, rather than disadvantage the public or other competing interests by keeping such an anti-competitive idea as an NYSE preferencing monopoly in limbo, the Commission should reject it. The SEC should say why--for the anti-competitive reasons described in this letter, or alternatively, because the NYSE makes no effort at all to justify this additional proposal.
Comments on Market Fragmentation Issues
(Comments are in italics.)
1. Effect of Fragmentation on the Markets
a. Fragmentation in General
To what extent is fragmentation of the buying and selling interest in individual securities among multiple market centers a problem in today's markets? For example, has fragmentation isolated orders, hampering quote competition, reducing liquidity, or increasing short-term volatility? Has fragmentation reduced the capacity of the markets to weather a major market break in a fair and orderly fashion?
-"Fragmentation" is a symptom of competitive forces in the absence of time priority, sometimes lack of price priority, and ineffective linkages.
Is fragmentation in the listed equity markets likely to increase with the elimination of off-board trading restrictions, such as NYSE Rule 390?
--Competition will increase with elimination of the Rule.
In the existing over-the-counter market, what are the incentives for investors and dealers to quote aggressively?
--Little or none. There is little incentive on exchanges, too.
If fragmentation is a problem, are competitive forces, combined with the existing components of market structure that help address fragmentation (price transparency, intermarket linkages to displayed prices, and a broker's duty of best execution), adequate to address the problem?
Will the greater potential provided by advancing technology for the development of broker order-by-order routing systems, or for informed investors to route their own orders to specific market centers, address fragmentation problems without the need for Commission action?
b. Internalization and Payment for Order Flow
What proportion of order flow currently is subject to internalization and payment for order flow arrangements in the listed equity and Nasdaq equity markets? Will the proportion increase in the listed equity markets as a result of the elimination of off-board trading restrictions?
Is it possible for a non-dominant market center to compete successfully for order flow by price competition, without using internalization and payment for order flow arrangements? If not, is the inability to obtain access to order flow through price competition a substantial reason for the existence of internalization and payment for order flow arrangements?
--Yes and yes.
To what extent can brokers compete as effectively for retail business based on execution quality (or implicit transaction costs), as opposed to commissions (or explicit transaction costs) and other services?
Do investor market orders that are routed pursuant to internalization and payment for order flow arrangements receive as favorable executions as orders not subject to such arrangements? Even if these orders subject to internalization and payment for order flow arrangements receive comparable executions, does the existence of such arrangements reduce the efficiency of the market as a whole (by, for example, hampering price competition) so that all market orders receive less favorable executions than they otherwise would if there were no internalization or payment for order flow?
--Forcing all orders to the NYSE or to a central market will decrease efficiency in the long run.
Even if internalization and payment for order flow arrangements increase the fragmentation of the markets, are any negative effects of increased fragmentation outweighed by benefits provided to investors, such as speed, certainty, and cost of execution?
--Yes, any alleged negative effects in the short run will be eliminated by the long-term benefit of competing market operations, or so-called "fragmentation."
c. Best Execution of Investor Limit Orders
Does increased fragmentation of trading interest reduce the opportunity for best execution of investor limit orders? Are brokers able to make effective judgments concerning where to route limit orders so as to obtain the highest probability of an execution?
Does the opportunity for brokers to share in market maker profits through internalization or payment for order flow arrangements create an economic incentive to divide the flow of investor limit orders from investor market orders among different market centers? If so, does this adversely affect the opportunity for investor limit orders to be executed fairly and efficiently?
--For the above questions, the current market structure is defective in not adequately linking markets, not protecting time priority and not quoting in pennies. Some orders may miss execution. Market maker payments and incentives exist because of the inefficiencies that exist in the current system.
Is it consistent with national market system objectives (such as efficiency, best execution of investor orders, and an opportunity for investor orders to meet without the participation of a dealer) for market makers to trade ahead of previously displayed investor limit orders held by another market center (that is, trade as principal at the same price as the limit order price)? Does this practice significantly reduce the likelihood of an execution for limit orders by reducing their opportunity to interact with the flow of orders on the other side of the market? Does the practice offer any benefits that outweigh whatever adverse effects it might have on limit order investors?
--The above-described practice should be ended at once. It is a clear violation of the principle of a National Market System. Time priority should be respected across continuous markets.
2. Possible Options for Addressing Fragmentation
If action to address fragmentation is determined to be necessary or appropriate to further the objectives of the Exchange Act, a variety of approaches could be considered. Six options are briefly described below, followed by requests for comment that relate specifically to each one. The options could apply either individually or in some combination with one another. If commenters believe fragmentation should be addressed, they also are encouraged to submit any additional options for addressing fragmentation that they consider feasible.
a. Require Greater Disclosure by Market Centers and Brokers Concerning Trade Executions and Order Routing
The Commission could require greater disclosure by market centers and brokers concerning their trade executions and order routing. Such disclosures could enable investors to make more informed judgments concerning the quality of executions provided by their brokers, as well as enable brokers and the general public to make more informed judgments concerning the quality of trade executions at all market centers.
For example, all market centers could be required to provide uniform, publicly available disclosures to the Commission concerning all aspects of their trading and their arrangements for obtaining order flow. These disclosures could include the nature of their order flow (for example, the ratio of limit orders to market orders), their effective spreads for market orders for different types of securities (for example, securities that have different levels of trading), their percentage of market orders that receive price improvement, their speed in publicly displaying limit orders, their fill rates for different types of limit orders (for example, those with between-the-quotes and at-the-quotes limit prices), and their average time-to-fill for different types of limit orders. In addition, market centers could be required to make available comprehensive databases of raw market information that will allow independent analysis and interpretation by brokers, academics, the press, and other interested parties.
Brokers, in turn, could be required to provide disclosures to their customers (and to the Commission for public availability) concerning the proportion and types of orders that are routed to different market centers, their arrangements with market centers for routing customer orders, and the results they have obtained through these arrangements.
What would be the advisability and practicality of this option? Would it effectively address the problems presented by market fragmentation?
Is there an effective and practical way to provide clear and useful disclosure to retail customers concerning execution quality? If not, does the difficulty of providing such disclosure preclude brokers from competing effectively on the basis of execution quality?
--The rationale of the above option is unclear. What exactly are investors to do with such disclosed information?
b. Restrict Internalization and Payment for Order Flow
The Commission could restrict internalization and payment for order flow arrangements by reducing the extent to which market makers trade against customer order flow by matching other market center prices. Market makers would thereby be less assured of the profits that can be earned by trading against directed order flow and that are used to fund the economic inducements offered to brokers for their customers' order flow. For example, the NYSE has requested that the Commission take this type of action to address internalization.57 Under the NYSE proposal, broker-dealers would be limited in the extent to which they could trade as principal with their customers' market and marketable limit orders. A broker-dealer could buy from or sell to its customer only at a price that was better than the NBBO for the particular security. This type of prohibition could be extended to all market centers that receive orders pursuant to a payment for order flow arrangement, in addition to internalizing broker-dealers.
What would be the advisability and practicality of this option? Would it effectively address the problems presented by market fragmentation?
Would restricting internalization and payment for order flow arrangements unduly interfere with competition among market centers to provide trading services based on factors other than price, such as speed, reliability, and cost of execution?
--This option is not advisable. The "fragmentation problem" is lack of time priority and market linkages. The issue will likely be dead with decimalization as well.
c. Require Exposure of Market Orders to Price Competition
As a means to enhance the interaction of trading interest, the Commission could require that all market centers expose their market and marketable limit orders in an acceptable way to price competition. As one example of acceptable exposure, an order could be exposed in a system that provided price improvement to a specified percentage of similar orders over a specified period of time. As another example of acceptable exposure, a market maker, before executing an order as principal in a security whose quoted spread is greater than one minimum variation, could publish for a specified length of time a bid or offer that is one minimum variation better than the NBBO. The Commission proposed such a rule for public comment in 1995 at the time it proposed the Order Handling Rules.58 Although it believed that an opportunity for price improvement could contribute to providing customer orders with enhanced executions, the Commission chose not to adopt the proposed rule at the time it adopted the Order Handling Rules. Instead, it stated that it was deferring action to provide an opportunity to assess the effects that the Order Handling Rules would have on the markets.59
What would be the advisability and practicality of this option? Would it effectively address the problems presented by market fragmentation?
Are there effective means of representing undisclosed orders in markets in which trading interest is divided among many different market centers? Would exposure of market orders through the quote mechanism provide a viable means of allowing the holders of undisclosed orders (particularly large orders) to interact with market orders? What other means to facilitate the interaction of undisclosed and disclosed orders is feasible and practical?
Would requiring the exposure of market orders to price competition unwarrantedly delay the execution of those orders? If so, should order exposure be offered as a choice to customers?
How would implementation of this option affect the opportunity for execution of displayed trading interest at the NBBO?
--This option is not advisable. The practice of "exposing" orders for possible "price improvement" is a dated relic of a trading floor where the order book is available only to the favored few. Modern electronic trading systems that will easily handle retail order flow will have no need to stall, dither and "go fish" for the best price. Such a best price will be assured. No undue delays will occur, as do now with exchange floors. Let service providers to large and institutional investors worry about how to interact with retail flow. Efficient systems will develop to handle the interaction.
d. Adopt an Intermarket Prohibition Against Market Makers Trading Ahead of Previously Displayed and Accessible Investor Limit Orders
The Commission also could establish intermarket trading priorities as a means to address fragmentation. One option would be to adopt an intermarket prohibition against market makers (including exchange specialists) using their access to directed order flow to trade ahead of investor limit orders that were previously displayed by any market center and accessible through automatic execution by other market centers. Under this option, each market center would be responsible for providing notice to other market centers of the price, size, and time of its investor limit orders that were entitled to priority, as well as participate in a linkage system that allowed automatic execution against the displayed trading interest.60 To execute a trade as principal against customer order flow, market makers would be required to satisfy, or seek to satisfy, investor limit orders previously displayed and accessible at that price (or a better price) in all market centers.61
To reward market makers willing to add liquidity to the markets through aggressive quote competition (as well as participate in public price discovery), a market maker could be allowed to trade with customers at its quote ahead of a subsequently displayed investor limit orders under certain circumstances. For example, a market maker could trade as principal against a customer order if, at the time it received a customer order, its quote was at the NBBO; its quote was widely displayed and accessible through automatic execution at a size at least equal to the customer order; and the market maker satisfied, or sought to satisfy, all investor limit orders that were displayed prior to the market maker's quote.
Would prohibiting market makers from trading ahead of investor limit orders, regardless of where the order entered the national market system, facilitate a broker's ability to obtain best execution of its customers' limit orders?
Would an intermarket prohibition against market makers trading ahead of previously displayed and accessible limit orders encourage price competition and thereby enhance the efficiency of the market as a whole?
Would implementation of this option reduce the willingness or capacity of market makers to supply liquidity? If so, would the problem be addressed by allowing market makers to trade at their quotations after satisfying previously displayed investor limit orders?
Would this option be feasible without the establishment of a single, intermarket limit order file?
--This is a step in the right direction. It would help solve the brazen lack of time priority on Nasdaq, and foster greater price competition and best execution. Market makers provide only a thin veneer of liquidity-essentially immediacy services. Only customer orders provide liquidity. If free markets provide no profit opportunity, market makers should not and do not need to be trading, nor should customers be forced to subsidize market makers into "making markets" where none are needed. A central limit order file is not needed-competitive linkages will develop with active Commission oversight. With market linkages, the Commission must do a much more robust job than, say, its oversight of ITS has been to date.
e. Provide Intermarket Time Priority for Limit Orders or Quotations that Improve the NBBO
As another option for encouraging price competition, the Commission could establish intermarket trading priorities that granted time priority to the first limit order or dealer quotation that improved the NBBO for a security (that is, the order or quotation that either raised the national best bid or lowered the national best offer). To qualify for such priority, the limit order or quotation would have to be widely displayed and accessible through automatic execution. Only the first trading interest at the improved price ("Price Improver") would be entitled to priority. No market center could execute a trade at the improved or an inferior price unless it undertook to satisfy the Price Improver. Subsequent orders or quotations that merely matched the improved price would not be entitled to any enhanced priority. If, prior to satisfaction of the Price Improver, another order or quotation was displayed and accessible at an even better price, the existing Price Improver would be superseded and permanently lose its priority. The subsequent trading interest at the better price would be the new Price Improver.
What is the advisability and practicality of this option? Would it effectively address the problems presented by market fragmentation? Would it discourage competition among market centers or reduce market makers' willingness to supply liquidity?
Would granting time priority only to the first trading interest to improve the NBBO provide an adequate incentive for aggressive price competition?
How difficult would it be to implement this limited type of intermarket time priority? Would it require substantial modifications of currently existing linkage systems?
--This sounds far too complex and far too limited. Moving to decimals, enforcing trade-through rules, and establishing marketwide time priority and adequate linkages will do the job. See next answer.
f. Establish Price/Time Priority for All Displayed Trading Interest
To assure a high level of interaction of trading interest, the Commission could order the establishment of a national market linkage system that provides price/time priority for all displayed trading interest. Under this option, the displayed orders and quotations of all market centers would be displayed in the national linkage system ("NLS"). All NLS orders and quotations would be fully transparent to all market participants, including the public. Orders and quotations displayed in the NLS would be accorded strict price/time priority. Market makers could execute transactions as principal only if they provided price improvement over the trading interest reflected in the NLS. Trading interest in the NLS could be executed automatically; however, the NLS would not be a market center itself: executions would continue to occur at the level of individual market centers. Public access to the NLS would be provided through self-regulatory organizations, alternative trading systems, and broker-dealers. The NLS could be administered and operated by a governing board made up of representatives from the public and relevant parts of the securities industry.
What is the advisability and practicality of this option? Would it effectively address the problems presented by market fragmentation?
Has advancing technology and increased trading volume created more favorable conditions for the establishment of a national market linkage system at the current time than at any time in the past? What would be the respective benefits and costs of such a system?
Would a national market linkage system with strict price/time priority and automatic execution provide the most efficient trading mechanism? If so, why have competitive forces failed to produce such a system without the necessity for Commission action? Are there any regulatory rules or industry practices blocking competitive forces that otherwise would produce such a system? If so, what are they and how should they be addressed?
Would a mandated national market linkage system substantially reduce the opportunity for competition among market centers to provide trading services? If so,
would the costs of reduced market center competition outweigh the benefits of greater interaction of trading interest?
Would implementation of a comprehensive national market linkage system effectively require the creation of a single industry utility? How should a national market linkage system be governed?
Should there be any exceptions from the requirement that all orders yield price/time priority to trading interest reflected in a national market linkage system? For example, should there be an exception for block transactions or for intra-market agency crosses at the NBBO?
Should a national market linkage system incorporate a reserve size function to facilitate the submission of large orders?
--This is the model for the future. It would allow competition to flourish, thereby solving the "problem" of fragmentation. Technology has created the conditions to allow such a system (a "true NMS") to arise. Costs would be relatively minimal; benefits would be substantial-lower trading costs, cleaner markets, better and cheaper access to capital. With some possible exceptions, price-time priority with auto exec is the best model for primary continuous trading markets. Other systems might arise, however, such as single-price auctions, price-averaging services, who knows? Regulatory flexibility will be required with creative new systems.
Competitive forces have failed to develop a true NMS because the trading-center cartels have fought them off. The Commission has allowed this cartel behavior in the face of strong pressure from powerful and influential industry and trading interests-- unopposed by any effective investor lobby. With due respect, the SEC's record is dreadful. ITS is one example. Nasdaq practices and collusion is another. The NYSE's admitted inability to track time priority in its central market and "size out" existing orders with time priority is yet a third example. Where has Commission oversight been for 25 years? In his seminal history of the SEC, Selgiman calls the Commission's unwillingness to challenge entrenched market centers and facilitate a national market system with time and price priority a "troublesome" failure (Pages 533-534).
ITS must be scrapped. New, modern linkage plans must be approved without delays. All primary continuous markets must offer full price and time priority within, trade-through protection from without, and access to the limit order book. This latter point should not be a problem for the NYSE, which notes that "continuous interaction among broker-agents in an agency auction market frequently results in customers receiving better prices than the national best bid or offer." The Big Board will thus continue to offer value even with public access to its order flow. Better linkages must be mandated, and will foster competition, not reduce it.
A central market was an intriguing idea 25 years ago. Not now. Leave linkages to efficient private systems. They will be governed by competitive forces and the profit motive.
Few exceptions to price-time priority in continuous markets should be given. "Agency crosses" will be a thing of the past with a true NMS and decimal pricing. Look for services that will split the spread on all such trades. Let block trades figure out the best way to execute. Competitive systems will handle the need, including integrating blocks with retail as well as segregating from retail flow. Forget the reserve size idea. Quit trying to centrally plan the market of the future! The Commission should use the power it has had for 25 years to facilitate a true NMS!!.