Bloomberg L.P.

March 10, 2003

U.S. Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549-0609
Attention: Jonathan G. Katz, Secretary


File No. SR-NYSE-2002-55: Notice of Filing of a Proposed Rule
Change by the New York Stock Exchange, Inc. (the "NYSE")
Relating to the Dissemination of Liquidity Quotations, SEC Release
No. 34-47091 (December 23, 2002)                                               

Ladies and Gentlemen:

Bloomberg L.P. ("Bloomberg") has reviewed the electronic mail submission by the New York Stock Exchange, Inc. (the "NYSE") on March 4, 2003 (the "March 4 NYSE e-mail") concerning the Liquidity Quote Proposal, referred to above (the "Liquidity Quote Proposal"). The NYSE's assertion in that e-mail that it has resolved with Bloomberg the problems we raised in our comment letters of January 23 and February 26, 2003 is simply not true. The problems remain unresolved and we reiterate the comments we made in those letters.

The March 4 NYSE e-mail substantially misrepresents and mischaracterizes the issues the Liquidity Quote Proposal presents. This is not a commercial dispute between Bloomberg and Reuters, as the NYSE suggests. It is instead a question whether the NYSE, which has a government-conferred monopoly, (i) will allow competing market-data vendors, including but not limited to Bloomberg, the freedom to present the Liquidity Quote data to end-user investors in a way that will rank the Liquidity Quote data against quotation data from competing market centers, and (ii) will allow the end-user investors the benefit of scale economies by permitting them to access the vendor's computer facilities to use analytics and other functionalities that professional investors routinely use in their investment analysis and decision making.

As we pointed out in our earlier letters, the NYSE vendor contracts would allow an end-user investor to analyze and reformat the data at the user's site but would not allow the investor to access Bloomberg's servers and other computer storage and operations capacity to do so. That restriction not only lacks any legitimate business purpose but also is calculated to favor the NYSE in its capacity as market-data vendor at the expense of other market-data vendors and of innovation competition, that is, the ability of competitors to develop and distribute new and innovative data products. More specifically, the NYSE's restraint, we pointed out, would have three pernicious, anticompetitive and unlawfully discriminatory effects:

(i) it would, as the NYSE March 4 e-mail suggests, disadvantage Bloomberg, and similarly situated market-data vendors that offer scale economies to their subscribers through access to the vendors' computer storage and operations capacity, as opposed to data vendors that do not;

(ii) it would create a two-tier market to the advantage of the large sell-side and buy-side participants that can afford to establish and maintain sufficient computer facilities to perform the data analytics and reformatting and to the disadvantage of the smaller participants who cannot afford to do so; and

(iii) it would severely disadvantage the other market centers since:

    (A) vendors could not present the Liquidity Quote data in a way that would rank them against competing market venues, and

    (B) the Liquidity Quote data would be "Xpressible", that is, the data could be used to direct order flow to the NYSE in preference to other market centers.

The NYSE's restraint cannot be reduced to a commercial dispute between data vendors. It threatens to harm the public interest directly and severely and to strike at the very heart of competition in the markets between and among market centers and between and among the market participants that are the end users of the data. To be sure, the Liquidity Quotes themselves should help cure the diminution in the informational value of the NBBO that occurred as a result of price decimalization. At the same time, however, the NYSE should not be permitted to use its vendor contracts to perfect its monopoly control over the data and to disadvantage, if not cripple, the ability of other market centers to compete.

The NYSE suggests perversely that the problem of disadvantaging Bloomberg will be cured because Reuters is altering its system architecture and will thus be equally stymied by the NYSE vendor contracts. Even if true, doubling the harm to competition among market-data vendors and to investors is hardly a reason for the Commission to approve the Liquidity Quote Proposal with the vendor contract restrictions. The other two problems mentioned above, the creation of an anticompetitive two-tier market among investors and the stifling of competitive opportunities by other market centers, would be extended to an even broader group of disadvantaged market participants.

The tone and content of the NYSE March 4 e-mail are themselves troubling for other reasons. It would appear that the NYSE never anticipated that its intemperate e-mail would see the light of day outside the Commission. We applaud the Commission for making the NYSE March 4 e-mail public since it is a significant communication in connection with an ongoing Commission adjudication of a self-regulatory organization's proposed rule change under Section 19(b) of the Securities Exchange Act of 1934 (the "Exchange Act"). As the Commission knows, transparency with respect to such communications is to be promoted, 1 particularly given the congressional mandate in this area.2

We note in that regard that the NYSE March 4 e-mail refers to an earlier e-mail dated February 14, 2003 (the "NYSE February 14 e-mail") that gave the Commission "the `state of play' on [the NYSE's] producer/distributor discussion with Bloomberg." We have not found the NYSE February 14 e-mail in the Commission's public file on this matter, and we request that the Commission provide to us and make public the NYSE February 14 e-mail and any other e-mails the Commission or its staff have received from or sent to any person or entity outside the Commission with respect to this matter.

On February 13, 2003, the day before the NYSE February 14 e-mail, Kim Bang, Kevin Foley and Thomas Secunda of Bloomberg attended a meeting with Richard Bernard, Robert Britz, Thomas Haley and Richard Jordan of the NYSE. At that meeting, the proposed Bloomberg screens for Liquidity Quote data were discussed. The NYSE delivered to us at that meeting a document entitled "NYSE Liquidity Quote Display", which the NYSE had produced. This document, a copy of which is attached, explicitly labels as "Not permitted" two "Quote Monitor" screens, two "Quote Montage" screens, one "Scrolling Trades and Quotes" screen, and one "NYSE Open Book and Liquidity Quote" screen. This NYSE document demonstrates graphically and unequivocally that the NYSE is unwilling to allow Bloomberg to consolidate the Liquidity Quote data from other markets in a way that would present the Liquidity Quotes in rank order by price or would otherwise facilitate comparison shopping by end-user investors.

The statement in the NYSE's March 4 e-mail, to the effect that Bloomberg's concerns about the vendor display contracts had been resolved, is untrue. Also, the statement in the NYSE March 4 e-mail that "we [the NYSE] had found all of Bloomberg's format solutions acceptable", which apparently summarizes some of the content of the February 14 NYSE e-mail, also is untrue. The statements the NYSE made to the Commission, in the NYSE February 14 e-mail, misrepresent the NYSE's position expressed in writing to Bloomberg the day before.

As we noted in our letter of February 26, 2003, the NYSE March 4 e-mail admits and affirms, the NYSE refuses to dispense with the restriction in the vendor contracts that would preclude vendors from commingling Liquidity Quotes with what the NYSE calls "retail"-size BBOs-by which we think they mean quotations from other, competing market centers. It is that refusal, among others, that produces the anticompetitive effects on other markets and on market participants. It is that refusal, as well as the other anticompetitive aspects of the vendor contracts, as outlined in our prior letters, that contravenes Sections 6(b)(5) and 6(b)(8) of the Exchange Act. We must continue to respectfully advise the Commission that an order approving the Liquidity Quote Proposal would be reversible as a matter of law on both those substantive grounds and on procedural grounds as well.3

If members of the Commission or the staff have any questions or wish to discuss these matters further, please let us know.

Respectfully submitted,

Kevin M. Foley by RDB

Attachments: Letter from Richard P. Bernard, Executive Vice President and General Counsel, New York Stock Exchange

cc(w/atts.): The Hon. William H. Donaldson
The Hon. Paul S. Atkins
The Hon. Cynthia A. Glassman
The Hon. Harvey J. Goldschmid
The Hon. Roel C. Campos
Annette L. Nazareth, Director
  Division of Market Regulation
Robert L. D. Colby, Deputy Director,
  Division of Market Regulation
Alden Adkins, Associate Director
  Division of Market Regulation
Stephen L. Williams, Economist
  Division of Market Regulation
Lawrence E. Harris, Chief Economist
Giovanni P. Prezioso, General Counsel


1 Cf. L. Brandeis, Other Peoples Money and How the Bankers Use It 62 (1914): "Publicity is justly commended as a remedy for social and industrial diseases. Sunlight is said to be the best of disinfectants; electric light the most efficient policeman."
2 See Securities Acts Amendments of 1975, Report of the Senate Comm. on Banking, Housing and Urban Affairs to Accompany S.249 (the "Senate Report on S.249"), S. Rep. No. 94-75, 94th Cong., 1st Sess. 29-30 (1975):

. . . [T]he Committee believes interested persons should have a meaningful opportunity to obtain accurate information about proposed changes in self-regulatory rules and to comment on the need or justification for these changes. Section 19(b)(1) would require the SEC to give notice and provide an opportunity for interested persons to participate in the process of reviewing a proposed change in a self-regulatory organizations rules. In addition, this section would require that all comment and all correspondence between the SEC and the self-regulatory agency concerning the proposal be available for public inspection. . . .

3 As we noted previously in our letter to the Commission in this matter dated January 23, 2003, the NYSE has failed to respond appropriately to item 4 of Form 19b-4 in its filing, which requires an explicit discussion of burdens on competition, "sufficiently detailed and specific to support a Commission finding that the proposed rule change does not impose any unnecessary or inappropriate burden on competition." Id [emphasis added]. The NYSE has refused to provide such a discussion and simply contains a rote incantation of the Section 6(b)(8) standard. That crosses "the line from the tolerably terse to the intolerably mute." Greater Boston Television Corp. v. Fed'l Commun. Comm'n, 444 F. 2d. 841, 852 (D.C. Cir. 1970), cert. denied 403 U.S. 923 (1971). We respectfully suggest that the Commission cannot lawfully waive that requirement, for it responds to a direct congressional intent that the review of self-regulatory organization rules provide the same public protections as the Commission's own rulemaking. See Senate Report on S.249 at 29-30. The NYSE's failure to provide that information has rendered defective the Commission's public notice of the NYSE Liquidity Quote Proposal, in Securities Exchange Act Release No. 47091 (December 23, 2002), and has deprived the Commission and the public commenters of information necessary to evaluate the filing. It therefore frustrates the congressional purpose in requiring that such rule filings be subject to public scrutiny and comment before being approved. See Connecticut Light and Power Co. v. NCR, 673 F.2d 525, 530-31 (DC Cir. 1982) (important information must not be hidden or disguised in agency proceeding). The record is thus legally insufficient and would have to be supplemented to provide the required discussion. On the substantive issue of consistency with the provisions of the Exchange Act applicable to the NYSE, the Commission cannot find that the Liquidity Quote Proposal is consistent with Sections 6(b)(5) and 6(b)(8) for the reasons stated above and must refrain from approving the Proposal until the vendor contracts are amended to delete the requirement that precludes vendors from commingling Liquidity Quotes with quotations from other markets and from otherwise making available to end-user investors the computer facilities the vendors maintain to permit end-user investors to analyze and work with the Liquidity Quote data. We also respectfully suggest that the Commission must refrain from acting on this NYSE rule proposal until the NYSE February 14 e-mail and any other non-public e-mails or other communications have been published as part of the file in this proceeding. See Senate Report on S.249 at 29-30; see also Home Box Office, Inc. v. FCC, 567 F.2d 9, 57 (1977).