Grover Norquist, President of American Shareholders Association From: Daniel Clifton [dclifton@atr.org] Sent: Thursday, June 10, 2004 1:42 PM To: 'rule-comments@sec.gov' Subject: File No. S7-10-04 June 10, 2004 Mr. Jonathan G. Katz Secretary U.S. Securities and Exchange Commission 450 Fifth Street N.W. Washington, D.C. 20549-0609 Dear Mr. Katz: On behalf of American Shareholders Association (ASA) and the organization's membership of individual investors, I am writing to express strong support for Regulation NMS. The proposed rule has a number of reforms of which benefit individual investors. Critical to the success of Regulation NMS is the "opt out" provision of the trade through rule. This provision must be kept in place in the final rule for Regulation NMS to actually benefit individual investors. The Securities and Exchange Commission (SEC) should be commended for issuing Regulation NMS, which has started the process to modernizing the country's equity markets. It is the opinion of this organization that the trade-through rule is an outdated regulation that should be repealed. Short of repeal, allowing investors to opt out will work to help facilitate greater choice for investors and improve the efficiency of markets. Without question, investors are driven by price, but prices that are not available or in the cases of insufficient liquidity increase the costs for investors. As such, the trade-through rule may actually be harming investors by restricting their ability to achieve best execution. It is ASA's belief that investors should be given choices to better meet their individual needs. Twenty-years ago investors did not have direct market access and thus could not choose between price, speed, and liquidity that technology can now provide. Yet, the trade-through rule has hampered the ability for investors to take full advantage of this new technology, which forces investors to move through slower markets and face higher execution costs. This is resulting in lost efficiency gains to investors and the U.S. economy. Nearly 200 members of ASA, all of whom are individual investors, have commented on this rule in support of modernizing U.S. equity markets by repealing the trade-though rule. They articulated clearly to the SEC that "our mutual fund managers, pension fund managers, insurance companies and other representatives deserve the ability to communicate trading priorities that meet their customers' unique needs." The opt-out provision will achieve this objective and I urge the Commission to ensure this is included. However, trade-through reform is just one piece of the puzzle. To fully modernize U.S. equity markets to the benefit of individual investors, the SEC needs to examine the market data cartels and the excessive high costs associated with market data due to their granted monopoly. Although data is limited to tell the full extent of excess market data money floating around stock exchanges, recent estimates suggest that the New York Stock Exchange has a 1,000 percent mark up on its cartel driven market data profits. The ability to overcharge from its monopoly has led to higher costs for investors. Moreover, the money is now being used to subsidize other activities such as executive compensation. A case in point is the recent story regarding former New York Stock Exchange (NYSE) CEO Richard Grasso's executive compensation package. All the news about lawsuits and personnel changes misses what was the real problem. The NYSE should not even of had the money in the first place to pay those wages. By charging excessive amounts for market data due to its monopoly status, the exchange has excess revenues which are being used to subsidize executive compensation ASA believes markets should determine executive compensation. Yet in the Grasso case, markets were not determining Grasso's pay, but rather the monopoly profits from market data allowed NYSE to compensate above market wages. And if money is not available to the Exchange, they can just raise the costs of market data to fund higher wages for executives as the peril of individual investors. The problem has become so bad that even NASDAQ CEO Bob Greifeld, a beneficiary of the market data cartel, told the Commission in April he could significantly reduce market data prices by an astonishing 75 percent and still keep shareholder returns in place. If this is not a signal to the SEC that there is a problem and this problem needs to be addressed quickly than I don't know what is. The market data cartels should put forward their costs. Without transparency, individual investors will continue to subsidize market through higher costs while wages are inflated above market rates. The beneficiaries of the cartel will oppose this reform to maintain their privileged status and maintain their 1,000 percent monopoly markup. They will argue this will harm individual investors because it will reduce funding for regulatory costs. This is not true, but even so it raises the point that the exchanges should fund their regulatory structure and operations functions in a transparent way rather than through hidden market data charges that are increasing costs to individual investors. Regulation NMS has put forward the discussion on improving market structure for U.S. equity markets. As such, this is an historic opportunity to modernize markets for the benefit of individual investors as the nation's demographics and technology continues to change. On behalf of American Shareholders Association I urge you to ensure the "opt out" provision is included as part of the trade-through rule and to examine the market data cartel's costs and make changes to the benefit of investors. Thank you for the opportunity to discuss these critical issues facing investors. Sincerely, Daniel M. Clifton Executive Director