January 8, 2001
Mr. Jonathan G. Katz
Securities and Exchange Commission
Mail Stop 5-1
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Release No. 34-43608
The Cincinnati Stock Exchange ("Exchange" or "CSE") respectfully submits the following comments on the proposed rule change filed by the Pacific Exchange, Inc., ("PCX") regarding the establishment of an electronic trading facility, called the Archipelago Exchange ("ARCA"). The Exchange believes that the PCX proposal is an innovative approach that seeks to challenge the floor-based exchange models for the benefit of public investors.
However, within the context of the national market system, and in particular, within the confines of the Intermarket Trading System Plan ("ITS"), the CSE is concerned that the Commission ensure a level playing field among national market system participants. In 1985, the CSE's entry into ITS was marred by the imposition of discriminatory "probing" requirements and outbound formula limitations, which the Exchange lacked the political capital to overcome. These competitive restraints remain in effect today. In 1998, the NYSE stymied the development of PCX's Optimark facility by insisting that PCX/Optimark must be subject to restrictions similar to those imposed on CSE. After participating in a recent ITS Operating Committee meeting, the Exchange foresees that these competitive obstacles will arise again in the ARCA context.
The CSE will participate in the upcoming ITS Operating Committee debate regarding the ITS amendments necessary for ARCA to link with ITS. ARCA, if it wishes to begin operation in the near future, will likely be forced to accept the probing and formula competitive restraints. However, should PCX/ARCA successfully argue before the ITS Operating Committee that is appropriate to depart from the historic path of anti-competitive impediments, the CSE would expect similar treatment in any proposed ITS amendments.
Jeffrey T. Brown