NexTrade Holdings, Inc.
301 South Missouri Avenue
Clearwater, Florida 33756
(727) 446-6660
Facsimile (727) 441-8880

May 17, 2000

Jonathan G. Katz, Secretary
U.S. Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549

Re: Commission Request for Comment on Issues Relating to Market Fragmentation - Securities Exchange Act Release No. 42450, File No. SR-NYSE-99-48

Ladies and Gentlemen:

NexTrade Holdings, Inc. the parent company of the NexTrade Electronic Communications Network, NexTrade, Inc. and the proposed NexTrade Exchange (collectively "NexTrade") is pleased to respond to the United States Securities and Exchange Commission's (the "Commission") concept release on market fragmentation.1 The Commission's concerns about fragmentation are best addressed by vigorous competition between trading venues. The Commission's role in eliminating fragmentation is to remove the remaining barriers to competition. An important step in promoting greater competition would be the reform of the National Market System (the "NMS"), particularly the Inter-market Trading System. Although originally meant to address fragmentation by linking markets, the NMS has failed to achieve this purpose because the governance structures of the NMS allow the existing exchanges to prevent new market participants such as Electronic Communications Networks from linking to the system.


NexTrade develops technology for the financial services industry and for its own subsidiaries, including the NexTrade Electronic Communications Network (the "NexTrade ECN") and the proposed NexTrade Exchange. NexTrade has invested millions of dollars in creating one of the most sophisticated and robust transaction systems in the world. This new technology will be the engine behind the NexTrade ECN and the proposed NexTrade Exchange.

The NexTrade ECN is an automated trading system for equity securities that gives brokers the power to electronically display customer orders. As an electronic auction market, the NexTrade ECN directly matches buy and sell orders. The NexTrade ECN currently has more than 60 broker-dealer subscribers and is used by many more non-subscriber members of the National Association of Securities Dealers, Inc. On an average day, NexTrade executes orders representing millions of shares.

The proposed NexTrade Exchange is an example of the future of the financial markets in that it will make use of innovative technology and new regulatory structures as part of a for-profit exchange. The proposed NexTrade Exchange plans to make available for the benefit of its members and their customers an electronic trading system (the "NexTrade Exchange System") to effect the purchase or sale of securities listed or admitted to trading on the proposed exchange and on other exchanges and markets. The proposed exchange, however, will not maintain a physical-trading floor. Members will access the NexTrade Exchange System from their own computer terminals and communicate with the system over commercial information services and networks.

As one of the nine original ECNs that account for approximately 35 percent of the Nasdaq's volume, as the developer of innovative new technologies for the financial services industry, and as one of only two ECNs currently seeking approval to operate new electronic exchanges, NexTrade hopes the Commission will find these comments useful in its consideration of the future of the financial services industry.

Specifically, NexTrade will address the following questions from the Concept Release:

A. Whether the market fragmentation that presently exists affects the fairness and efficiency of the markets?

B. Whether competitive forces, combined with the existing components of market structure that help address fragmentation, are adequate to address the problem?

C. Whether the Commission should require greater disclosure by market centers and brokers concerning trade executions and order routing?

D. Whether the Commission should restrict internalization and payment for order flow to alleviate fragmentation?

1. Whether orders that are routed pursuant to internalization and payment for order flow receive as favorable executions as orders not subject to such arrangements?

2. If internalization and payment for order flow arrangements increase the fragmentation of markets, are any negative effects of increased fragmentation outweighed by benefits provided to investors, such as speed, certainty, and cost of execution?


With the emergence of numerous new trading venues, there is a growing concern over market fragmentation because orders are dispersed between competing markets. As was the case in 1975 when the Commission and Congress addressed the issue of market linkages, traditional market participants claim that new market participants have caused fragmentation. These claims are without merit because fragmentation has always been a part of our markets and is, at times, the unpleasant by-product of competition. However, unlike the competition of the past that produced fragmentation that was severe and was compounded by inadequate information technology, the technology of today is capable of addressing this fragmentation. The ability of technology to address this fragmentation has been impaired by traditional market participants that use the mechanisms of market linkage as nothing more than government sanctioned barriers to competition.

Traditional market participants blame ECNs for the degree of fragmentation that currently exists. These claims are without merit. Statistical evidence supports the conclusion that ECNs have produced more efficient and less fragmented markets. Since the arrival of qualified ECNs, evidence reveals dramatic improvements in the costs of trading stocks in the United States.2 These savings associated with the development of ECNs have been passed on by market participants "into . . . investor's pockets."3 The president of one market participant recently testified before Congress that his firm's "use of more efficient platforms saved . . . investors more than $500 million a year" in the last year or two.4 The benefits derived by this market participant and passed on to the public represents one example of the benefits produced by the growth of innovative non-traditional market participants. If the artificial barriers to competition created by the current market linkage plans were removed, competitive forces would substantially reduce the degree of fragmentation within the markets.

Unfortunately, traditional market participants such as the existing exchanges are opposed to technological innovations that could undermine their hegemony over the markets. This resistance to the use of new technology has been caused in part by the traditional exchanges' exclusion of ECNs from the linkages meant to reduce fragmentation. Non-traditional market participants, however, have responded to fragmentation and inefficiencies produced by protectionist practices with innovative market-based solutions. A variety of ECNs and other trading systems that have been unnecessarily denied access to existing market linkages, have responded with systems that consolidate and provide efficient access to the best prices among competing markets. One firm has connected all nine original ECNs to their system. Similarly, when the current Nasdaq linkage (SelectNet) proved too expensive and inefficient to handle record volumes, market participants forged links with one another to create trading networks that bypass SelectNet for faster and more reliable access to the best market prices. These are just a few examples of the types of solutions produced by innovation and competition that could reduce fragmentation.

While Regulation ATS allows new trading systems to co-exist with the politically entrenched, dominant exchanges, the current NMS is ill equipped to fully incorporate the new trading systems. The NMS governance provisions permit the dominant exchanges to prevent new trading systems from linking to other markets. The NMS governance structures have enabled antiquated market participants and exchanges to protect themselves from the full effects of the competition produced by the growth of ECNs. It is this use of the NMS as a tool of protectionism and the inability of ECNs to link to the NMS that creates unnecessary fragmentation. Accordingly, the key to eliminating fragmentation is to amend the governance structures of the NMS plans that prevent innovative market participants from fully competing. NexTrade believes that vigorous competition between the traditional exchanges and innovative market participants such as ECNs will substantially reduce the level of fragmentation and benefit investors.

A. The fragmentation caused by denying ECNs access to the NMS affects the fairness and efficiency of the markets. Removing the artificial barrier to competition created by the NMS governance structures will produce unfettered competition and substantially reduce fragmentation.

In the Concept Release, the Commission asked whether the degree of fragmentation that presently exists threatens the fairness and efficiency of the markets. In addressing the fairness and efficiency of the markets, Commission staff should remember the findings and objectives that Congress set forth in the 1975 Amendments to the Securities Exchange Act of 1934 (the "Act") as set forth in Section 11A(a). This section sets forth two fundamental principles that should guide the Commission's efforts in this area:

(1) the interest of investors (both large and small) are preeminent, especially the efficient execution of their securities transactions at prices established by vigorous competition; and

(2) investor interests are best served by a market structure that, to the greatest extent possible, maintains the benefits of both an opportunity for interaction of all buying and selling interest in individual securities and fair competition among all types of market centers seeking to provide a forum for the execution of securities transactions.

It is difficult to determine whether the current level of fragmentation affects the fairness or efficiency of the markets by isolating orders, hampering quote competition, reducing liquidity, or increasing short-term volatility. The Chairman of the Federal Reserve Board, Alan Greenspan, addressed this issue as part of his recent testimony before the Senate, when he stated:

Fragmentation . . . raises questions about the quality and completeness of the price discovery process and concerns that investors' orders to buy and sell securities may not be executed at the best price or the lowest cost.5 Fragmentation also creates the impression, and perhaps the reality, that separate pools of liquidity yield a lower volume of liquidity in the aggregate.6

However, Chairman Greenspan also emphasized that while, "competition among trading systems in the short run has resulted in market fragmentation . . . In the long run, unfettered competitive pressures will foster consolidation as liquidity tends to centralize in the system providing the narrowest bid-offer spread at volume."7

NexTrade agrees with Chairman Greenspan that fragmentation is best addressed not by a government-designed mechanism such as a Central Limit Order Book, but rather by "unfettered competition." Unfortunately, the current NMS governance structures do not promote competition, but rather serve to interfere with the competition that is the solution to fragmentation. NexTrade encourages the Commission to remove the artificial barriers to competition created by the current NMS governance structures, allowing competitive forces and technology to reduce fragmentation.

B. Competitive forces combined with the existing components of market structure that were meant to address fragmentation are incapable of addressing the current fragmentation created by the artificial barriers to competition created by the current NMS governance structures.

In the Concept Release, the Commission also asked whether competitive forces combined with the existing market structures adequately address fragmentation. As discussed above, the key to reducing fragmentation is unfettered competition. While market reforms such as the development of ECNs and Alternative Trading Systems, have produced increased competition, the current governance structures of the NMS Plans are ill equipped to address the potential problems of the markets of the Twenty First Century. Most noticeably, the Inter-market Trading System ("ITS") is particularly inadequate to address fragmentation. In a recent speech, Chairman Levitt admitted that the "archaic structure and cumbersome governance provisions [of the ITS] are not fit for today's market, let alone the market of the future."8 In order to fully understand the problem of fragmentation and how best to address the problem, it is useful to review the purposes of the existing mechanisms meant to address fragmentation, the NMS.

1. The National Market System

The NMS has been the principal tool for enhancing the transparency of the buying and selling interest in a security, for addressing the fragmentation of buying and selling interest among different market centers, and for facilitating the best execution of customers' orders by their broker-dealers.9 The consolidation of quotations and last sale information was an important goal of the Securities Act Amendments of 1975.10 Congress believed that the need for market effectiveness and efficiency required that a neutral central processor be organized and responsible for collecting and distributing market data to market participants. Section 11A called for the Commission to use its authority to facilitate the establishment of a national market system which has, as one of its objectives, the availability of quote and transaction information for brokers, dealers and investors.11

The national market system that Congress intended to promote equal access, market transparency, and fair competition, is now attainable because of twenty-first century technology. However, the governance structures and technology that modernized our markets in 1975 are ill suited to achieve the goals of the national market system for the next century. Market data that was once the property of a few and was only available to market participants, is now in the hands of the public. This liberation of information has been the result of the development of the Internet. Over the last decade, the Internet has revolutionized the way people access and use information.

The goals of the 1975 Amendments, however, are still as important as ever. In 1975, Congress instructed the Commission that in developing a national market system, "competition, rather than regulation, should be the guiding force."12 The Commission is mandated by Congress to facilitate the development of a national market system not to be its chief architect. The two paramount goals of the national market system are the "centralization of all buying and selling interest so that each investor will have the opportunity for the best possible execution of his order, regardless of where in the system it originates," and "the maintenance of stable and orderly markets."13 In establishing this mandate, Congress identified five criteria that should guide the Commission's role in the establishment of a national market system:

1. promotion of the development of mechanisms that allow for economically efficient execution of securities transactions;
2. promotion of fair competition;
3. promotion of transparency;
4. improvement of investor access to the best markets; and
5. the development of mechanisms that allow for investors' orders to be executed without the participation of a dealer.14

The National Market System envisioned by Congress in 1975 called for the development of comprehensive market linkage and order routing systems "to permit orders for the purchase and sale of multiply-traded securities to be sent directly from any qualified market to another such market promptly and efficiently."15 In the years following the 1975 Amendments, the Commission recognized "_t_he need to develop and implement a new Inter-market order routing system to link all qualified markets could be obviated if participation in the ITS market linkage currently under development were made available on a reasonable basis to all qualified markets and if all qualified markets joined that linkage."16 Unfortunately, the ITS and other NMS Plans were never made available to all qualified markets.

2. The Failings of the National Market System

The current NMS no longer serves to promote the development of mechanisms that allow for economically efficient executions of securities transactions. The current NMS impedes fair competition and reduces market transparency by preventing the large pools of liquidity contained in ECN order books from interacting with other market participants. Traditional exchanges have been able to withstand the positive effects of increased competition because of the governance structures of the NMS Plans. Currently, the NMS boards are composed of representatives from each exchange. Any change to the rules governing the operation of the technology behind the National Market System, such as the very rule changes necessary to accommodate ECNs and new electronic exchanges, require the unanimous consent of the participants. This unanimity requirement enables any member to block changes that threaten its antiquated market or technology.

While recognizing Alternative Trading Systems, including ECNs, as systems that "perform[] . . . the functions commonly performed by a stock exchange,"17 the existing exchanges oppose the opening of the NMS to ECNs and ATSs. ECNs are denied entry to the NMS systems, even though many ECNs have higher daily share volumes than the majority of the exchanges that have access to the NMS systems and who sit on the NMS governing boards. In the first quarter of 2000, the Archipelago ECN and Bloomberg Tradebook ECN each had share volumes greater than the volumes of the Boston, Cincinnati, Pacific, Philadelphia, American and Stock Exchanges.18 Nevertheless, these and other ECNs are denied access to the NMS Plans that are meant to address fragmentation, even though traditional exchanges with smaller pools of liquidity are allowed to link to the NMS systems and sit on the governing boards of the NMS Plans. The inability of ECNs to access the NMS Plans increases market fragmentation because it prevents large pools of liquidity contained in ECN order books from interacting with the liquidity contained in the order books of traditional market participants. This lack of transparency decreases overall market efficiency and interferes with brokers' abilities to satisfy their best execution responsibilities.

The best example of the failings of ITS, is the OptiMark trading facility. Despite spending millions of dollars on a patented technology, OptiMark was only granted access to ITS after the Commission "broker[ed] a compromise between competing parties on the ITS operating committee after principals exhausted more than a year in fruitless, back room debate on how OptiMark could or should be linked to the NYSE market."19 Despite the intervention of the Commission, shortly after the OptiMark system was launched, "the NYSE effectively shut down ITS access to the OptiMark utility - based on arbitrary volume limitations."20 While the NMS does have major problems, it can be reformed in a manner that will meet the goals of Congress as set forth in the 1975 Amendments.

3. Opening the NMS to New Participants Will Help to Reduce the Fragmentation Caused by Increased Competition.

In order to ensure that the National Market System meets the goals Congress set forth in the 1975 Amendments, the governance structure of the NMS should be amended. The NMS governing boards should be eliminated and replaced with a new National Market System board. This new NMS board should include representatives from the existing exchanges, new electronic exchanges, ECNs, broker-dealers, issuers and the public. The new NMS board should be structured in such a way as to ensure that at least 50 percent of the representatives are not industry participants. This structure is similar to the structure endorsed by the Commission in recent years with respect to public representation on the boards of self-regulatory organizations.21 Industry associations such as the Securities Industry Association and the Security Traders Association could select broker-dealer representatives of various sizes.22

On December 9, 1999, in an apparent attempt to open the ITS, the Commission adopted amendments to the ITS Plan. The amendments expand the ITS/Computer Assisted Execution System linkage to all listed securities.23 The Commission also noted that:

in order to further the goals of the national market system, ECNs trading in listed securities should be linked to ITS. ITS should not prevent efficient electronic routing between markets.24

While the opening of ITS to ECNs is a step in the right direction, the value of such a step will be minimal as long as the current governance structures of NMS Plans remain in place. The current national market system represents an artificial barrier to competition. Democratizing the national market system in the manner discussed above is consistent with the intent of the 1975 Amendments, specifically, the Commission's duty to ensure that all market participants are granted access to the national market system.

4. The Commission Lacks the Authority to Impose a Central Limit Order Book or Public Utility Model on the Market.

Although NexTrade believes that the Commission must act to reform the NMS so no market participant is excluded, NexTrade does not believe the Commission should be the chief architect of the new NMS. The Commission should let market participants develop technology that will accomplish the goals of the 1975 Amendments. Pursuant to the mandate of Congress, the Commission should maintain an oversight role and ensure that market participants are not denied access to new linkages. The Commission should use its rulemaking authority to ensure fair access and let competitive forces determine the technologies that serve as the backbone of the new NMS.

NexTrade and other innovative market participants have proven that linkages between new markets can be established in an environment free from unnecessary government interference. Traditional market participants oppose such changes because they undermine their ability to control the markets of the future. The current NMS structure and the role of the Commission in the NMS ensures that innovations are delayed by unnecessary regulation that merely serves to protect antiquated markets.

While Congress charged the Commission with oversight responsibility as part of the development of a National Market System, Congress did not grant the Commission unfettered authority. The 1975 Amendments did not authorize the Commission to act as the chief architect of the NMS. Congress instructed the Commission to refrain from attempting to design a National Market System. Rather, than vest the Commission with unfettered authority over the NMS and with the responsibility for designing the NMS, Congress chose to rely on an "approach designed to provide maximum flexibility to the Commission and the securities industry in giving specific content to the general concept of the national market system."25 Congress implemented this approach by adding Section 11A to the Exchange Act. Section 11A(a) directs the Commission to facilitate the establishment of a national market system in accordance with specific congressional findings and objectives. Among these findings were that new data processing and communications techniques created the opportunity for more efficient and effective market operations, and that the linking of all markets through such data processing and communications facilities would increase the information available to broker-dealers and investors.

NexTrade does not believe that the Commission should attempt to develop a "comprehensive national market linkage system" that requires "the creation of a single industry utility."26 The Commission lacks the authority to create such a structure. Such action is beyond the scope of the authority granted to the Commission in the 1975 Amendments. Congress clearly stated in 1975 that the Commission would not have:

either the responsibility or the power to operate as an "economic czar'' for the development of a national market system. Quite the contrary, for a fundamental premise of the bill is that the initiative for the development of the facilities of a national market system must come from private interests and will depend upon the vigor of competition within the securities industry . . .27

This is not to say that the Commission does not have an important role in the National Market System. As Congress recognized in 1975, "the SEC's basic role . . . [is] to remove burdens to competition which would unjustifiably hinder the market's natural economic evolution and to assure that there is a fair field of competition consistent with investor protection, in situations in which natural competitive forces cannot, for whatever reason, be relied upon, the SEC must assume a special oversight and regulatory role.28

NexTrade rejects the contention that the implementation of a National Market System requires the creation of a single utility. The anti-competitive nature of the current NMS requires the intervention of the Commission because it hinders the market's natural economic evolution. This market inefficiency can be corrected by opening the NMS to new participants and by restructuring the national market system board. By opening the NMS to new participants, the Commission will restore a level playing without having to act as an "economic czar." The Commission can also correct the anti-competitive environment by making it easier for new Securities Information Processors ("SIPs") to obtain approval to operate and provide the technology for the National Market System. With a new NMS board and competing SIPs, the National Market System will be transformed into a network of service providers that compile and disseminate information without the Commission having to impose a cost based approach on the markets.

C. The Commission should require greater disclosure by market centers and brokers concerning trade executions and order routing.

While unfettered competition will reduce fragmentation in the long term, NexTrade realizes that fragmentation will be a problem until the barriers to competition discussed above are removed. Accordingly, NexTrade encourages the Commission to require market centers and brokers to provide greater disclosure of their trade executions and order routing. Such information will increase investor knowledge and investor choice.

Market centers and brokers should be required to disclose information regarding:

1. price improvement rates,
2. enhanced liquidity rates,
3. immediacy rates,
4. rebate schedules, and
5. internalization practices.

This information will enable investors to compare the execution results of various market centers so that they can choose those market centers and firms that offer superior execution results. In addition, because firms and markets would be required to disclose this information, firms and market centers would be constantly striving to improve their execution quality. Quality of execution would become a quantifiable criteria by which the public could select markets and firms. Accordingly, the increased competition would benefit investors by providing them with improved best execution. Moreover, competition among market centers for order flow will encourage innovation and the use of technology as a means to provide more efficient and higher quality trading services.

The Commission should require brokers to disclose their internalization or payment for order flow practices to customers. Market centers and brokers should also disclose information regarding the quality of their executions on a quarterly basis to the Commission. This information will enable investors to judge the quality of executions provided by their brokers and direct their brokers where to send their orders.

D. The Commission should not restrict internalization and payment for order flow to alleviate fragmentation.

Although investors should have access to information regarding internalization and payment for order flow practices, the Commission should not restrict internalization and payment for order practices in a misguided attempt to alleviate fragmentation.29 In evaluating this issue it is important to remember that the core issue is not whether internalization and payment for order flow practices contribute to fragmentation, but whether the resulting fragmentation affects the fairness and efficiency of the markets. Assuming that internalization and payment for order flow isolate orders, the overriding issue is whether these practices have a detrimental effect on the fairness and efficiency of the markets.

One way of determining whether internalization or payment for order flow affects the fairness or efficiency of the markets is to ask whether orders that are routed pursuant to these practices receive executions that are as favorable if not superior to orders that are not routed pursuant to these practices. In recent testimony before the Senate Subcommittee on Securities, David Colker, President and Chief Operating Officer of the Cincinnati Stock Exchange ("CSE") testified regarding the quality of the CSE's executions as determined by a 1997 Commission study (the "Preferencing Report").30 In the Preferencing Report, the Commission found that the CSE's frequency of price improvement was as good as, and in some instances better than, price improvement on the NYSE.31 Similarly, the Commission concluded that the limit order fill rates on the CSE exceeded those on other exchanges.32 Accordingly, the Commission determined that the CSE's internalization program "increased the CSE's ability to compete with other markets without sacrificing investor protections, and thus furthered the objectives of Section 11A of the Exchange Act.33 The Commission found no evidence that investors' orders were disadvantaged."34 The Preferencing Report suggests that internalization of orders does not affect best execution.

If, despite the findings of the Preferencing Report, the Commission concludes that internalization and payment for order flow result in less favorable executions, the Commission still should refrain from restricting these practices. The benefits that investors receive from these arrangements outweigh the negative effects of increased fragmentation. For example, cash rebates paid in exchange for order flow give the broker-dealer the volume of order flow needed to guarantee fast, dependable order execution.

It is unclear if new exchanges or ECNs that are not owned by traditional market participants will be able to gain the critical mass of share volume necessary to effectively compete with traditional exchanges and market participants if they are not permitted to take advantage of the positive affects of internalization and payment for order flow agreements. Such practices enable new market participants to build volume on their systems and to ensure that they are satisfying their best execution responsibilities while developing the relationships with other market participants that are the cornerstone of America's financial markets.


Instead of imposing restrictions on internalization and payment for order flow, NexTrade encourages the Commission to address market fragmentation by removing the barriers to competition. In furtherance of this pursuit, the Commission should amend the NMS governance structures and open participation in a new NMS to ECNs and other innovative market participants. By removing the artificial barriers to competition created by the archaic governance structure and technology of the NMS, the Commission will foster competition. The competitive forces unleashed by liberating the NMS from its anti-competitive masters will produce a new NMS linkage system without the Commission having to act as an economic czar. Although NexTrade believes that competitive forces will act swiftly in establishing a national linkage system, until such a system is realized, NexTrade believes that the Commission should require market centers and brokers to disclose information concerning their trade executions and order routing.

Very truly yours,

Richard B. Levin
General Counsel
NexTrade Holdings, Inc.
and NexTrade, Inc.

cc: Hon. Arthur Levitt
Hon. Norman S. Johnson
Hon. Isaac C. Hunt, Jr.
Hon. Paul R. Carey
Hon. Laura S. Unger
Annette Nazareth
Robert L.D. Colby
Belinda Blaine
Daniel M. Gray


1 Exchange. Act Release No. 42450 (Feb. 23, 2000), 65 Fed. Reg. 11620 (March 3, 2000) (the "Concept Release").

2 Competition and Transparency in the Financial Marketplace of the Future: Hearings Before the Subcomm. on Securities of the Senate Comm. On Banking, Housing, and Urban Affairs, _hereinafter Hearings_, 106th Cong., 2nd Sess. (2000) (statement of Harold Bradley, Senior Vice President, American Century Investors).

3 Id.

4 Id.

5 Evolution of Our Equity Markets: Hearings Before the Committee on Banking, Housing, and Urban Affairs, 106th Cong., 2nd Sess. (2000) (statement of Alan Greenspan, Chairman of U.S. Federal Reserve).

6 Id.

7 Id. (emphasis added).

8 "Visible Prices, Accessible Markets, Order Interaction" - Remarks of Chairman Arthur Levitt at Northwestern University School of Law, Chicago, IL. (Mar. 16, 2000).

9 See 64 Fed. Reg. 70613 (Dec. 17, 1999).

10 Pub. L. No. 94-29, 89 Stat. 97 (1985).

11 Section 11A(a)(1).

12 See H.R. Rep. No. 94-229, 94th Cong., 1st Sess. 92 (1975).

13 See S. Rep. 94-75, 94th Cong., 1st Sess. 7 (1975).

14 Section 11A(a) of the Securities Exchange Act of 1934.

15 Exchange Act Release No. 14416 (January 26, 1978) ("1978 Statement"), at 26, 43 FR 4354, 4358.

16 In this connection, the Commission specifically indicated that "qualified markets" would include not only exchanges but OTC market makers as well. Id.

17 See Securities Exchange Act Release No. 40760 (December 8, 1998), 63 FR 70844.

18 In the first quarter of 2000, the Archipelago ECN had share volume of 2,623,567,000 and the Bloomberg Tradebook ECN had share volume of 4,896,131,000. For the same period, the American Stock Exchange had share volume of 3,461,626,000, the Boston Stock Exchange had share volume of 1,527,909, the Cincinnati Stock Exchange had share volume of 1,005,008,000, the Pacific Stock exchange had share volume of 1,439,826,000, and the Philadelphia Stock Exchange had share volume of 669,787,000. Our World In Numbers, Securities Industry News, May 8, 2000, at 15, 21.

19 Hearings, supra note 2.

20 Id.

21 See, e.g., Report Pursuant to Section 21(a) of the Securities Exchange Act of 1934 Regarding the NASD and The Nasdaq Market (August 8, 1996); Order Granting Approval to Philadelphia Stock Exchange Proposed Rule Change, Exch. Act Rel. No. 38960 (Aug. 22, 1997) (requiring 50 percent board representation by public governors).

22 This approach was also discussed in the SIA Report on Market Data Pricing, which noted that SIA would also like to explore/encourage an alternative governance structure for market data that would include a broader exchange, industry, and public representation. See Report on Market Data Pricing, Prepared by Arthur Andersen, LLP (June 1999).

23 Exchange Act Release No. 42212 (Dec. 9, 1999).

24 Id. (emphasis added).

25 Id. at 92.

26 Concept Release at 21.

27 S. Rep. 94-75, 94th Cong., 1st Sess. 7 (1975) (emphasis added).

28 Id.

29 Exchange Act Rule 10b-10(d)(9) defines payment for order flow as:

any monetary payment, service, property, or other benefit that results in remuneration, compensation, or consideration to a broker or dealer from any broker or dealer, national securities exchange, registered securities association, or exchange member in return for the routing of customer orders by such broker or dealer...including but not limited to: research, clearance, custody, products or services; reciprocal agreements for the provision of order flow; adjustment of a broker or dealer's unfavorable trading errors; offers to participate as underwriter in public offerings; stock loans or shared interest accrued thereon; discounts, rebates, or any other reductions of or credits against any fee to, or expense or other financial obligation of, the broker or dealer routing a customer order that exceeds that fee, expense, or financial obligation.

30 Competition and Transparency in the Financial Marketplace of the Future: Hearings Before the Subcomm. on Securities of the Senate Comm. on Banking, Housing, and Urban Affairs, 106th Cong., 2nd Sess. (2000) (statement of David Colker, President and Chief Operating Officer of the Cincinnati Stock Exchange) (citing Report on the Practice of Preferencing (April 15, 1997).

31 Id.

32 Id.

33 Id.

34 Id.