May 12, 2000 Mr. Jonathan Katz Secretary U.S. Securities and Exchange Commission 450 Fifth Street, N.W. Washington, D.C. 20549 Re: SEC Release No. 34-4250 File No. SR-NYSE-99-48 Dear Mr. Katz: M.H. Meyerson & Co., Inc. appreciates the opportunity to comment on SEC Release No.34-4250; File No. SR-NYSE-99-48. Our experience as an original participant of Nasdaq and our history in the market-making business over the past forty years provides us with much experience in this ever changing marketplace. We have serious apprehension regarding the current proposal and the six highlighted scenarios that are suggested to resolve the commissions market fragmentation concerns. Our understanding of the primary concern is that an order represented in one market center may not necessarily be executed even if there are transactions at that price because of order internalization at other market centers. What percentage of all orders does this represent? We have reserved comments on this issue until this time, so that we could seriously consider the issues, and review the preliminary comments already submitted to the Commission. We have decided in light of the extensive comments received by the Commission on a point by point basis, a restatement of the release and individual answers to the questions contained therein would be redundant. In light of this we offer the following comments. NYSE Rule 390 Understanding that ultimately the intent of the Commission and Congress to level the playing-field for all investors (large and small) and eliminate anti-competitive regulation, we would suggest that a repeal of this particular regulation would increase competition for listed order flow and executions between the Exchange and its non-member competitors. We recommend that prior to the final approval of a repeal of Rule 390 an aggressive review of the potential effects be conducted and the results of this review he made public for discussions and comment. We also recommend that a time limit for completion of study be enforced so that an appropriate decision be made on a timely basis. Market Fragmentation In reviewing the Commissions position on this matter as expressed in this release we understand the issues and concerns that have been raised but do not agree with the proposed actions to address these concerns. As we have previously stated in addition to reviewing the release we have also reviewed the comments to date and have serious reservations concerning the proposal and the functioning of a Central Limit Order Book "CLOB" as a viable solutions market fragmentation concerns. A CLOB may theoretically provide a mechanism to expose every order to each other and provide a Textbook mechanism to ensure "Best Execution" for all orders. We believe that this would not generally be the best solution. The CLOB while theoretically creating best executions would magnify other problems and potentially undermine investor confidence in the market in general. A common discussion and point of debate in recent years concerning the securities markets has been liquidity and market-maker contribution to overall market liquidity. There are significant differences in the definitions of liquidity considering the source. Market participants, traders, market makers, regulators and academics have widely divergent opinions on liquidity. There has also been significant debate over market liquidity that is provided by market makers and specialist and whether this is real liquidity. The opposing opinions state that liquidity is provided to the markets by only the ultimate buyer and seller of securities, either individual or institutional investors. Market makers have been decried as providing a thin veneer or liquidity or "immediacy" also referred to as a microliquidity. While these opposing opinions can be justified by each side through analysis of raw data, little is said about a market makers or specialists duty to maintain a "fair and orderly market". This theory of fair and orderly markets is a cornerstone of our market system that has had a significant impact upon the Global View that the U.S. Securities Markets are the most secure and liquid markets available. The security and liquidity of our markets have been largely achieved through competitive forces and technological innovation, we strongly urge the Commission to consider these factors in deciding fundamental changes to this process through regulation. We would like to pose some scenarios and questions that we consider relative in light of the proposed regulation. We refer to our previous comments concerning liquidity. Certainly a CLOB would greatly reduce capital commitments of market makers to executing customer orders and shift this capital into proprietary position trading. This shift would place this capital in direct competition with investors in the marketplace. The resulting effect would magnify volatility and eliminate the "fair and orderly market obligation. Specifically if a technology company with a large market capitalization reported sales or earning that did not live up to market or analyst expectations, the company could find themselves in a position of having a one sided market in their shares. The resulting effects of this situation could limit the companies access to additional capital, prevent the development of additional technology and impede implementation of the company's business plan. Some companies shares have significantly eroded in market value because they have not met expectations or their rate of growth has showed. Conversely the value of a companies shares could balloon on positive news and as history has taught us when the balloon or bubble pops the downside to investors would be unavoidable. A system that provides some opportunity for market makers and specialist to benefit from their capital commitment and to maintain fair and orderly markets, in times of stress, helps to slow or minimize unbridled volatility. These scenarios may sound extreme but an analysis of the recent trading history of the technology and bio technology market segments suggest the possibility. Following this scenario down to the investors level, significant dislocation in a market sector can overflow into the broader market, rise margin calls, and initiate significant asset liquidations. We have illustrated the above possibilities to underscore the caution that must be used when contemplating the type of market reform envisioned by the current proposal. Furthermore, the Nasdaq stock market has made tremendous strides in the fair and orderly handling of customer orders. In fact, under close scrutiny the Nasdaq NMS system performs most of the functions of a CLOB. Regulation requires that all orders be displayed and afforded Manning and Limit Order Protection . If the Exchange Listed Securities were exposed to this free market system, competition and innovation would lead to the ultimate goals of unified order interaction. It is our opinion that instead of creating a new and cumbersome system that would discourage competition, we should use the tools already available. Finally we would like to pose the following questions to the commission for considerations in this matter: What is the percentage (versus all limit orders) of unexecuted orders that create a new NBBO? How is this determined in light of the fact that a new quote of a market maker or ECN is not identified as representing a customer limit order? Is this percentage great enough to require a CLOB? Does it justify the position of fragmentation in the markets? If market makers and specialists only provide microliquidity, in both long and short positions, or immediacy to the markets then is the billions of dollars in fluid position that we as a group maintain on a continuous basis discounted in the liquidity equation? Have economic studies by Congress and SEC Regulation been completed and released on such issues as: The overall effect on the market of a CLOB? The potential financial effects on the broker-dealer and financial services industry? The possibility effects of significantly increased volatility on overall market valuations? The effect of potential volatility on Professionally Managed Pensions and Mutual Funds? The relationship between day traders and volatility in light of a CLOB System? The relationship to liquidity of professional day traders in a CLOB System? In closing we again express our appreciation to the Commission for accepting and reviewing our comments and opinions on the issues of Market Fragmentation and the CLOB. We recommend that before such a significant change to the current system be initiated considerations be given to the potential overall risk to the Market in general and specific statistics concerning the actual member of orders unfilled as a result of this fragmentation be accumulated and reviewed. Sincerely, M.H. Meyerson & Co., Inc. Anthony F. Dudzinski Vice President of Operations