From: rbernard@nyse.com To: nazaretha@sec.gov CC: rbritz@nyse.com ; colbyr@sec.gov Sent: Wed Apr 09 16:55:07 2003 Subject: Conditioned Approval of Liquidity Quote By this email, the Exchange wishes to respond to the Commission's April 2 order conditionally approving our filing on NYSE Liquidity Quote (superscript: SM) ("NYLQ"). Acceptance of Integration Condition: The order conditions approval on the NYSE: "[R]emov[ing] from its vendor agreements the prohibition on data feed recipients, including vendors, from integrating Liquidity Quote with other market's data or with the displays of other markets' data". The order further gives us four business days within which to notify you of our acceptance. The Exchange accepts the Commission's integration condition. Compliance with Implementation Condition: The order also precludes us from implementing NYLQ "until the [integration] prohibition is removed from the NYSE's vendor agreements." You may not appreciate that the amendments of the vendor agreements that extend the NYSE OpenBook(superscript: SM) integration prohibition to NYLQ are in various stages of procurement. Thus, we will shortly send to all vendors that have expressed an interest in disseminating NYLQ a superseding letter amendment, the current draft of which is at the end of this email (the "Draft NYLQ Vendor Letter"). In due course, we will incorporate the substance of the letter into the text of the relevant addendum to their agreements. Implementing Attribution and a Separate Branded Package: The Commission's April 2 order also permits the NYSE to: "[R]equire that vendors provide the NYSE attribution in any display that includes Liquidity Quote and ... make Liquidity Quote available to their customers as a separate branded package." The Draft NYLQ Vendor Letter also implements these requirements. Implementation of Paradigm Refinements: The Commission's April 2 order did not address the refinements to the integration prohibition that I mentioned in my February 7 letter, that Bob Britz and I demonstrated using screen shots during our five meetings on February 10 with you and your staff and with each of Commissioners Atkins, Campos, Glassman and Goldschmid and their counsels, and that I further described in my subsequent emails noted in your release. Those refinements moved the paradigm away from non-integrated displays and towards differentiating NYLQ from BBOs within an integrated display to avoid confusing or misleading viewers into thinking that the two types of data are the same or comparable. The Draft NYLQ Vendor Letter implements those refinements. Please note in particular the following requirements. The letter requires the use of highlighting or other techniques to visually differentiate NYLQ from BBOs. In the case of the display of an integrated quote that incorporates NYLQ with a BBO, the letter requires the quote's display to indicate the number of shares attributable to NYLQ. The letter requires montages to include a footnote that differentiates NYLQ from BBOs and addresses the double counting that results from including both NYLQ and the NYSE BBO. Annette, please do not hesitate to call if you have any questions about this email. Rich Bernard NYSE 212 656 2222 DRAFT NYLQ VENDOR LETTER [DATE] [INSIDE ADDRESS] Dear [NAME]: In its April 2 order approving NYSE Liquidity Quote(superscript: SM) ("NYLQ") [CITE FR, SEC WEBSITE], the Securities and Exchange Commission required the NYSE to: "[R]emove from its vendor agreements the prohibition on data feed recipients, including vendors, from integrating Liquidity Quote with other market's data or with the displays of other markets' data". The relevant provision in your contract reads substantially as follows: "? [Vendor] shall not cause ... the displays of [NYSE Depth] Information that [Vendor] provides to [end-users] to be integrated with other market information that any source other than NYSE makes available .... [For example, Vendor] shall not permit the displays ... to be consolidated with limit orders [of] any other market ?. Vendor [may display] one or more other entities' limit orders side-by-side with, or on the same page as, displays of OpenBook Information". Effective immediately, this contract provision is no longer effective as to NYLQ. The prohibition remains in effect as to NYSE OpenBook(superscript: SM). The Commission's April 2 order permits the NYSE to: "[R]equire that vendors provide the NYSE attribution in any display that includes Liquidity Quote and ... make Liquidity Quote available to their customers as a separate branded package." We set out our requirements superseding the integration prohibition below. They include requirements designed to avoid confusing or misleading viewers about the fundamental differences between NYLQ and BBOs. These differences are illustrated by the questions each type of quote answers. A BBO answers the question, "What is the highest price at which I can sell or buy a small quantity of a stock?" NYLQ answers the question, "At what price is their sufficient liquidity to permit me to sell or buy a large quantity of stock." The requirements also address the fact that the NYLQ size includes the NYSE BBO size. Attribution and Differentiation: In order to attribute NYLQ to the NYSE and differentiate it from the NYSE BBO, each NYLQ bid or offer must be associated with the identifier "NYSE Liquidity Quote(superscript: SM)" or "NYLQ". In order to prevent misleading and confusing displays of NYLQ adjacent to any BBO or the NBBO, any display that juxtaposes NYLQ with a BBO or NBBO must also visually differentiate NYLQ from BBOs. Subject to NYSE approval, you may effect such visual differentiation of the NYLQ prices, size and identifier by using techniques that serve reasonably to visually differentiate NYLQ from BBOs and the NBBO so as to belie any assumption that NYLQ is a BBO or is comparable to BBOs and the NBBO. Integrated Quotes and Attribution: Integrating NYLQ with BBOs into aggregate data raises particular concerns about confusing and misleading viewers because the very nature of integration conveys that the data being integrated are comparable; i.e., that NYLQ is a BBO or comparable to a BBO. If you do integrate NYLQ with a BBO into an aggregate datum, the display of the integrated quote must indicate the number of shares attributable to NYLQ. Montages: Montages that include NYLQ also raise concerns about confusing and misleading viewers because the very design of a montage conveys that the data are comparable; i.e., that NYLQ is a BBO or comparable to a BBO. If you do include NYLQ in a montage, you must footnote NYLQ as follows: NYLQ is not a BBO; sum of sizes is greater than the cumulative size because NYLQ size includes NYSE BBO size. To avoid double counting, you must exclude from the cumulative size the NYSE BBO size. Branded Displays: You must make NYLQ available to your customers as a separate branded package. Review of Screen Shots: In order to assure compliance with these requirements, you may not receive the NYLQ datafeed from the NYSE or from any datafeed provider until you have submitted screen shots to the NYSE and the NYSE has approved them as compliant with the requirements set forth in this letter. Thank you for our cooperation. If you have any questions, please call _____. Note: The information contained in this message and any attachment to it is privileged, confidential and protected from disclosure. If the reader of this message is not the intended recipient, or an employee or agent responsible for delivering this message to the intended recipient, you are hereby notified that any dissemination, distribution or copying of this communication is strictly prohibited. If you have received this communication in error, please notify the sender immediately by replying to the message, and please delete it from your system. Thank you. NYSE.