UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                            ADVISORY COMMITTEE ON MARKET INFORMATION



                                    Thursday, April 12, 2001
                                           9:07 a.m.



                               Securities and Exchange Commission
                                     450 Fifth Street, N.W.
                                        Washington, D.C.





















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                 PARTICIPANTS:

                 MR. MICHAEL ATKIN
                   Vice President, Financial Information Services Division, 
                   Software and Information Industry Association

                 MR. ROBERT G. BRITZ
                   Group Executive Vice President, 
                   New York Stock Exchange

                 MR. ANDREW M. BROOKS
                   Vice President, Head of Equity Trading, 
                   T. Rowe Price

                 MR. ROBERT COLBY
                   Deputy Director, Division of Market Regulation,
                   SEC

                 MR. THOMAS DAVIN
                   Nasdaq

                 MR. MICHAEL T. DORSEY
                   Senior Vice President, General Counsel
                   and Secretary
                   Knight Trading Group

                 MR. JAMES DOUGHAN
                   Susquehanna Partners

                 MS. CARRIE E. DWYER
                   General Counsel and Executive Vice President, 
                   Charles Schwab

                 MS. ADENA FRIEDMAN
                   Senior Vice President
                   Nasdaq

                 MR. THOMAS HALEY
                   New York Stock Exchange

                 MR. DAVID A. HUNT
                   Partner
                   McKinsey & Company

                 MR. GEORGE K. JENNISON
                   Senior Managing Director, Retail Equity Group, 
                   First Union Securities




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                 PARTICIPANTS (CONTINUED):

                 PROF. SIMON JOHNSON 
                   Sloan School of Management,
                   Massachusetts Institute of Technology

                 MR. DONALD C. LANGEVOORT
                   Professor,
                   Georgetown University Law Center

                 MR. BERNARD L. MADOFF
                   Bernard L. Madoff Investment Securities

                 MR. BRIAN McNELIS
                   Reuters America

                 MR. MARK A. MINISTER
                   President and CEO, 
                   Bridge Training

                 MS. ANNETTE L. NAZARETH
                   Director, Division of Market Regulation,
                   SEC

                 MR. EDWARD NICOLL
                   Chairman and CEO
                   Datek Online Holdings

                 MR. PAUL O'KELLY
                   Chief Operating Officer,
                   Chicago Stock Exchange

                 MR. GERALD D. PUTNAM
                   Chief Executive Officer, 
                   Archipelago

                 MR. PETER QUICK
                   President
                   American Stock Exchange

                 MR. ERIC D. ROITER
                   Senior Vice President and General Counsel, 
                   Fidelity Management & Research Company

                 MR. JOEL SELIGMAN, Chair/Moderator
                   Dean,
                   Washington University School of Law




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                                       C O N T E N T S   


                 AGENDA ITEM:                                             PAGE

                   I. Progress Report on Subcommittee                       6 

                  II. Presentation by CTA/CQ Plan Administrator            29 

                 III. Presentation by Nasdaq/UTP Plan Administrator        64 

                  IV. Presentation on FISD Market Data Policy Database     10 

                   V. Discussion                                          116 

                  VI. Public Comments                                     151 

                 VII. Summary/Next Steps                                  154 


























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                                     P R O C E E D I N G S

                           DEAN SELIGMAN:  Let me call our fourth meeting to

                 order.

                           We have what will be, I suspect, a pretty full

                 agenda.  We're going to begin with four reports.  And just by

                 way of a couple of preliminary points, I'm going to ask

                 people to hold their questions on each of the respective

                 reports until the initial presentation is done.  I am

                 concerned that when we're complying with our charter and

                 essentially limited to six public meetings, that I want to

                 use the time efficiently today and cover all or at least as

                 much of the agenda as possible.  I'm concerned that if we

                 have too many questions in the process it will slow it down

                 too much.

                           Second, in three of the four reports there are

                 slides.  Each of the various presenters is going to

                 ultimately reproduce the slides and we'll circulate them to

                 each member on the committee.

                           Let me start with Don, who is chairing the

                 subcommittee on alternative methods of consolidation, and

                 just get a progress report.  

                           Don, as you all know, besides leading another

                 subcommittee meeting before May 14th, our focus on that date

                 will be how a multiple consolidator system ultimately could

                 work.


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                           PROF. LANGEVOORT:  Right.

                           Thanks, Joel, and given all the work we have to do

                 today, let me try to be very brief.  

                           As Joel mentioned, the subcommittee, which contains

                 11 members of this full advisory committee, met once on March

                 26th and will be meeting again this Monday.  Our objective is

                 to prepare an agenda for the May 14th meeting that will

                 reflect the questions we think the full advisory committee

                 needs to discuss and, hopefully, some sense of 

                 consensus -- to the extent there is any -- among the

                 subcommittee as to ideas, conclusions or whatever that has

                 come out of our deliberations.

                           The first meeting was a very productive one.  We

                 divided our discussion into two parts:  one, the

                 technological feasibility of moving to a multiple

                 consolidator model, secondly, the economics of moving to a

                 competing consolidator model.

                           On the first of these two questions we received

                 very valuable reports from Tom Davin and Tom Haley on the

                 existing SIAC system, how it works, what the technological

                 challenges are of bringing various data feeds into a single

                 consolidated stream and what that would mean to the process

                 of having multiple consolidators facing that same task.

                           Bottom line -- and I won't go through all the

                 details, we'll certainly present that to you in advance of


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                 the May 14th meeting -- it was a fairly optimistic one.  That

                 is to say, technologically, the process of receiving the

                 feeds, sequencing, validating from multiple sources using

                 multiple consolidators involves something of a challenge and

                 will require some degree of SEC oversight.  

                           But the subcommittee is optimistic that the self-

                 interests of their various participants, the experience that

                 we've had in other areas -- vendors under the current system,

                 options, commodities, other areas -- suggests that those

                 technological problems would be worked out with a relatively

                 small degree of SEC supervision.  Thus our conclusion, our

                 consensus, I think, is that the system is technologically

                 doable.  

                           The economics poses a more difficult problem, and

                 was the substance of our discussion at the second half of the

                 first meeting and will continue to be the subject of the

                 discussion on Monday.  To the extent that a display rule is

                 kept in place -- and we took it as the consensus of the full

                 advisory committee at the March meeting, there's a strong

                 feeling the display rule should stay in some 

                 form -- questions of market power, who can control pricing,

                 whether there will be exploitative pricing, were serious

                 ones.  Obviously, it's a matter that divides members of the

                 advisory committee and the full committee.  

                           The New York Stock Exchange has articulated


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                 numerous times that there are restraints built into the

                 governance structure of the SROs and other mechanisms that

                 prevent exploitative pricing.  Not all members of the

                 subcommittee or the full committee agree and one of the

                 things we are exploring is whether there are compromises,

                 middle ground options, that might be mechanisms for limiting

                 that pricing power to the extent that it exists.

                           What we've discussed -- and, to some extent, this

                 anticipates the discussion this committee will have this

                 afternoon -- are possibilities such as most favored nation

                 pricing, which I think really means trying to figure out who

                 is comparable to whom, so that they should pay roughly

                 comparable prices.  

                           Secondly, the possibility of advisory committees

                 informing the individual SROs with respect to pricing

                 decisions, a supplement to the current governance structures

                 that we have in place now.  Perhaps -- and this is something

                 we are going to discuss more on Monday -- maybe relaxing the

                 display rule, perhaps looking at ways in which the time at

                 which the NBBO or other data needs to be displayed is limited

                 to time of execution rather than a broader requirement, or

                 perhaps -- and I emphasize perhaps -- the possibility of

                 allowing synthetic NBBO, NBBO that is comparable to, but

                 perhaps not exactly the same as what it is now.

                           Finally -- and, again, repeating a discussion that


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                 we've had previously on the full committee -- the possibility

                 that various market participants can sell their data

                 separately:  broker/dealers, perhaps specialists, the

                 exchanges, so that there will be multiple data sources

                 competing in the marketplace.  Again, we will continue all

                 this discussion.

                           So let me just finish up by saying, I think the

                 subcommittee process has been very valuable.  The smaller

                 group and the informality of the structure has, I think, led

                 to a good quality of communication among members of the

                 subcommittee, and we're happy, I think, that we've made some

                 progress, even if we haven't solved all the problems.  So

                 we'll see what we bring to the full committee on May 14th.

                           I'd be happy if other members of the subcommittee

                 want to add anything to what I said, but I think that's my

                 progress report.

                           DEAN SELIGMAN:  Okay.  It sounds very much like a

                 work in progress and we'll have, obviously, a full

                 exploration of the issues on the 14th, and, as you suggested,

                 preceded by certain documentation.

                           Let me go a little bit out of order for the

                 presentations this morning we met to prepare, and I'd like to

                 start with Michael Atkin and I'd like to walk through this

                 FISD market data policy database and certain questions that

                 suggests.


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                           With each of the presenters, I asked, in effect,

                 that their presentations be fewer than 30 minutes.  In the

                 most optimistic world, the questions also would be within 30

                 minutes.  If we need to discuss them further, we will.  We'll

                 see that some of what Michael will discuss will be related to

                 then what is picked up by Tom Haley and Tom Davin for New

                 York and Nasdaq.

                           Michael, let me turn the floor over to you.

                           MR. ATKIN:  All right.  Thanks, Joel.  And I have a

                 time line down to 15 minutes for you, so --

                           At the conclusion of the meeting, March 1, there

                 was seemingly a lot of uncertainty and a lot of lack of

                 clarity, if you will, about market data management, how the

                 process worked, what was it.  So after that meeting, the

                 Commission staff asked me if I would put together a small

                 paper, which I did, circulated it to everybody on this

                 advisory committee, and I'm going to briefly summarize what

                 was in that paper.

                           My intent was to give you a neutral assessment,

                 without an undue amount of judgement or assessment on my

                 part, and to give everybody a common starting point so that

                 you could have a conversation on market data policy issues

                 even if you weren't directly involved in the wonderful world

                 of market data administration.

                           All right.  Throughout the paper that I sent, I


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                 used the term "market data management" to refer to a whole

                 spectrum of issues associated with market data policy,

                 contracts, billing and reporting, and administration. 

                 However, I will make an important distinction between the

                 issues that are process-related versus those that are policy-

                 related, and I think that's a very important distinction.

                           First off, the entire global industry is in support

                 of and is actively working on process efficiency.  The goal

                 is to promote electronic commerce to reduce the costs

                 associated with market data administration.  This is clearly

                 a classic win/win for everyone.  Still, there are lots of

                 inefficiencies in the system that can be improved and the

                 industry recognizes them and is cooperating to address them.

                           Business policies of the exchanges are a different

                 matter.  There is no clear consensus on the right business

                 model.  There is no clear right answer.  There are honest

                 differences of opinion on what it takes to run the business

                 of the exchange and there are many shades of gray.  If you'll

                 bear with me, I'm going to try to shed a little bit of light

                 on why things are so gray.

                           I think it's also important to recognize this is

                 not a U.S. problem.  There are over 85 fee liable exchanges

                 around the world.  There are dozens of third party services

                 that all work together to make up the market data inventories

                 of the vendors and the user firms.  There are lots of


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                 policies, lots of variations of policies, and they all need

                 to be understood and applied by organizations that are in the

                 market data redistribution business.

                           Unfortunately, administration is part of the job,

                 and a confusing job it is, because not only do you have to

                 comply with the multiple policies of hundreds of sources, but

                 you've got to apply old contractual requirements to real

                 world circumstances.  You've got to do so for situations that

                 were neither known nor anticipated when the policies and

                 contracts were created, and if you really think about it,

                 that's probably the best reason why all of you should go back

                 to your organizations and dramatically increase the salaries

                 of your market data managers.

                           This being April and I'm Jewish, I had to do the

                 Amonish Tonok slide.  Underlying the entire discussion, I

                 believe, are four core questions.  The first is, who should

                 determine the business practices and business models of the

                 exchanges, particularly in this rapidly evolving industry

                 environment.  

                           The second, I think picks up on Don's comment, is

                 to recognize that the generation next, meaning the critical

                 issues under debate within this committee, transparency and

                 display rules and the like, are very different from the

                 business issues and business structures that currently exist. 

                 The question I think that everyone is asking is, how do you


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                 maintain a level playing field and ensure that the business

                 practices of the next generation of services don't have the

                 unintentional consequence of impeding commerce.

                           The third is what, if anything, outside of what the

                 industry is doing cooperatively, can be done to streamline,

                 simplify, standardize and automate business processes, in

                 essence, to promote the straight through processing of market

                 data administration.  It's a shared goal amongst everyone and

                 it's one that has real dollars associated with it and

                 potentially will save the industry a lot of money.  

                           Then ultimately, and I think the reason we're -- or

                 partially the reason why we're sitting in this room -- is

                 what's the practical role for the Commission to help the

                 industry manage those business challenges?

                           To state the obvious, all market data management

                 questions start with the contract.  The market data contract

                 is the principal document that governs what vendors,

                 redistributors and subscribers can and can't do with market

                 data, because once it's signed, all parties are obligated to

                 comply with the terms and conditions.  

                           Not surprisingly, our members spend a lot of time

                 dealing with contract issues.  In fact, we develop, we

                 publish, we continue to evolve something we call our Exchange

                 Contract Guide to help support this delightful process of

                 contract negotiation.  


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                           I don't want to be too flippant about it.  I think

                 it's a very important document.  It's freely available on our

                 Web site to the entire industry.  Its purpose is to dig deep

                 into the bowels of the contract issues by an unbiased

                 analysis of what the business considerations are for each of

                 the segments of the contract, and then we illustrate that

                 with real examples from market data contracts around the

                 world.

                           Every contract, in one way or the other, deals with

                 these 12 core market data issues.  What we did was to combine

                 all of the model agreements from all of the vendors and all

                 of the contracts that existed in the industry into one big

                 document, get everybody discussing this document to define

                 the points that are in it, and to make sure that we could do

                 two things.  Not only do you understand the objectives of

                 each of these contract provisions, but you've got to look at

                 the practical problems associated with implementation.

                           The result is a sample contract.  It's got lots of

                 analysis.  It's all used as a starting point for negotiation. 

                 This document is being used and has been used for well over a

                 year in the industry.  In fact, we're now getting pushed to

                 add more to it, add redistribution issues associated with new

                 things people are doing, index redistribution and stuff like

                 that, re-derive data.

                           So when you think about it, when you think about


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                 our policy database, it's all driven off of this contract

                 structure.  

                           So what's the problem?  Well, besides the point

                 that there are some -- forgive me -- very draconian contracts

                 out there.  The rules related to market data are governed by

                 this legal document.  This is a legal document that's

                 difficult to negotiate.  It's also subject to interpretation. 

                           Understanding and translating the complex policies

                 of multiple exchanges is anything but simple.  Because

                 they're legal documents, they don't necessarily spell out how

                 the rules are to be implemented in the real world.  Because

                 they are complex and they're difficult to negotiate, they

                 have a long life span, for years, many of them.  As a result,

                 they're out of date, they don't address the new technologies,

                 they don't address special circumstances, they don't deal

                 with new applications.  Contracts are often vague, subject to

                 interpretation, which, of course, leads to conflicts of

                 interpretation.  

                           Compliance with the rules has also got to be

                 communicated.  You've got to deal with the various people who

                 work with data all throughout the information chain.  These

                 rules are complex.  They sometimes conflict with the internal

                 objectives, the sales objectives of the people who are

                 redistributing data, and it's the lack of knowledge and that

                 breakdown of communication that I believe leads to the


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                 downstream errors, which sometimes result in significant

                 financial liabilities.

                           Then finally, as mentioned, the contracts vary

                 around the world.  Keeping track with all the obligations,

                 particularly as it relates to redistribution, and especially

                 with nontraditional vendors in the business, is a difficult

                 and an error-prone process, which is why we built our market

                 data policy database.

                           Our objective is to document all of the obligations

                 and requirements covered by exchange contracts and other

                 policy documentation at a very granular level.  In fact, we

                 have taken our 12 contract segments and have now translated

                 that into about 230 individual contract type of questions

                 that you can ask.  The database now includes agreed market

                 data policy statements from 45 exchanges.  We are going to

                 completely cover the industry, and once we finish the

                 exchanges, we're intending to do the third parties and

                 vendors, and we've done fee schedules that have been

                 normalized for 75 of those exchanges.

                           The purpose of the database is fourfold.  First,

                 know thy rule and comply with the requirements.  Ignorance of

                 the rules should not be anybody's excuse for not following

                 the rules.  You might not like them, but you've got to

                 understand them.

                           Second, make sure that the vendors and their


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                 downstream clients have consistent, complete and uniform

                 interpretations of all the administration requirements on a

                 global basis.  In essence, anything that's ambiguous from an

                 exchange needs to be clarified because you're holding people

                 accountable for following the procedures.

                           Third, make sure the polices are rational.  Lots of

                 the contracts are outdated.  New policies need to be created. 

                 In essence, we built this to allow the industry access to the

                 collective experience of the global market data industry as

                 either they had to update their contracts or develop new

                 ones.  

                           So wondering about Internet redistribution policy? 

                 Go check the database and see how others are doing it. 

                 Trying to figure out how to deal with creating an index using

                 proprietary exchange data?  Go check the database and see how

                 others are doing it.  And hopefully, rationality wins out and

                 you tend to move toward uniformity.

                           In essence, any debate on policy starts with what's

                 the current policy?  Then, how does that policy compare to

                 others so that you can have a rational conversation amongst

                 the various parties on what makes sense in the long run?

                           Finally, as more and more people get into the

                 market data redistribution business, they need some place to

                 reference their requirements.  What are the requirements and

                 costs to redistribute real time data from the New York Stock


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                 Exchange, EuroNext and Deutsche Borse via my Web site?  What

                 kind of agreements are needed if I want to take a snapshot of

                 data, redistribute it via my Web site, using these eight

                 European exchanges and Chicago Board of Trade?  That kind of

                 thing.

                           We are now in beta tests.  We are running the thing

                 through its paces.  Our purpose is to make sure that real

                 people who work with market data can ask real plain language

                 questions and get useful answers out of our database.

                           All right.  That's enough on the tools that we're

                 trying to build.  Let me turn to the business side of the

                 equation, because this is really, I think, getting into the

                 core of the question on who should determine the business

                 practices of the exchange.

                           The first, this prior approval versus vendor

                 discretion, is really a debate about the business models that

                 exist in the industry.  These are the two primary models that

                 currently exist.  Vendor discretion, which is used by most of

                 the exchanges around the world, gives the vendor a license to

                 redistribute data without prior approval, but subject to the

                 terms of the exchange contract.  

                           The prior approval model starts with the premise

                 that no one is allowed to do anything with the data until it

                 is approved in advance by the exchange.  Vendors say the

                 prior approval is administratively cumbersome.  The North


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                 American equity exchanges say, this is necessary for us to

                 effectively manage our business.  I'm going to get into that

                 in a second, but it's not clear, from my experience, that

                 there is an easy answer to that dilemma, or actually to any

                 of these dilemmas I'm going to paint for you.

                           North American equity exchanges use various

                 classification systems to determine the rights to use data

                 and the fees associated with usage.  For example, there's a

                 distinction between professional and nonprofessional

                 subscribers for fee determination.  There are distinctions

                 between vendors, subvendors and subscribers for assigning

                 contractual and liability obligations.  There are

                 distinctions between internal redistributors, external

                 redistributors and no redistribution for fee determination

                 and for assignment of administrative requirements.

                           Unit account:  it's critical because this is, in

                 essence, what you're required to track and what you're

                 required to report on.  Units can be device-based, user-

                 based, location-based or I.D.-based.  There are unit account

                 policies for single users, for common areas, for shared

                 terminals, for multiple terminals at a single desk.  This is

                 an area of huge debate.  

                           Do you count units, passwords or locations?  If

                 there are two data feeds supporting one user, is that one

                 unit or two?  What about if that application is serving both


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                 trading and analytics?  Is that one unit or two?  Each

                 exchange sets its policy for how it both determines its unit

                 and applies those policies.

                           How about for enterprise licenses?  What's the

                 basis?  What's the metric to use?  Is it accesses? 

                 Terminals?  Registered reps?  Trading turnover?  What's the

                 metric?  These are just not simple questions and there's more

                 than one side of each of these issues and I wanted to make

                 sure that as we were talking about them, they were

                 characterized correctly.

                           Billing and reporting is another huge area of

                 debate.  Billing and reporting right now is -- I would

                 characterize it as a multiple system, costly, manually

                 intensive, administrative nightmare.  The good news, however,

                 is that everybody agrees with that and everybody is on board

                 with the objective of simplification and automation.  But

                 it's a huge task.  It's complicated by differences in both

                 reporting requirements and differences in billing approaches.

                           Let me give you an example.  For data feeds, the

                 New York Stock Exchange, Nasdaq and OPRA maintain a direct

                 contractual relationship with their subscribers.  They have

                 this prior approval process through the Exhibit A for New

                 York and OPRA and Attachment A for Nasdaq.  

                           The vendors don't like it.  They think it's

                 cumbersome and unnecessary.  They want the exchanges to adopt


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                 a model that says, authorize the use of data subject to your

                 terms and conditions.  The exchanges, on the other hand, have

                 adopted this convention because they need to have it in place

                 to support that direct contractual relationship with the

                 subscriber, which begs the question, why are the exchanges in

                 the billing business?  And, in fact, a lot of vendors ask

                 that.  Why are the exchanges in the billing business?

                           Vendors say, "Get out of the billing business." 

                 But not everybody agrees with that.  The exchanges and the

                 large user firms like direct reporting because it makes

                 reconciliation easier and it makes billing more accurate. 

                 The redistributors are not necessarily the best in doing

                 these administrative processes on behalf of the exchanges.  

                           Some vendors have said, "We don't want the burden

                 and the cost and particularly the liabilities of being the

                 billing agent for the exchange."  Again, not a simple issue

                 to resolve.  

                           And then there's also -- I don't mean to make them

                 any less significant -- issues associated with intellectual

                 property rights for delayed data and derived data.  What's

                 the extent to which vendors and subscribers can create their

                 own intellectual property using exchange market data?  I

                 think this is important as we begin to look at the new world

                 of exchange competition, or to the extent to which this data

                 is subject to fees and reporting obligations.


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                           So what I wanted to do was just paint for 

                 you -- and what I tried to do in my paper -- what I thought

                 were the seven core business issues that exist.  The bottom

                 line point of all of that is it's not a simple subject to

                 figure out who sets those policies and how those policies are

                 set.

                           Let me talk a little bit about the good stuff. 

                 There is a lot of coordination and cooperation around the

                 world on business process automation.  While it's a massive

                 undertaking, I think the payoff is potentially very

                 significant.  And I frankly want to give the exchanges their

                 due on this, because they are not only active and willing

                 participants in this discussion, they are often the lead in

                 moving this activity forward.  

                           The system, you know, the evil, hideous Exhibit A

                 process, is a great example.  It started out with multiple

                 agreements.  Nasdaq had their own.  New York had their own. 

                 OPRA had their own.  Toronto had their own.  Everybody said,

                 "This is crazy.  We've got all the same stuff."  The

                 exchanges agreed.  They got together through our

                 organization.  We created a single document.  That document

                 is currently in use.  

                           But that's not all.  The exchanges are now taking

                 it a step further.  Two weeks ago I spent a couple hours with

                 the New York Stock Exchange, took a look at what they call


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                 their Automated Data Feed Reporting Process.  It's a

                 beautiful system.  It is a Web-enabled Exhibit A, reduce that

                 whole process to a series of click-throughs, automatic

                 validation, checking reference available to the vendors.  

                           It's really sweet.  I think it will significantly

                 reduce the turnaround time for authorization and will allow

                 faster response to marketplace needs.  Now it begs the

                 question, of course -- still open question -- is that process

                 needed?  But that aside, the process that exists is moving

                 toward electronic commerce.

                           Also on the docket -- I talked to Ron Jordan over

                 at the exchange -- is click-through subscriber agreements for

                 professional subscribers.  This is something that Nasdaq led

                 the way in.  They now have it implemented.  Nasdaq started

                 it.  The New York Stock Exchange is following suit.  I think

                 that's a good example of how this process works.

                           The New York Stock Exchange was the first exchange

                 to adopt the user definition of unit account.  Users all got

                 together, tried to come up with a standard contractual

                 definition of unit account.  NYSE said, "It makes sense to

                 us.  We will implement it."  They eliminated double billing

                 and are no longer -- if you get New York Stock Exchange

                 delivered to you by two vendors to a single desk, you only

                 pay once for that.  That's their policy.  And they've

                 established procedures to make sure that firms get credit and


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                 can take advantage of that.

                           The exchanges are also helping achieve and willing

                 participants in the automation of reporting, the

                 simplification of billing processes.  I think this is a

                 hugely important initiative, and will significantly reduce

                 costs.  So as you look at this equation, understand what's

                 going on right now in the industry.  There are legitimate

                 business issues under debate and everybody is working

                 together, in my opinion, to try to make the process more

                 efficient.

                           All right.  Let me sum up.  First point is, do not,

                 please, underestimate the complexity of market data

                 management or try to simplify these issues as we slog through

                 this debate.  I'd even go so far as to say, the problems that

                 are being articulated by the industry are not about fee

                 setting and they're not about SEC regulatory oversight.  They

                 are more about these market data challenges that I've tried

                 to lay out that the industry is debating right now.

                           Second, everyone seems to be in support of market

                 data contract and fee policy transparency.  Every query that

                 we've looked at says, in order to fix these problems or to

                 have a debate on these problems, you've got to find out what

                 the current policy is, and everybody is willing to play this

                 game.  I don't think transparency is a question.

                           Third, the entire industry recognizes the


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                 complexities associated with market data management and they

                 are working cooperatively to try to simplify, rationalize and

                 automate the market data business processes.  Business

                 process automation is a huge win.  There are lots of

                 opportunities for simplification, consistency and uniformity. 

                 I think we might be well served to try to figure out how we

                 can support activity, because it has got a lot of inertia and

                 it's a difficult thing for the industry to get its arms

                 around.

                           Last slide:  I have been listening to the

                 discussion on business models and on market data policy for a

                 long time.  The right orientation on these issues is still

                 not completely evident.  All sides make legitimate points. 

                 There is a productive dialog taking place on business

                 policies.  We're working to try to build some tools to allow

                 the industry to have some empirical data so that they can

                 make their case.  

                           At the end of the day, however, it seems to me that

                 these are legitimate business issues that need to be managed

                 on the basis of the business realities of the involved

                 parties.  The direct involvement of the Commission is likely

                 only required if one group is being obstructionist or if

                 there is an impediment to commerce.  I personally don't think

                 that's happening, but I'll leave that judgement to others on

                 this advisory committee. 


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                           As I indicated in my paper, the discussion

                 concerning the level of information required for market

                 transparency, including the concepts of information

                 competition, the role of exchanges as value-added information

                 providers, the notion of mandates on the factors of

                 production, and the potential for changes to the display

                 rule, I believe, in my conversations with the industry, are

                 the most important points that we are debating and the ones

                 that we would probably be well served to devote our time on

                 having a full debate.

                           So with that, Joel, I'll take any questions if

                 there are some.

                           DEAN SELIGMAN:  Thank you, Michael.  And let me

                 just -- to be sure everybody appreciates what, in part, your

                 database will achieve is increased transparency of

                 contractual terms, including on a global basis, increased

                 transparency of fee schedules.  Individual exchange user

                 contracts, including Exhibit A, would not be captured in the

                 database, and who is subject to particular aspects of the fee

                 schedules is not captured in the database.

                           MR. ATKIN:  Yeah, I would think that that's

                 proprietary information that the firms don't want to have

                 shared with their competitors.  

                           I talked to one firm, for example, that's doing a

                 new transaction-based system and is trying to figure out what


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                 its market data policies are.  They sent me a note and said,

                 "Please don't share this with anybody because we're trying to

                 get a jump on the market."  So I don't think that's really an

                 exchange issue, I think that's really a vendor and end-user

                 issue.

                           DEAN SELIGMAN:  When do you think you'll be done

                 with beta testing of the database?

                           MR. ATKIN:  It's hard to say, because the purpose

                 of the beta testing is to make sure it's right and we're

                 going to do it until it's right.

                           DEAN SELIGMAN:  Sure.

                           MR. ATKIN:  It will probably be finished by June or

                 July of this year, enough that -- I mean right now I'm pretty

                 confident that the data is accurate.  What I'm a little bit

                 unclear about is our retrieval interface in trying 

                 to -- because this is complex stuff and you've got to figure

                 out how to do multiple queries on various policies.  So we're

                 working on our interface to make sure that the end user

                 ultimately who's making the decision about, do we do

                 something, can get the information they need.  So my guess is

                 mid-year.

                           DEAN SELIGMAN:  Okay.  Are there other questions

                 from the committee?

                           Okay.  Michael -- oh, I'm sorry.  Bob?

                           MR. COLBY:  Can I just ask, within the U.S.


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                 context, do you have a view as to whether having multiple

                 consolidators of the data as opposed to the consortium, how

                 that would affect the data management issues?

                           MR. ATKIN:  I don't think it would affect it at

                 all.  I think the rules and policies are set by the data

                 originators.  The distributors have to follow the rules, but

                 having multiple distributor points I don't think is going to

                 change those rules at all.

                           MR. COLBY:  Right now I think the policies are set

                 by the administrators on behalf of everyone in the plan and

                 if they were being set individually by each of the members

                 that currently participate in the plan as opposed to by one

                 single consolidator, would that affect that?  Is that --

                           MR. ATKIN:  I might be wrong here, Bob, but I'm not

                 sure if the first statement is 100 percent accurate.  I think

                 the policies are set by the exchanges.  The plan

                 administrators just administer the policies.  

                           I mean, Tom, you probably know a lot better -- 

                           MR. HALEY:  That is correct.

                           MR. ATKIN:  Yes.

                           DEAN SELIGMAN:  And we will certainly amplify that

                 point in presentations that are coming.

                           Other questions for the group?

                           All right.  Well, Michael, thank you very much, and

                 I have a feeling your thoughts on this will be interwoven


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                 throughout today and the sessions to come.

                           Let me turn to Tom Haley now to focus on the CTA/CQ

                 plan administration.  There are a number of specific

                 questions that were propounded, and I think you also have a

                 PowerPoint presentation?

                           MR. HALEY:  I do.

                           DEAN SELIGMAN:  Okay.

                           MR. HALEY:  Thank you, and I believe that the way

                 we're going to do this, this morning, is that I'm going to do

                 the first half of the 30 minutes and Bob is going to do the

                 second half of the 30 minutes.  I've got some slides that

                 will set the stage as to what we do as the network

                 administrator and Bob is going to cover a number of the

                 questions that have been raised.

                           DEAN SELIGMAN:  Fine.  Why don't you proceed?

                           MR. HALEY:  Okay.  Well, let me just start right

                 out here with the things we're going to cover.  I flipped

                 through that slide and we don't have a backup on here, but

                 we're going to cover -- basically this first slide, I just

                 wanted to set some perspective.  What we're talking about

                 here for everybody, just to jog your memory for a second,

                 we've got two plans.  We've got a CTA plan and the CQ plan. 

                 CTA covers transactions.  CQ covers quotations and the BBO.

                           The SROs that are participants in those plans

                 govern those plans.  There are currently nine SROs that


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                 participate in the CTA plan and the CQ plan.  Under those

                 plans there are two networks:  Network A and Network B. 

                 Network A refers to trades and quotations in respective NYSE

                 listed equities.  Network B refers to trades and quotations

                 in respective AMEX and other regional-listed equity

                 securities.

                           We're going to be talking about the Network A

                 administrator today.  There is also the -- AMEX administers

                 Network B.  And I think, as you well know, there is one

                 processor, SIAC, and there are two systems that SIAC

                 operators, which are the consolidated tape and the

                 consolidated quotation system.  And I mention those two

                 because that's really the starting point where the contract

                 process begins, when we get back in here in this presentation

                 to the contracts.

                           NYSE is the Network A administrator, as you know. 

                 What does NYSE do?  Well, basically, it carries out the

                 duties and responsibilities pursuant to authority that's been

                 delegated to it by the SRO participants.  So we operate

                 pursuant to delegated authority.  That authority was

                 delegated to us by the participants.  

                           NYSE, in terms of carrying out its Network A

                 administrator responsibilities, is obligated to administer

                 Network A agreements and rates as established by the

                 participating SRO boards and approved by the SEC.  So all of


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                 our contracts and rates are part of the plans.  They've been

                 approved by the SROs, filed with the Commission and approved

                 by the Commission.

                           What do we do on a day-to-day basis, to get into

                 more in the way of specifics as to what our role entails? 

                 Basically, it's contract administration.  We contract with

                 vendors and other data recipients for access to Network A and

                 Network B data.  The data that comes out of the consolidated

                 tape and consolidated quotation system comes out in a single

                 stream containing both Network A and Network B data.  

                           We do the contracts with folks that want to

                 interface with the consolidated tape and the consolidated

                 quotation system and we do that on behalf of Network B as

                 well.  We also contract using standard form agreements with

                 subscribers for Network A data and we create and oversee 

                 Network A pilot programs.  The administrator bills and

                 collects appropriate fees as per the Network A rate

                 structure.  

                           One aspect of our duties used to be to arrange for

                 leased lines to support the Network A ticker.  That's pretty

                 much phased out at this point.  That's the low speed visual

                 ticker.  We also oversee SIAC's operation of the consolidated

                 tape and consolidated quotation system on a daily basis. 

                 There's coordination between NYSE personnel and the SIAC

                 personnel to the extent that it's necessary and appropriate,


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                 on a monthly basis.  We pay SIAC's bills for their production

                 and development.  We also distribute the net revenues to the

                 participants and provide an accounting to them.

                           The next chart is a single page.  This rate

                 structure is the rate structure that is in place for display

                 fees, that has been approved by the participant SROs, and

                 which has been submitted and put through the regulatory

                 review process, approved by the Commission.  

                           This rate structure is also readily available. 

                 This rate sheet is readily available on the NYSE'S

                 NYSEData.com website, and the rates that you see up there

                 generally generate and account for 90-percent of the network

                 A revenues.  Most of that comes from the top part of that

                 sheet, which is the professional display fees for

                 professional subscribers.  

                           As you can see, it's a tiered system.  This was --

                 it's got 14 tiers.  It was established in 1987.  During the

                 interim between 1987 and now, this -- there's been one

                 6-percent increase that took effective January 1, 1992.  We

                 maintain a database that has over 15,000 professional

                 subscribers in it, professional subscriber accounts, 500,000

                 display devices on a global basis. 

                           And at the end of the day, on a monthly basis, this

                 boils down to roughly an average unit cost of about $25 per

                 month per terminal.  These fees also entitle a recipient to


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                 receive and display last-sale prices, transaction reports,

                 bid and ask report, bid and ask prices, ticker, all on the

                 same screen, together with BBO and Montage.  We do not have

                 separate pricing for BBO and Montage, it's all-inclusive in

                 the rates that are paid for network A display.  

                           The second part of that rate structure that you saw

                 up there previously was display fees for nonprofessionals. 

                 The nonprofessional rates are, basically we have a monthly

                 fee, and for data that's made available to nonprofessionals,

                 these fees will apply to the vendor providing the data,

                 whether that is a traditional form of vendor, such as a

                 Reuters, or whether or not it is a broker-dealer such as a

                 Schwab, or a Fidelity, or Soloman Smith Barney, or what have

                 you. 

                           The fee for the first 250,000 subscribers is a

                 dollar, and in excess -- over 250,000, it's 50 cents each. 

                 If you're serving your subscriber base, or your customer,

                 your retail customer population on a pay-for-use basis, or on

                 a usage base, rather than pay a monthly fee, we have

                 established usage rates.  Those usage rates are what you see

                 there.  The vendors meter the data.  

                           And for the first 20 million quotes, the fee is

                 three quarters of a penny.  The next 20 million, it drops to

                 a half a penny, and for over 40 million, it drops down to a

                 quarter of a cent.  And these two are tied in.  If a vendor


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                 that is using usage-based has a nonprofessional subscriber

                 who is a heavy user, and he is taking down streaming data,

                 that individual is capped for purposes of what the vendor

                 pays, at the monthly dollar rate. 

                           You've heard a lot about nonprofessional fees over

                 the course of your meetings here, but I just put up this

                 slide to share with you some of the histories.  That displays

                 the monopoly power of the New York Stock Exchange and the

                 Network A consortium.  In 1984, a nonprofessional paid a

                 hundred and sixty eight bucks for a display of Network A

                 data.  Today it's down to a dollar.  

                           Lastly, we recently put in place what we call an,

                 "enterprise maximum," and that is for broker-dealers that are

                 providing services to their customers, or broker-dealers with

                 in-house devices.  The maximum that they will pay on a

                 monthly basis is $500,000 in respect of their in-house

                 devices, or in respect of what they make available to their

                 retail account holders.  The two combined, their liability

                 will not exceed $525,000 for the month.  That was put in

                 place in 1999.  

                           That, in effect, says that a firm, for instance,

                 Carrie's -- Carrie knows the -- Schwab's got seven and a half

                 million accounts, from what I read.  All of those accounts

                 could be serviced with streaming data on a monthly basis, and

                 Schwab's bill would virtually not go up any significant


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                 amount, and certainly not go above five and a quarter. 

                           Let me turn now to agreements.  The Network A

                 agreements that the administrator has to administer are also

                 agreements that have been put through the regulatory review

                 process, that have been filed with the Commission, and that

                 in turn have been approved for use by the Network A

                 administrator.  And again, to reiterate, the Network A

                 administrator -- these are the only agreements that we have,

                 these were approved by the SRO boards, by the Commission, and

                 these are the agreements that we use.  

                           They're readily available to vendors, investors,

                 via the NYSE website.  They apply uniformly to all data

                 users.  And basically, we have two standard forms of

                 agreement.  One for -- which we call the, "vendor form" of

                 agreement, and another called the, "subscriber form" of

                 agreement. 

                           The vendor form is the standard form of agreement

                 that all organizations that interface with the SIAC systems,

                 or that interface with a vendor to get a data feed service

                 must enter into with us.  Now, Mike spent a second talking

                 about preapproval.  Part of that preapproval process is that

                 if Reuters gives a data feed to one of its accounts without

                 our preapproval, Reuters remains liable for the actions of

                 that account and their use of the data.  If they get our

                 preapproval, they're off the hook.  So therein lies part of


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                 the logic behind preapproval.  The vendor form of agreement

                 also incorporates exhibit A, which I'll talk a little bit

                 more about in a second.  

                           The subscriber form of agreement.  Basically, we

                 only have, for professional subscribers, a standard written

                 form of agreement.  I was surprised, Mike, but I'll take your

                 word for it.  I didn't think we let Nasdaq ahead of us with a

                 click-on for professionals, but apparently we have.  

                           In the nonprofessional arena, we have a standard

                 form of written agreement for nonprofessionals, but over the

                 years, we've also adopted, in addition to that --

                 substantively the same, but somewhat different in format, we

                 allow vendors to take and add an addendum to their contract,

                 rather than have to use ours today.  But basically, the terms

                 and conditions in that agreement are the same.  And we also

                 have developed a click-on agreement that the vendors can use

                 with nonprofessional subscribers.  

                           Briefly now, on the exhibit A, as I said, the

                 Exhibit A is an attachment to the vendor form of agreement. 

                 In the commercial context, I say this is somewhat analogous

                 to a bill of lading or a packing list.  This, the Exhibit A,

                 is the understanding that we, as the Network A administrator,

                 have with the customer, as to -- and it documents what the

                 data is that they're getting, how they're going to be using

                 it, what appropriate fees will be levied, what fees from the


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                 approved price list will apply, in this case.  

                           And I think, as was pointed out by Mike, and also I

                 will add to it ,that we started out with Exhibit A, but

                 subsequently AMEX, Nasdaq, OPRA, Board of Trade in Toronto,

                 have adopted a similar concept.  And that's it.  That gives

                 you the baseline for what the administrator does. 

                           DEAN SELIGMAN:  All right.  Let me -- before we

                 address those separate issues, are there questions anyone

                 would like to pose to Tom with respect to the role of the

                 administrator?  Yes, Mark?  

                           MR. MINISTER:  Yeah, Tom, are there any current

                 differences in data content or display restrictions between

                 professional and nonprofessional?  

                           MR. HALEY:  None. 

                           MR. MINISTER:  There had been.  I'm old enough to

                 remember there used to be, but there are none now. 

                           MR. HALEY:  I'm --

                           MR. MINISTER:  You're not that old, I know. 

                           MR. HALEY:  I -- well, I'm having a senior moment,

                 I guess, because I don't remember. 

                           MR. MINISTER:  So there are.  So I guess the

                 question -- and I don't know if you're the one to answer it

                 -- why the average professional user pays $25, and the

                 average nonprofessional user pays $1.  So I'm trying to find

                 the 25 to 1 difference, if there is no difference in content


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                 or display. 

                           MR. HALEY:  Okay.  I think if you go back to 1984,

                 all there was, was one.  There was no distinction made

                 between pro and nonpro.  One of the things that we've tried

                 to do over the last 15 years is, promote real time for the

                 nonprofessional, or the retail account holder.  In turn, it's

                 been, from our perspective -- and I believe the Commission

                 has gone along with us -- reasonable and appropriate, and

                 fair to offer this form of discrimination in our rate

                 structure, in order to make more widespread real-time data to

                 the individual segment of the investor community. 

                           DEAN SELIGMAN:  I guess if I can just follow up

                 Mark's question, are you running, in effect, a cross-subsidy? 

                 In effect, are the professional fees subsidizing the

                 nonprofessional?  

                           MR. HALEY:  Well, the professional fees continue to

                 represent three-quarters of the total that is generated, in

                 terms of Network A fees.  I don't think the use of, "subsidy"

                 would be the right word.  We've got a pool of revenue that's

                 being derived from different sources and uses of the data

                 that we think are consistent with the objective of trying to

                 promote more widespread dissemination of real-time to the

                 benefit of investors.  And, you know, you've still got the

                 delayed issue sitting out there.  And that's been something

                 we've tried to overcome.  


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                           MR. BRITZ:  Joel, if I may, I think there are two

                 answers.  One answer is that, via consensus from the industry

                 and, frankly, at the encouragement of the Securities and

                 Exchange Commission, the notion of making a data product -- a

                 real-time data product more widely available to, "individual

                 investors" through favorable pricing, is something that the

                 industry absolutely got behind and supported.  So there's the

                 whole consensus issue.  

                           But there's also a sort of more complex analysis of

                 this, which you can make yourself crazy doing, but if you

                 care to go down that path, a broker at average rate $25,

                 sitting at a screen, can service a number of customers -- I

                 haven't a clue what that number is -- via the telephone and

                 via constantly calling up symbols.  

                           So what you need to do somehow, if you really want

                 to get at to whether or not there are cross-subsidies here

                 is, look at that number of customers that can be serviced by

                 a single $25-dollar screen by a single, or perhaps multiple

                 brokers, relative to the so-called nonprofessional click-on.  

                           MS. DWYER:  Joel, could I just say, I think you're

                 assuming that there is an issue of subsidy here, and yet --

                           DEAN SELIGMAN:  I'm just posing a question. 

                           MS. DWYER:  No, I'm saying, but I think that's the

                 wrong question, because I don't think we've established basic

                 cost of furnishing this.  I think you should look at it as a


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                 pricing differential.  And I would just say, for an average

                 brokerage firm, it's not $20 a month, it's $20 to the New

                 York Stock Exchange, $27.25 to the AMEX, $20 to the Nasdaq  

                 $50 if they get level II -- and $10 per terminal to OPRA,

                 plus vendor fees on top of that.  That's quite a pricing

                 difference. 

                           DEAN SELIGMAN:  Okay.  Let me just pursue one other

                 question.  You alluded to pilot programs.  How many pilot

                 programs do you currently administer?  And secondly, are

                 there any pending?   

                           MR. HALEY:  Bob was going to cover that, but I'll

                 do it.  We currently have one pilot program underway, and

                 you've all seen it.  It is the ticker display on CNBC and on

                 Bloomberg.  There are five TV networks that are participating

                 in that pilot, and it's been going since 1996, and it's our

                 intention to file that in the year 2001 with the Commission

                 for permanent approval.  There are none on the drawing board.

                           DEAN SELIGMAN:  Other questions from the committee? 

                           MR. JENNISON:  I have one. 

                           DEAN SELIGMAN:  Sure. 

                           MR. JENNISON:  Tom, is that to say that there are

                 no unique pricing scenarios out there with specific firms,

                 other than the one you referred to?  Other than that one

                 pilot program, there are none out there?  

                           MR. HALEY:  There is one Network A pilot program,


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                 and it's been that way for the last four or five years, four

                 years at least. 

                           MR. COLBY:  Tom, just for absolute clarity, do you

                 have any ability to negotiate individual deals outside of the

                 pilot program?  

                           MR. HALEY:  Do not. 

                           DEAN SELIGMAN:  So your fee structure is uniformly

                 administered. 

                           MR. HALEY:  We administer the fee structure that

                 was presented there, and use the contracts.  And some of you

                 in the room perhaps have, from time to time, attempted to

                 have your legal counsel make changes to those agreements, and

                 we won't do it.  They are the same agreement across the board

                 for everybody, and NYSEdata.com has it all up there if

                 anybody would like to see it. 

                           DEAN SELIGMAN:  Eric?  

                           MR. ROITER:  Thank you.  I have sort of a reverse

                 engineering question.  The slide that you showed, that showed

                 the dramatic decrease in pricing over the last 10 or 15 years

                 or more, can you explain what factors accounted for the

                 higher fees in the early years?  

                           MR. HALEY:  Okay.  Where we started out in the

                 first year, in 1984, is that there was no distinction between

                 professional and nonprofessional.  We didn't make a

                 distinction between subscribers, and we didn't have a


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                 separate category of subscribers.  So everybody paid the same

                 rate.  That rate at that point would have been a hundred and

                 sixty eight bucks.  

                           I think it was in the 1984 time frame, there was an

                 outfit that was -- QuoTrek -- they were developing a

                 hand-held device, and they came to us and asked for our help

                 in setting up separate rates for nonprofessionals.  They

                 thought this was a technology that would take off, and bring

                 real-time data to the individual investor.  That resulted in

                 the $13-dollar fee that you saw there, I think in 1984.  

                           In 1987, in conjunction with your organization and

                 Carrie's organization, to combine last-sale bid/ask and

                 ticker, which were nonprofessional -- which were separate

                 rates for nonprofessional, into a single rate, we brought it

                 down to $4.  And there was kind of an understanding among

                 OPRA, NYSE, AMEX, and Nasdaq, to see if we couldn't all

                 somehow or another get nonprofessional into the area of the

                 price of an eighth on a hundred shares, which would have been

                 $12.50 a month.  I think the actual thing came out to about

                 $13.50.  NYSE's piece of that was four bucks.  

                           It went up to 6 percent Jan. 1, '92.  We had a

                 modest increase in '97.  And then, as a result of much

                 dialogue with the broker/dealer community, in conjunction

                 with the fact that the internet had come into play, there are

                 a lot of customers out there now with PCs that wanted to get


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                 access to real-time data, we took, I think, some very

                 aggressive action and reduced those rates substantially.  

                           And that's kind of the history of it.  It was

                 something that was a lot of dialogue back and forth between

                 ourselves and the broker/dealer community, and to a certain

                 extent, the vendors.  If that answers your question, Eric. 

                           DEAN SELIGMAN:  Other questions?  Well, Tom, thank

                 you very much.  Let's turn things over to Bob, then. 

                           MR. BRITZ:  I also apologize for the slides.  I've

                 got, really, just a bit of housekeeping to do up here. 

                 Annette asked us to address a handful of questions in our

                 presentation that were originally contained in a March 20

                 memorandum from Carrie Dwyer, and while Tom, I think, has

                 done a terrific job implicitly addressing some of those --

                 and I won't go over the territory he has covered -- Carrie

                 has raised a number of very pointed questions, that I think

                 are deserving of explicit answers, rather than implicit

                 answers.  

                           So the words you see up there are Carrie's, the

                 highlighting is mine.  I'm just trying draw your attention,

                 and I don't know how readable that is.  I'm just trying to

                 draw your attention to the -- trying to correlate the answers

                 to the questions, if you will.  

                           The first question is, how exactly is market data

                 information priced?  What are the full extent of the cost


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                 burdens imposed on broker/dealers, market data vendors,

                 taking into account exhibits and pilot programs?  I won't

                 spend a lot of time on this, because we have spoken and

                 written extensively in terms of how market data is priced -- 

                 Tom has covered it, discussions with Mark and participants

                 initially, to the extent that there is any traction, industry

                 associations, consensus building, gauging the impact on SRO

                 funding, balancing that against the objective of widespread

                 data distribution.  Vetting with the CTA, pre discussions

                 with the SEC, approval by the boards, public filing, public

                 notice, public comment.  And the SEC does with it what it

                 will at the end of the day.  So that's essentially a snapshot

                 of the first part.   

                           That dialogue has in recent years been a fairly

                 easy dialogue, because pricing actions have all been of the

                 south variety.  It makes the conversations a little easier. 

                 That process I just very quickly described to you, it's

                 exactly what happened in 1999.  And maybe this gets to Eric's

                 point as well.  

                           There have been two dramatic revenue cuts in the

                 nonprofessional space;, 50 percent in 1997, and another 50

                 percent in 1999.  I won't bore you with the 1997 ancient

                 history.  In 1999, we went through that process that I just

                 described that led to that 50-percent reduction in the

                 nonprofessional rates that Tom showed you earlier, and also


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                 created the enterprise arrangement, which has worked to the

                 benefit of a number of broker/dealers. 

                           Picking up quickly on some of the highlights,

                 there's a notion here that there are additional terms and

                 conditions imposed, I guess, by the Exhibit A.  I would

                 suggest to you that Exhibit A is a printed form.  It is a

                 fill-in-the-blanks questionnaire form, the sole purpose of

                 which is to elicit from the applicant what data they wish,

                 how they'll use it, to what extent -- are there 15 display

                 units?  Are there 15,000 display units? -- from what source? 

                 Do they wish to drop a line directly into SIAC?  And

                 questions along those lines.  They do not impose any

                 additional terms and conditions. 

                           The irony here is that the notion that somehow what

                 is contained in the Exhibit A injects variability into the

                 application of our pricing, is truly an irony, because the

                 sole purpose for the Exhibit A is to understand how the firm

                 is using the data, and to what extent, and what data, and

                 apply that to the published standard, uniform rate schedule,

                 so that we know what fee A is appropriate for that particular

                 firm, and to the extent that another firm comes in behind

                 that firm, so that we can in fact produce a process that

                 creates uniformity. 

                           Costs and burdens that vary from participant to

                 participant.  The answer to that is, sure they do, because if


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                 you want 15 units as opposed to 15,000 units, they're

                 absolutely going to vary.  But I think the term that is used

                 repeatedly throughout this is, do similarly situated firms

                 pay the same rates?  The answer to that is yes.  And that is

                 in fact the purpose of the Exhibit A process.        

                           There's a comment down below, "nor can we

                 understand or evaluate the full amount of revenues earned by

                 the exchange."  I'll just mention that.  I won't respond to

                 it now.  It's mentioned several times.  I'll respond to it in

                 a moment. 

                           Question two, I think I largely answered, is, what

                 do different classes of market participants pay?  The answer

                 is, with one exception, which we've already talked about,

                 there's no such thing as different classes of market

                 participants.  If you are using the data in a certain way, it

                 matters not to Network A that you are a broker, that you are

                 a mutual fund, that you are a news organization.  

                           Network A does not distinguish by type of customer,

                 it distinguishes by how, and to what extent, and what data

                 will you be using, with one exception being the

                 nonprofessional that we have just discussed.  It's the only

                 distinction as between so-called classes of market data

                 users.  

                           And as I said a moment ago, certainly they have

                 sliding scales.  Tom showed them to you.  Rates are not


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                 different, fees can differ, certainly, according to different

                 uses and according to size.  I actually may have skipped

                 ahead for the moment.  

                           There's just more about market participants being

                 treated differently for no specific reason.  I simply would

                 respond that it's all in the fee schedule, and the fees are

                 applied uniformly, and the schedules are all standard. 

                           How are specific arrangements negotiated?  What's

                 the relationship to various exchange rebate programs?  I

                 think the operative word there is, "negotiated," and when you

                 look down, it talks about the network administrator, what

                 terms they negotiate, what discretion they have.  Tom has

                 largely covered this.  The Exhibit A and the contracts are

                 printed, standard forms.  There are no terms to be

                 negotiated.  There is no discretion allowed vis-a-vis the

                 network administrator.  

                           And probably the most -- an example I can point to

                 -- and perhaps Bob Colby will remember this.  It was the one

                 pilot that exists today, the CTA pilot.  About four years

                 ago, we came down to the SEC, because one of the first things

                 that, frankly, I decided, or wanted, to do when I inherited

                 market data four years ago, was take real-time -- take

                 delayed data off of television.  

                           I didn't much care at the moment whether we

                 replaced it with real-time, but I knew we wanted to get


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                 delayed off the television.  It turned out, after we thought

                 about it, there was no good reason why we couldn't put

                 real-time on television.  

                           As we thought about that, we came down to the SEC,

                 and we said, "There are two networks doing this, CNN, CNBC. 

                 Do you think this is a good idea?"  They were very

                 enthusiastic about the idea.  We said, "Okay," then we would

                 expect that we'll simply march up to their offices and

                 negotiate something with them.  

                           The Commission's ultimate view on that was that

                 that would be unacceptable, that we had to create a rate,

                 publish a rate card, and administer -- offer and administer

                 that rate uniformly to users, now up to five users.  We were

                 a little surprised by that, but nonetheless, it is what it

                 is.  And I think it illustrates the point that, at least as

                 regards to the Network A administrator, there's absolutely no

                 discretion and no authority whatever, even in that sort of

                 silly example, to negotiate. 

                           The rest of this is about market data rebate

                 programs.  The New York Stock Exchange does not have such a

                 program, so I will have to defer, to answer this question, to

                 other markets who do have such a program.  All the way down

                 below, again to the extent that you can't read that, it

                 continues to talk about negotiation.  Hopefully, I have put

                 that to bed.  


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                           But there's a new concern raised.  Concerns by

                 market participants that they must, again, negotiate for

                 market information with their governing self-regulatory

                 organizations.  A, there's no negotiation.  B, it's a

                 purchase of services.  And I would suggest to you that

                 broker/dealers purchase an endless number of services from

                 self-regulatory organizations without any heightened degree

                 of difficulty. 

                           The next one, I think, is on pilots, and Tom has

                 already covered that.  And so I won't even bother with that

                 one, except to the extent that at the very end of that, if I

                 have the right one -- yes -- at the very end of that, again,

                 the discussion is largely about pilots there.  Obtaining this

                 information, i.e., the scope and the revenues associated with

                 pilots -- and Tom perhaps didn't say it earlier -- the

                 revenue associated with the cable TV pilot is de minimus

                 relative to the overall revenues of CTA.  

                           But again, at the very bottom, "obtaining this

                 information will also reveal the full amount of market

                 information revenues earned by the exchanges."  The full

                 amount of market information revenues earned by the New York

                 Stock Exchange is on line three of our annually published

                 income statement.  

                           There is no -- maybe I misunderstood the point

                 here.  If the point -- if this is an accusation of fraud,


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                 financial fraud on the part of the New York Stock Exchange,

                 the CTA, and PricewaterhouseCoopers, then, you know, perhaps

                 we can talk about that.  I didn't think that that's what was

                 meant.  Short of that, all revenues -- there are no double

                 secret market data revenues, or any other kind of revenues

                 that do not find their way into NYSE annually audited

                 financial statements. 

                           How exactly does market data cross-subsidize other

                 self-regulatory functions?  There's a comment in there.  Some

                 have suggested that market information fees should support

                 self-regulatory functions.  The New York Stock Exchange has

                 never made that suggestion.  The New York Stock Exchange --

                 as I have said to this committee before, market data revenues

                 are at a loss, and it is in no position to cross-subsidize

                 any other function at the New York Stock Exchange.  On the

                 contrary, it is subsidized by other fees at the stock

                 exchange. 

                           Down below, obtaining this information will help

                 the committee understand how the exchanges and Nasdaq account

                 for market information costs and revenues.  I can help you

                 there.  We account for market information costs and revenues

                 on an accrual basis, in accordance with generally accepted

                 accounting principles. 

                           The last question.  Mercifully the last question. 

                 Systems maintenance costs, administrative costs exchanges


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                 incur for aggregating and disseminating market data.  If it

                 isn't obvious to most people around this table, we do not

                 produce cost accounting for -- in our financial statements

                 for market data or, frankly, any other business line at the

                 stock exchange, for the simple reason that there is no

                 generally accepted accounting principle framework in order

                 that would enable us to do that.  

                           There is no great difficulty in producing a cost

                 accounting P&L for -- well, there is a fair amount of

                 difficulty, but it can be done for market data.  That's not

                 the issue.  The issue is that you could produce a hundred

                 P&Ls for NYSE market data, and no one would be better than

                 the other, because there would be very substantial and,

                 frankly, arcane assumptions as to the categories of fees that

                 are appropriately used, and the percentage of allocation

                 within those categories that -- I think I've said before, I

                 think whatever debate exists on market data today would pale

                 in comparison to the debate of producing a cost accounting

                 P&L for market data. 

                           So I will draw this to a merciful close.  The punch

                 line to all of this is that all rates are established through

                 consensus among the broker/dealer community, and indeed

                 through a public process via the SEC.  All rates contracts

                 are public and standard, uniformly applied.  Contract

                 administration is designed to ensure uniformity.  


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                           The NYSE, the CTA, and other participating markets,

                 annually produce audited financial statements with their P&L. 

                 It's not clear what more we could do vis-a-vis transparency

                 of the process but, frankly, we're open to suggestions.  And

                 I would suggest that none of that is surprising --

                 uniformity, standardization -- given the governance structure

                 that the New York and the other markets live under.  So I'll

                 stop there, Joel.  

                           DEAN SELIGMAN:  Okay.  Are there questions?  Let's

                 start with George.  Then I saw Eric.  I wasn't looking at

                 this side of the table. 

                           MR. JENNISON:  Bob, I'm curious.  In answer to the

                 second to the last question, you said that -- you seemed very

                 confident in saying that the market data operates, and the

                 New York Stock Exchange operates at a loss, and is in fact

                 subsidized by other areas.  And then in answer to the last

                 question, you said that, you know, talking about costs, and

                 costing out the entire operation, it would be difficult to

                 do, but could be done, and you hadn't really done --

                           MR. BRITZ:  No, I didn't say we hadn't really done

                 it.  And if I said, "difficult to do," I only meant to the

                 extent that it would require assumptions and allocations. 

                 Not difficult to do, George, difficult to agree upon the

                 underlying allocations and assumptions that are in there.  

                           But I'll answer the first part of your question, if


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                 I may, which is that I am not smart enough to know, when a

                 trade takes place, are we executing to investors' orders, or

                 are we producing the price.  And clearly, we're doing both. 

                           But if you're going to get into a cost-accounting

                 exercise, which, as you all know, is more art than science,

                 you have to say, "Well, a percentage of this box is dedicated

                 to creating that price, and a percentage of this other box is

                 dedicated to actually executing investors' orders."  

                           My own personal theory, which you've heard before,

                 is that it's all about the price, because if we were in the

                 order-execution business, we could e-mail the counter parties

                 as to the details of their trade, and that would be perfectly

                 okay with them.  But there are probably millions of other

                 people around the world who weren't party to that price, who

                 have a very significant interest in that price, and more than

                 a few sitting around the table.  

                           So the difficulty is in separating out those two,

                 but I don't have to do that, frankly.  I can look at

                 transaction charges, I can look at market data fees, I can

                 look at facilities.  So that combining all of market

                 operations, if you will, which includes all of that, it all

                 operates at a significant loss.  So I don't have to find

                 angels on the head of pin in order to know that market data

                 undoubtedly operates at a very -- tens of millions of dollars

                 loss.  Even my rusty cost accounting can deliver that


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                 conclusion very quickly. 

                           DEAN SELIGMAN:  Eric?  

                           MR. ROITER:  I think that was my question, as well. 

                 I thought I had heard you talk about two different types of

                 accounting -- cost-based accounting and GAAP accounting --

                 but you're not making that distinction.  I think you're

                 saying that you can't really separate these closely

                 interwoven threads, and that whatever set of assumptions you

                 might apply in trying to quantify the costs associated with

                 producing market data, those costs would exceed your

                 revenues?  

                           MR. BRITZ:  I actually made a broader statement,

                 Eric, which is that the cost of executing investors' orders,

                 and the cost of producing market data exceed the revenues

                 from three revenue lines that contribute to that.  So I guess

                 what I have said is, there's no need, from my point of view,

                 to drill down and try and divide the baby up.  I know that

                 all of market operations operates at a substantial loss.  

                           What I said as to the difference between cost and

                 GAAP -- cost accounting is an internal management tool. 

                 There isn't an accounting firm in the world that will apply

                 any certificate to a cost-accounting exercise, so it's not a

                 surprise that we don't produce that in our annual financial

                 reports.  But certainly, we do look at cost accounting on an

                 internal basis, as I suspect all of you do. 


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                           DEAN SELIGMAN:  Are there other questions?  Carrie? 

                           MS. DWYER:  I'm assuming -- maybe we ought to move

                 on to the Nasdaq, because the comments that I have about all

                 of this are more general and apply all of this. 

                           DEAN SELIGMAN:  Before we do, let me just follow up

                 with a couple of questions, and they're, in part, following

                 up on George and Eric's point.  If I understand what you're

                 saying in response to, how is market data priced?  You're

                 describing a process. 

                           MR. BRITZ:  Yes. 

                           DEAN SELIGMAN:  To the extent one tries to

                 understand the economic analysis, if you will, that goes to

                 determining where fees should be, or how they should change

                 over time, I don't have as clear a sense as to whether you do

                 any economic analysis, and if so, what kind it is. 

                           MR. BRITZ:  Well, I think you do, Joel.  There are

                 lots of variables that go into that.  As I mentioned, in the

                 last 10 years, they have all been on the rate-cut side, and

                 probably amusing to this committee, but when I go to the

                 finance committee of our board, and indeed the board as a

                 whole, the biggest problem I have is explaining to them why

                 this is a good idea to cut this particular fee by 50 percent,

                 what the negative revenue implication is of that, and how we

                 are either going to cut our own costs in order to offset

                 that, or how we're going to recover that in some other fee.  


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                           So the whole notion of how this proposal impacts

                 non only New York, but I presume analyses are done in other

                 marketplaces, as well, in terms of the ongoing funding and

                 financing needs of the particular market is important.  

                           In terms of economic analysis, well, let's go back

                 to the rate cut in 1997 by way of example.  It was in the

                 nonprofessional space.  This was the per-quote usage-based

                 fee.  We had a program, and the over-the-counter NASD had a

                 program, as well.  We had 13 participants.  All 13, to a

                 firm, came to us and said that we had gotten it wrong.  

                           We did that -- by 1997, it was running about three

                 years.  We had gotten it wrong, and they much preferred the

                 over-the-counter product.  And we thought about that some,

                 but at the end of the day, and a reasonable period of time,

                 we said, "Fine, that's what they want, that's what we'll give

                 them."  

                           It was a product that was in the marketplace, that

                 was priced.  We did nothing more than mirror the price and

                 mirror the terms, because at the end of the day, that's what

                 the customer said they wanted.  The revenues were cut 50

                 percent in that example.  That's not surprising that the

                 customers wanted that.  

                           So you get to use benchmarks, sometimes, when

                 you're lucky, that are out there in the marketplace.  That's

                 about the best way I know how to -- hopefully, I have given


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                 you some raw material for a reconciliations to that, Joel.    

                           DEAN SELIGMAN:  All right.  Now, to take it another

                 level, there are differences between professional and

                 nonprofessional fees.  How do you determine where to set

                 each? What's the economic analysis that you go through for

                 that exercise?

                           MR. BRITZ:  Well, -- because economic analysis

                 pretty much implies value pricing.  And I can go back to that

                 meeting on cable TV four or five years ago, but any number of

                 other meetings, where it's been the SEC's point of view that,

                 again, at least with regard to Network A -- that's all I know

                 about -- that value pricing is not remotely part of the

                 equation.  

                           Clearly, we don't all know what fair and reasonable

                 means, and we have struggled with that over some period of

                 time.  And clearly, we're not in a cost-based metric.  But

                 the notion of applying economic value, of looking at a

                 product that we will bring out, and saying that, "Well,

                 McGraw Hill has a product similar to that, and they charge 50

                 bucks," is a license that the SEC has made very clear that we

                 don't have.   

                           As regards the split between professional and

                 nonprofessional, I would be candid to say I don't know.  This

                 was a little bit before my time, but I don't know that there

                 was economic analysis.  I know that there was an industry


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                 push to make real-time market data -- remember, at this time,

                 the delayed product was pervasive in the nonprofessional

                 space.  That's a product that, for lots of obvious reasons,

                 we didn't want to be associated with.  It's an inferior

                 product, it's not actionable, we didn't want our brand

                 attached to it.  

                           It's very much behind why we wanted to take delayed

                 off of cable TV.  I don't know what viewers thought when they

                 saw that billboard that said, "20 minutes delayed," but I

                 know it couldn't have been anything very good.  So the

                 delayed product was pervasive, because at a hundred and sixty

                 eight dollars, it was simply too expensive for most

                 individual nonprofessional investors to have that.  

                           So when various vendors, and particularly

                 broker/dealers, came to us, more in the late '80's, early

                 '90's -- and frankly, Schwab was a pioneer in this category

                 -- we sensed a consensus building that we needed to create a

                 differential as between the professional price and the

                 nonprofessional price, with the tradeoff being, or the

                 benefit being, that we would make the data significantly more

                 available.  And that would inure to the benefit of the entire

                 industry. 

                           DEAN SELIGMAN:  Okay.  I appreciate that.  I think

                 I've got a question from Andy. 

                           MR. BROOKS:  So Bob, just to follow up on that, if


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                 in 1984 the rate -- there was one rate at a hundred and sixty

                 four dollars, and now we have two rates -- a professional

                 rate at $25, and a nonprofessional rate at $1 -- and there's

                 virtually no difference between the data, because they're

                 both real-time -- is that correct?  

                           MR. BRITZ:  Real-time, yes, but there's a huge

                 difference. 

                           MR. BROOKS:  Well, I understand the point about how

                 one professional could redistribute that data to their

                 customer base, and call 50 clients and all that, and I

                 appreciate that, but --

                           MR. BRITZ:  No, there's even more of a difference

                 in terms of the timing, the delivery system associated with

                 that, whether it's inquiry-based versus streaming.  There can

                 be lots of differences.  

                           MR. BROOKS:  Okay. 

                           MR. BRITZ:  The similarity, Andy, is that they are

                 both real-time. 

                           MR. BROOKS:  Okay.  Well, I guess I'd like to hear

                 about this, maybe at some later point, but what I'm focusing

                 on is the data that we're buying.  The price has gone from a

                 hundred and sixty five to twenty five, and the data that

                 Charles Schwab or somebody else is getting has gone from a

                 hundred and sixty five to a dollar.  And I'm kind of

                 thinking, I appreciate that we want to provide everything to


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                 everybody in America, and that's a wonderful thing, but

                 again, have we -- are we being consistent in the application

                 of these rates, and perhaps, are we disadvantaging the

                 institutional/professional investor class, in order to

                 cross-subsidize, or to benefit the individual investor?    

                           MR. BRITZ:  Andy, your facts are slightly wrong. 

                 The data that goes from Schwab, or any other vendor, to a

                 nonprofessional customer is a dollar a month, to be sure. 

                 The data that is displayed on Schwab's screen of a Schwab

                 broker, a so-called professional, is -- we make no

                 distinction.  That's between broker/dealer and institutional.

                           DEAN SELIGMAN:  Bob, let me just follow up, though,

                 on the response you made to Andy.  It is worth clarifying. 

                 You suggested there are differences in the data, even though

                 they're both real-time, that are going to professional and

                 nonprofessionals.  Could you particularize what those

                 differences are?  

                           MR. BRITZ:  Well, I'll give you one example. 

                 Professionals typically will have a market minder -- and some

                 of the vendors can perhaps do a better job here than I can --

                 professionals typically have a market minder, which is a kind

                 of a push technology.  You don't need to constantly hit the

                 enter key in order to get an update.  Many nonprofessional

                 products simply have a one shot, one bite at the apple every

                 time you hit that key.  That's just one example.  Mark?  


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                           MS. DWYER:  But the exchange doesn't provide that. 

                           MR. MINISTER:  Yeah, I was going to say.  That is

                 not exchange-differentiated, it's vendor-differentiated.  We

                 offer a streaming product of nonprofessionals also, so from

                 an exchange standpoint, there isn't any difference, it's

                 vendor-differentiated, I believe. 

                           MR. BRITZ:  I think that's right.  No, I think

                 that's right.  I guess what I was responding to was the

                 product that the end customer receives can be very different

                 than what you're looking at in terms of your professional --

                 trading desk, Andy. 

                           MR. BROOKS:  Okay.  Again, just to --

                           MR. BRITZ:  But the point is a good one, everything

                 that leaves SIAC on behalf of the CTA and the NYSE is

                 real-time data.  We are not in the delayed business. 

                 Everything that leaves us is uniform, that is true. 

                           DEAN SELIGMAN:  So it's uniform to both

                 professionals and nonprofessionals.  They're getting --

                           MR. BRITZ:  The pipe is the same pipe, the content

                 is the same content.  When it reaches professionals and

                 nonprofessionals, Joel, it can look significantly different. 

                           DEAN SELIGMAN:  But that's because of the

                 intermediaries?  The vendors, and so forth?  

                           MR. BRITZ:  That is correct. 

                           DEAN SELIGMAN:  Okay. 


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                           MR. BROOKS:  Just to follow up, if I can, if that's

                 the case, our choice of vendors is our choice, and we're

                 happy to use the vendor that's massaging this data in the way

                 that we want it, but why should we be paying 25 times what

                 the nonprofessional investor is paying to get the same raw

                 data, if in fact it's the same data?  

                           MR. BRITZ:  Well, I mean, the simple answer to

                 that, Andy, I think, is what we have been saying thus far. 

                 That the pricing process that we have described to you, in

                 terms of grass roots at the individual broker/dealer level,

                 and vendor level, and all of the vetting that that has done,

                 has built a consensus around the notion that it is a good

                 idea to increase the pervasiveness of the data, to discount

                 off the professional rate for a nonprofessional customer.  

                           All of the SRO boards have endorsed that.  It was

                 publicly filed with the Securities and Exchange Commission. 

                 There was a public comment period, and the SEC ultimately

                 approved it.  So it's consensus-based.   

                           MS. DWYER:  So Joel, just -- so this goes back to

                 the comment I made earlier.  So we're not talking about

                 economic analysis, we're not talking about cost base, we're

                 not talking about subsidy, we're simply talking about a

                 pricing decision, based on what the market will bear, whether

                 or not it's validated by the SRO boards, you know, which it

                 is.  But that's essentially, I think, the point. 


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                           DEAN SELIGMAN:  However one characterizes it, I

                 think we've got it on the table exactly what the issue is. 

                 Bob, thank you very much.  

                           MR. BRITZ:  Certainly. 

                           DEAN SELIGMAN:  I'm going to suggest that -- let's

                 take a 10-minute break, and begin again at ten to 11:00. 

                 We'll pick up with the Nasdaq.  There is coffee right

                 outside, and we'll just keep rolling. 

                           (A brief recess was taken.)

                           DEAN SELIGMAN:  We're going to begin at this point

                 with a presentation from Tom Davin and Nasdaq. 

                           MR. DAVIN:  Great.  Thank you.  The Nasdaq stock

                 market is pleased to be able to address the committee

                 regarding our role as the administrator of the Nasdaq UTP

                 tape plan.  In response to Dean Seligman's letter that

                 followed up on the March 1st meeting, we've put together a

                 presentation that will address some questions that he raised

                 in his letter regarding how we handle our role as the

                 administrator. 

                           Basically, I've divided my presentation up into

                 four main parts.  The first is how market data fees are set. 

                 Next, the type of fee arrangements that exist, just the basic

                 dollar figures.  Third is contract administration -- how

                 Nasdaq, as the UTP administrator, administers contracts with

                 market data distributors.  And then, lastly, just to touch on


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                 what the other responsibilities are of the administrator --

                 kind of a day in the life of the tape plan administrator, if

                 you will. 

                           I think there's definitely some overlap in what I'm

                 going to say and what's already been said by Bob and Tom. 

                 Wherever possible, I'll try to focus in on the areas where

                 we're different, or where perhaps we're touching on some

                 issues that weren't already touched upon, but there's

                 obviously going to be some overlap here. 

                           Okay.  To begin, I've got two slides regarding how

                 fees are actually set.  Basically, this is a sequence of

                 events that we go through, as the tape plan administrator,

                 and that the other members of our tape plan go through with

                 us, as we change rates for existing fee structures, or as we

                 create new fee structures for our market data.  

                           The first thing that we need to do -- or the first

                 thing that happens is, we identify a business need or an

                 opportunity.  In theory, this could be something that sort of

                 happens in a vacuum, just within Nasdaq.  As the tape plan

                 administrator, we could just come up with a great idea for a

                 new fee structure, or a new level for an existing structure,

                 and go ahead and push forward and try to implement it.  

                           In practice, it's been a lot different than that. 

                 I think, by and large, when we make changes or when we

                 contemplate changes, it's at the behest, or as a result of


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                 requests made by the industry.  It may be the online

                 brokerage industry, it may be the market data vendors, it may

                 be firms in the trading community.  Typically, what we're

                 looking for is proposals that are going to have application

                 with more than one firm, that are going to have broad

                 applicability, and they're going to benefit multiple firms.  

                           So once we've identified something that seems like

                 a viable approach to go forward, we review it within the

                 Nasdaq staff.  We want to do some analysis on it, we want to

                 compare it to our existing fee structures to make sure we've

                 got consistency across the fee structures, that by

                 implementing this new fee, we're not severely undercutting an

                 existing fee structure unintentionally. 

                           Second, we want to take -- we do want to take a

                 look and make sure there's broad applicability.  We wouldn't

                 want to respond to just one firm's concern, create a fee

                 structure that would -- responded perfectly to their issues,

                 but had no applicability to anybody else.  We want something

                 that is going to help the entire -- if not the entire

                 industry, a broad spectrum of the industry, if we do make a

                 change. 

                           And then finally, we look at the financial impact. 

                 We take a look at who the main customers might be of the --

                 or distributors might be under the pricing structure being

                 contemplated, and we see what the impact would be on them. 


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                 We take a look at existing distributors, and see what the

                 financial impact would be on them.  And then we look at our

                 own revenues, and the tape plan revenues, and see what the

                 impact would be of implementing the fee. 

                           As we're going through all these steps, we're

                 talking to all of the potentially affected market data

                 distributors, we're asking them, you know, what they think

                 they might do, would they use a potential fee structure, how

                 much usage might they have of it, and try to get a sense as

                 to what the impact is going to be on our bottom line, and on

                 the bottom lines of our customers. 

                           Next, if we feel as though we've got a viable fee

                 structure, we take it to the Nasdaq committees and the boards

                 that oversee our market data pricing.  The board -- the

                 Nasdaq board represents -- and Nasdaq members represent the

                 general public, and also investors -- both individual

                 investors and institutional investors -- but also represents

                 Nasdaq issuers. 

                           All of these constituencies have a vested interest

                 in Nasdaq market data pricing being reasonable and promoting

                 broad distribution of the data.  Obviously, as the users of

                 the data who have to pay for it, the investors and the

                 brokerage firms are very sensitive to the idea of a fee being

                 higher than it needs to be.  For Nasdaq issuers, they want

                 their issues, the data on their issues, broadly distributed. 


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                 They wouldn't want overly high Nasdaq pricing to retard that

                 function.  So the representation of our board would certainly

                 keep in check any tendency we might have to overcharge for

                 the data. 

                           The next step, if it's approved by the Nasdaq

                 board, is we take it to the UTP operating committee.  The UTP

                 operating committee represents the various exchanges that

                 trade Nasdaq-listed issues.  At the UTP operating committee,

                 Nasdaq, as the tape plan administrator, would present our

                 proposal.  We would provide them with all the analysis that

                 we had done about the likely impact on individual investors

                 and brokerage firms and tape plan revenues, and leave it to

                 them to make -- basically, leave it to them to take it back

                 to the respective organizations, to be approved or not

                 approved.  

                           And that, in fact, is the next step.  The UTP

                 participant representatives go back to their respective

                 boards, and they go through with their boards a process

                 analogous to what Nasdaq has already done with its board, and

                 basically vet the plan there.  By and large, the exchange

                 boards are comprised in a similar way.  There's

                 representation, certainly, from the brokerage industry. 

                 There's often individual investor representation.  So again,

                 this is another check on any tendency we might have to raise

                 the fees unnecessarily. 


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                           Next, if it's been approved by the UTP participant

                 boards, we would take it to the SEC.  We would file with the

                 Securities and Exchange Commission, providing for them all

                 the reasons that we thought it was a good idea to implement a

                 new fee, or change an existing fee level.  And we provide

                 them also with a lot of the analysis that we had done for

                 ourselves, and for the UTP plan participants. 

                           At that point, the SEC may well have questions for

                 us.  We obviously want to be sure that we're all clear on

                 just what it is that we mean by a particular structure, and

                 how it might be implemented.  The fee structure is then put

                 out for a public comment period.  During that period, the

                 general public, brokerage firms, investors, everyone is free

                 to comment upon it.  To the extent that there are any serious

                 adverse comments, it's invariably true that the SEC asks us

                 for a response on that, and asks us to address the issues

                 that are raised by the comment letters. 

                           Then we would get SEC approval, hopefully, and we

                 would put the pilot -- or not put the pilot -- put the fee

                 into effect.  We put announcements out to the general public,

                 we put it out on the Nasdaqtrader website, so that market

                 data vendors and market data subscribers were aware of the

                 new fees.  We would indicate what the time frame was for the

                 introduction of the fee.  At that point, the fee -- we would

                 start billing it, and the fee would be fully operational.  


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                           I'd like to emphasize, or just point out, that this

                 process is pretty much the same, whether we're talking about

                 a permanent fee filing, or a pilot fee filing.  It would go

                 through pretty much all these same steps before we would

                 launch into either one of those things, because we feel it's

                 important to vet these issues very fully. 

                           Okay, that's how fees are set.  Now, getting very

                 specific -- first of all, all current pricing structures that

                 we have are available to all vendors and subscribers of

                 Nasdaq data.  There isn't any sort of a discrimination going

                 on there, there is not restrictions not allowing particular

                 vendors to distribute data under particular pricing

                 structures.  

                           Next, with regard to transparency, all of our fee

                 structures, both the pilots and the permanent structures, are

                 posted publicly.  Most prominently, it's on the Nasdaqtrader

                 website.  It's also in a variety of different marketing

                 materials that we provide to a number of different

                 constituencies.  The Nasdaqtrader website has been in place

                 for about five years.  Prior to that, we had a -- we posted

                 the pricing in marketing materials, and in what we call, "new

                 vendor kits," that we provided to the distributors of our

                 data.  And that has always been something that's been

                 publicly available.  It isn't something that is restricted or

                 kept from anyone. 


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                           In describing our pricing structures, I want to

                 first describe the two different levels of entitlement, or

                 sort of the two different data sets that we sell.  

                           The first one is what we call level 1, and that's

                 kind of akin to what we've been discussing in these meetings

                 as the mandatory minimum data.  It consists of the best bid

                 offer, and the last sale data on all of the Nasdaq issues. 

                 In level 1, there is also some ancillary data related to

                 mutual funds, and also related to Nasdaq indexes, and things

                 like that, but the fundamental core of the data is best bid

                 and offer, and last sale data.  So that's level 1. 

                           The next level of data, the next level up, is often

                 referred to as level 2, but technically, we refer to it as

                 NQDS.  And that entitlement, or that data set, includes all

                 the data from level 1, and then it includes the individual

                 market participant and UTP exchange quotes in each

                 Nasdaq-traded issue.  So it provides not just the highest

                 bid, the lowest offer, it also provides the individual market

                 participant quotes at all price levels.  So this basically

                 provides the depth kind of information that many people seek.

                           These are the specific prices that we have for

                 usage for usage-based fees.  This probably accounts for, I

                 would say, probably about 95-percent of our total market data

                 revenue for the UTP plan.  We call them usage-based fees,

                 because people pay based on how much they use.  Either the


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                 amount of data given out, or the number of subscribers that

                 they service with their Nasdaq data feed.  

                           Basically, as you can see on the screen, the first

                 row is there level 1 pricing as you read across to the right. 

                 The second row is the NQDS pricing as you read across to the

                 right.  We have professional and nonprofessional per-user

                 pricing for both level 1 and NQDS.  You can see the rates

                 right there.        And then for the level 1 data only, we

                 also have a per-query fee, which is where you pay based on a

                 single inquiry, getting a single piece of data on a single

                 security.  And we also have pricing for automated voice

                 response systems, where you would call up on a touch tone

                 telephone, and access quotes that way.  

                           So these are the fees that we have today.  As you

                 can tell, the asterisks -- a number of these are actually

                 pilots right now.  The two nonprofessional fees and the

                 per-query fee, right now, operate under a fee pilot at the

                 moment.  

                           Okay.  Other fee structures that we have.  There

                 aren't really a whole lot of other ones.  For distribution of

                 real-time index data, we charge $500 per month.  That is, in

                 essence, a global license.  It allows a vendor to provide

                 real-time Nasdaq index data to all of its clients, regardless

                 of whether they're paying standard user fees for those

                 clients.  This is used most prominently in the dot com world. 


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                 There's a lot of web sites that offer delayed equities data,

                 but do allow their subscribers to see the real-time index

                 data. 

                           And then, we have an annual -- a relatively modest

                 annual administration fee.  That is charged just to market

                 data distributors.  So there's about a thousand market data

                 distributors paying one of these fees.  This basically just

                 is sort of a baseline fee that we charge to the vendors, and

                 to the other distributors to sort of maintain their account

                 with Nasdaq, and reflect some of the other costs that we

                 incur in servicing their account. 

                           Next, I'd like to discuss fee pilots in particular. 

                 When we undertake fee pilots, there's a number of criteria

                 that we use before we would launch into a pilot, and that we

                 operate any pilots under.  

                           First, it's typically going to be an experimental

                 situation.  It's going to be something that we don't have

                 experience with before.  Either it's going to be an all new

                 structure using an all new metric, or perhaps it'll be a

                 significantly different price level for an existing metric. 

                 But the point is, we don't do pilots of existing structures

                 at existing rates for particular people, or anything like

                 that. 

                           Typically, they're also -- well, not even typically

                 -- they are of limited duration.  We have currently committed


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                 that we will not run any pilot for longer than two years. 

                 When we get to the end of two-year period, we would look to

                 either kill the pilot, change it radically because the

                 business need is there, or file it as a permanent fee with

                 the SEC. 

                           The SEC is informed of any new pilots.  When we

                 undertake a pilot, the first thing we do is, we will let the

                 SEC know what the pilot is, why we're doing it, and what we

                 anticipate the duration is going to be for that pilot. 

                 Actually, in point of fact, the most recent pilots we've

                 actually had explicitly approved by the SEC.  We've  had them

                 treated just like a permanent fee filing, in the sense that

                 the SEC fully vetted it, put it out for public comment, and

                 approved -- explicitly approved the fee structures.  So we

                 don't feel as though we necessarily would always have to do

                 that, but given the sensitivity that's been expressed in

                 recent years to pilots, we wanted to make sure that everybody

                 was comfortable with what we were doing in the things that we

                 called a pilot. 

                           And then finally, and perhaps most importantly, our

                 pilot fee structures are available to all distributors and

                 subscribers of market data.  We don't limit them just to the

                 people who ask for them, or for people in a particular

                 industry or running a particular kind of system.  They're

                 broadly applicable, and they are also -- the transparency is


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                 also very high.  All of our pilot fees are listed right

                 alongside our permanent fees on our web site, and all of our

                 other marketing material.  So there shouldn't be any reason

                 anyone who's aware of our fees in general, isn't just as well

                 aware of our pilot fees. 

                           Okay.  Now, the current pilot fees -- there's

                 actually -- you've already seen some of this.  As I

                 mentioned, the first three bullets, the two nonprofessional

                 fees, and the per-query fee, those are on the matrix that I

                 showed a couple of slides back.  Those are, today, pilots. 

                 The two level 1 pilots we are actually seeking, or will be

                 seeking, to make them permanent fee filings.  We think

                 they've been out there for a while, we think they've been

                 successful.  They're battle tested, if you will.  And we

                 intend to file those as permanent fees once we get our board

                 approval, and the UTP plan participant approval. 

                           The very first one, the NQDS nonprofessional

                 per-user fee of $10 is a relatively new rate.  We introduced

                 that about six months ago.  As a result, I think we'd say the

                 jury's still out as to how successful it is, and whether it's

                 really meeting people's needs.  So that one is a pilot, and

                 will be a pilot for probably at least the next year. 

                           Then I'd just mention, really, more in the context

                 of the per-user and per-query fees, that we also allow the

                 capping of per-query fees at the applicable professional or


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                 nonprofessional rate.  I mentioned before, any fee we have is

                 available to any vendor or any subscriber to our data.  

                           The capping of per-query fees means not only are

                 all our fee structures available to people prospectively --

                 you know, can you pick?  You go, "I want to use this fee

                 structure next month."  It's actually available on the fly on

                 a dynamic basis, on a customer-by-customer basis.  An online

                 brokerage firm, or an online vendor, can make a choice in the

                 middle of a service month as to how they want to pay for a

                 customer.  They can either pay per user at the rate of a

                 dollar, or they can pay on a per-query basis.  

                           So if that particular customer doesn't use much

                 data in a particular month, they can pay less than a dollar. 

                 If they use a tremendous amount of data in a month, they

                 still only pay a dollar.  And we allow that determination to

                 be made, again, on the fly.  There's no need for a decision

                 to be made prior to a service month, as to whether a customer

                 is a per-query customer or a per-subscription customer.   

                           And then the final pilot we have -- and I think

                 this is very similar to what the New York Stock Exchange has

                 -- is, we distribute real-time data through cable television

                 networks.  We charge on the basis of households, connected

                 households who receive the broadcasting.  And it's a tiered

                 rate.  The first 10 million pay at a certain rate, there's a

                 reduced rate for the next 10 million, and a reduced rate for


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                 every household after that. 

                           Okay.  That's pricing.  Now, we're going to move on

                 to contract administration.  The administration of

                 distributor agreements with the thousand or so Nasdaq market

                 data vendors and internal distributors -- the substantial

                 part of what we do is as the administrator of the Nasdaq UTP

                 tape plan.  

                           We contract with each and every distributor of our

                 data.  So, as I said, that's about a thousand firms.  We get

                 agreements with each and every one of them, or at least we

                 did when they first started using data.  For a vendor like

                 Reuters, who's been in business forever, we probably got the

                 contracts with them 10 years ago.  For a brand new dot com,

                 we're getting those contracts today. 

                           The agreement is a basic document.  It's a standard

                 document across vendors and other distributors.  And it

                 basically spells out the relationship between Nasdaq and the

                 UTP plan, and the individual distributor.  It addresses

                 things like pricing, usage reporting, indemnification. 

                 Limitations of liability, and methods for dispute resolution. 

                           With respect to negotiation of agreements, and the

                 variability of the agreement that we have with individual

                 market distributors, this is going to largely echo the New

                 York Stock Exchange presentation, but we are under a

                 stringent requirement to maintain a level playing field in


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                 the distribution of our data.  

                           We can't discriminate against one vendor vis-a-vis

                 another vendor.  That severely constrains our ability to

                 really negotiate the text of that contract.  In practice, we

                 really cannot negotiate the contract, as far as making

                 amendments for one vendor that we don't make to other people. 

                 Certainly, if one firm finds something in our contract that

                 we decide is the right thing to change for everybody, we

                 would make that available to everyone, but we can't negotiate

                 the terms of the individual agreements. 

                           With respect to variability, the one area where I

                 guess it is true that every distributor's contract is

                 somewhat different, is with regard to their system

                 description.  Every distributor, as an attachment to their

                 agreement -- it's attachment A -- provides us with a

                 technical description of how they are going to control our

                 data, and how they're going to be able to report to us the

                 necessary usage numbers for us to collect the specified fees. 

                           Because every single firm is different, those

                 descriptions are all going to be slightly different.  We ask

                 for the information in a standard template, so there is a lot

                 of similarity, but the bottom line is, the attachment A is

                 kind of the way we map, from a lot of very diverse

                 organizations and diverse uses of data, to our standard fee

                 structures, which are relatively limited in nature.  So there


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                 is definitely variability there. 

                           As far as the distributor agreements, we've got two

                 basic types of distributor agreement.  The first is what we

                 call a vendor agreement.  That's for an organization like a

                 Reuters or a Bridge, who is taking our data and

                 redistributing it to third parties, and we would refer to

                 those third parties as being subscribers. 

                           The other type of agreement we have is an internal

                 distributor agreement.  That would typically be a brokerage

                 firm, or an institutional investor, who takes a data feed

                 containing Nasdaq data and uses their own network, and their

                 own systems to redistribute the data within their own

                 organization, but without any external distribution.  

                           In terms of content, the difference between the

                 agreements is, the internal distributor agreement, because

                 it's of a more limited scope, has less pages.  It's shorter,

                 it's easier to fill out.  In practice, we tend to have more

                 applications from people wanting to do internal distribution

                 than people who want to become vendors.  As a result, we

                 wanted to be able to streamline the process for those folks. 

                 And also, they tend to be a little bit less savvy

                 technologically, and they have less staff dedicated to

                 filling out these kind of forms.  So it's basically a

                 streamlined agreement.  Certainly, anybody who was doing

                 internal distribution, who wanted to sign a vendor agreement


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                 could, since they are -- strictly speaking, they would be

                 considered a vendor, as well. 

                           Next, I want to just address very quickly

                 subscriber agreements.  As I mentioned, a subscriber, in our

                 world, is someone whose access to data is controlled by an

                 upstream vendor.  It doesn't include firms that can do their

                 own distribution of data.  We do not have an agreement that

                 we sign directly with subscribers.  We do have a requirement,

                 however, that market data vendors sign a standard agreement

                 with each of their customers that consists of standard Nasdaq

                 terms.  And these terms protect Nasdaq, limit our liability

                 in certain instances, and confirm our proprietary assertion

                 -- our assertion of proprietary rights to the data.  We have

                 -- we do that in hard copy -- we allow vendors to do that in

                 hard copy.  We also have online administration procedures

                 that vendors can avails themselves, as well. 

                           In terms of transparency, the agreements, the text

                 of the agreements, are all on Nasdaqtrader.com.  If somebody

                 didn't have web access, they could call us, and we would mail

                 them a copy of a blank agreement, as well.  Because we don't

                 negotiate the agreements, the blank agreement that someone

                 would see on Nasdaqtrader is identical to the agreement that

                 virtually every single vendor has today.  

                           Distributor system descriptions, however, are

                 confidential.  We don't make that transparent.  We don't


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                 think it would be appropriate.  We certainly think we would

                 get a great deal of complaints from the firms who have filed

                 attachment As if we started sharing their system descriptions

                 with their competitors.  So that information is proprietary

                 and confidential, and we treat it that way.  

                           Not only do we treat it that way vis-a-vis

                 competitors and putting it out to the general public, we're

                 also very careful with it internal to Nasdaq that it's only

                 used by the market data staff to evaluate market data

                 applications, and it's not shared, for instance, with our

                 trading services staff, or with any of our technology staff,

                 because again, we don't want to compromise any proprietary

                 information. 

                           Next, I'd just like to walk you through, very

                 quickly, the process that your average distributor might go

                 through in becoming a distributor of Nasdaq data.  These are

                 the basic steps.  Typically, they'll contact us first. 

                 They'll give us a phone call.  They may know where they want

                 to get their data from.  They may think they want to get the

                 data directly from us, they may want to get it from a vendor

                 like Bridge or Reuters, they may have no idea.  They may just

                 know that they want Nasdaq data. 

                           We'll talk to them, we'll give them a sense of how

                 our pricing lines up for them, give them a sense of the

                 technical and contractual requirements they're going to have


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                 to fulfill.  And then, pretty quickly, we'll steer them to

                 the Nasdaqtrader web site, because that is where all the

                 contracts are, that's where our transmission specifications

                 are, and it's where all of our policy-type statements are. 

                 So we want the people to take a look at all that as quickly

                 as we can. 

                           So the distributor will go there, they'll access

                 the contracts, and the forms, and the policies.  They'll take

                 those back.  In filling out the forms, it's not unusual to

                 get a call from an applicant prior to them sending it in,

                 just because there's something they don't understand, or

                 they're looking for clarification, but pretty quickly, we'll

                 typically get the submission of the contracts and the system

                 description. 

                           At that point -- and this is kind of where we get

                 into the point that Mike Atkin mentioned about preapproval --

                 at this point, they're not authorized to receive the data,

                 they have to wait for us to approve their usage of the data,

                 and approve their contract.  We'll get the contract from

                 them, we'll get the system description.  The contract is

                 typically a pretty straightforward process, provided they

                 haven't tried to make unauthorized modifications to it.  

                           We'll execute that, we'll review the system

                 description.  If they have adequately described how they're

                 going to control the access to our data, so that they can


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                 report the usage to us, we'll go ahead and we'll approve it. 

                           Typically, it's probably about a two-week process

                 from start to finish, from the time we get the form to the

                 time that it's approved.  To the extent that we go back to a

                 firm, and we've got questions they need to resolve for us,

                 obviously, the critical path item there is them getting back

                 to us with the information that we need. 

                           Once we've gotten any clarification we need, and

                 we've approved them, we'll kind of, at least figuratively,

                 sit down with the firm and identify for them very explicitly,

                 what we expect them to report, and what fee structures apply

                 to them from the standard fee schedule, so that there's no

                 misunderstanding as to what their revenue -- what their

                 payments to us are going to be based on, and what the

                 reporting requirements are to us. 

                           And then, finally, we'll authorize the data feed. 

                 If it's coming directly from Nasdaq, we'll authorize our

                 network provider to turn on the data.  If it's coming through

                 another vendor, we'll send a letter out to that vendor,

                 authorizing them to provide the data.  And at that point, we

                 have a new distributor.  

                           And as I said, we've got about a thousand of those. 

                 There's a fair amount of turnover, though, if for no other

                 reason than the dot com -- because of dot coms.  We probably

                 bring on between 200 and 300 new firms as distributors of


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                 Nasdaq data each year. 

                           And then the final slide I have here, as I

                 mentioned, in just kind of a day in the life of a plan

                 administrator.  Some of the things we do besides contract

                 administration.  And I think Tom Haley touched on a lot of

                 these things in his own presentation.  

                           We collect usage reports.  That's what we -- that's

                 how we bill the client.  That's what the billing is based on. 

                 We get monthly reports from each distributor that say how

                 much data they distributed in that month.  We do the billing

                 and the collection on behalf of the UTP plan.  We -- it's

                 actually handled by the NASD finance department.  We send out

                 monthly bills.  Sometimes people don't pay, and we have

                 pretty garden variety collection efforts with that. 

                           Third, we have an auditing function.  We get

                 monthly reporting from market data vendors, but that's based

                 exclusively on their systems, and it's all just under our

                 contract.  As a result, we do, on a periodic basis, go out

                 and verify that what's been reported to us is in fact

                 accurate, and reflects the true state at any particular

                 vendor or distributor. 

                           We are responsible, as the administrator of the

                 tape plan, to provide financial reporting to the plan

                 participants regarding the revenue levels for a particular

                 period.  Then we also handle the distribution of the proceeds


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                 from the UTP tape plan to the various participants. 

                           We have kind of basic account management

                 responsibilities.  We get a lot of calls from market data

                 distributors and subscribers with questions about our

                 products, questions about fee schedules, questions about

                 roll-out schedules for new products, and product changes.  So

                 we've got a group of three people who basically field those

                 types of calls, and make outbound calls regarding new

                 initiatives, and things like that. 

                           Then finally, we do mass communications.  We alert

                 the distributor community to things like pricing changes,

                 policy changes, changes to the transmission specifications

                 for the Nasdaq data feeds -- because we are also, at the

                 moment, the processor for the Nasdaq data feeds -- and any

                 other mass communications that need to go out to the

                 distributor community.  So that, in a nutshell, is the other

                 functions that Nasdaq fulfills as the tape plan

                 administrator.   

                           And with that, I'm pretty much done what I had to

                 say, so I'll take any questions. 

                           DEAN SELIGMAN:  Tom, let me follow up.  I want to

                 pose five questions, just to create a kind of comparable

                 basis from you and the New York side.  First, you alluded to

                 one pilot program in your discussion.  Do you currently have

                 any others, and are you aware of any others that are pending


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                 at this point?  

                           MR. DAVIN:  We have one pilot program analogous to

                 what New York has with the cable TV distributors, for the

                 real-time ticker data that goes across the bottom of the

                 screen.  So that -- in that sense, we've got that one.  We

                 also have three other pilots that we've actually had approved

                 by the SEC, but they were approved as pilots, and two of the

                 three we're looking to file as permanent fees.  And those are

                 the nonprofessional fees for NQDS and level 1, and the

                 per-query fee for level 1. 

                           DEAN SELIGMAN:  And do you have any pilots in the

                 pipeline, if you will, that haven't reached the SEC?  

                           MR. DAVIN:  We do not, except for the fact that

                 we're going to take two of these things out of pilot, or we

                 think we're going to take two of these things out of pilot

                 and make them permanent. 

                           DEAN SELIGMAN:  Okay.  Second point, Bob made the

                 point that the market data, in effect, is subsidized.  That

                 other parts of New York Stock Exchange revenues are used to

                 deal with the provision of market data.  Is that the reality

                 at Nasdaq, as well?  

                           MR. DAVIN:  I think the way we look at it is that

                 market data is one piece, but it's an integrated piece with

                 just about everything we do as a stock market.  And there's a

                 lot of different ways we could carve up the costs.  And


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                 perhaps there is a way we could carve it up to make market

                 data -- you know, we could throw a lot of costs at it, and we

                 could probably come up with a good reason for that.  

                           But we don't have costs that I think everybody

                 could agree were the right costs.  I think the way you divide

                 up -- you know, we could argue for years about what the right

                 way is to divide up the costs.    

                           DEAN SELIGMAN:  When you change your fees, or

                 otherwise, do you go through an economic analysis to justify

                 the change in fees?  

                           MR. DAVIN:  We certainly look and see what the --

                 we do a financial impact analysis, to see -- it's been a

                 while since we've raised a fee, but we certainly would look

                 at who would be impacted by raising a fee.  We would look at

                 who would be impacted by reducing a fee, although that's

                 typically not as controversial.  And we look at what the

                 revenue impact is going to be on, well, not so much Nasdaq,

                 but the UTP plan participants, including Nasdaq.  

                           DEAN SELIGMAN:  But just to follow up, that sounds

                 a little bit like a more comprehensive economic analysis than

                 Bob was describing?  Or is it basically about the same?  

                           MR. DAVIN:  It would be hard for me to say, because

                 I'm not sure exactly what New York does for any particular

                 thing.  We don't get into -- I think our view has been that

                 this isn't a science.  It's not something where you can make


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                 a big spreadsheet, and a number will pop out at the end as,

                 "and this is just the right price."  

                           Instead, we kind of road test these things.  We

                 talk to the people who would be impacted by a fee change, to

                 get a sense of not only what would it do to them, but in the

                 instance where we reduce a fee, how much more distribution

                 would they be able to do, or would they do, as a result of

                 the reduced fee. 

                           DEAN SELIGMAN:  Let me put the question this way: 

                 Why do you change fees?  

                           MR. DAVIN:  Well, I think it's going to vary, from

                 time to time.  I think in the instance -- the most recent one

                 has been, we've reduced the nonprofessional fees and the

                 per-query fees to nonprofessionals.  And I think the

                 situation there was really responding to the environment. 

                 The -- just the fact of the internet, and the broad

                 distribution of the internet, made it much easier for the

                 average person to get at market data.  

                           And as a result, we saw an opportunity on a number

                 of levels, that by reducing the fee, we would obviously be

                 able to just dramatically expand the amount access to the

                 data, particularly by nonprofessionals, and then also, we'd

                 also -- we were in a situation where there probably wasn't

                 going to be a significant adverse revenue impact to the UTP

                 plan participants, because we would have a classic case of


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                 reducing your fee, but raising your revenue, because you just

                 broaden the market for your data. 

                           DEAN SELIGMAN:  All right.  And I'll take that

                 another step in followup of a question I earlier posed to

                 Bob.  There are obviously differences between professional

                 and nonprofessional fees, how do you decide where to set

                 those levels?  

                           MR. DAVIN:  Well, again, I don't think it's a

                 science.  I think the reason -- you know, we would look at

                 the differences being related to the fact that, on average,

                 the average professional user is going to get a lot more use

                 out of their subscription to Nasdaq data in a given month

                 than your average nonprofessional.  So that -- and there's

                 obviously going to be a lot of variation there.  There could

                 be a day trader paying a dollar a month, who's getting a lot

                 of value out of the data, and there could be a professional

                 who isn't getting nearly that much.  

                           But we're dealing kind of with averages.  The

                 average level-1 professional user, we would expect is going

                 to use, or receive, about 20 times the value of the average

                 nonprofessional user.   

                           DEAN SELIGMAN:  All right.  And the like question,

                 just for comparability sake, there was a description of the

                 enterprise fees on the New York side. 

                           MR. DAVIN:  Right. 


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                           DEAN SELIGMAN:  Do you have enterprise fees, and if

                 so, how do they work?  

                           MR. DAVIN:  We do not.  We don't have a cap.  We

                 don't have enterprise fees, period.  We've done a lot of

                 analysis over the last few years on the idea of a bit broader

                 application of an enterprise license.  Rather than just

                 having a cap that would certainly benefit the very top tier

                 firms, we've been looking at other metrics that might be used

                 to price market data for brokerage firms, that would allow

                 them to make even broader use of the data, while paying

                 comparable fees to what they pay today.  

                           Quite frankly, it's turned out -- it's been a very

                 difficult task to try to find a mathematical relationship

                 that works, and keeps the revenue levels relatively

                 consistent, while still making the data available to a

                 broader spectrum of individuals and brokerage firms. 

                           DEAN SELIGMAN:  Okay.  Let me throw it open for

                 questions from the committee. 

                           MS. NAZARETH:  Could I just make a comment?  

                           DEAN SELIGMAN:  Please. 

                           MS. NAZARETH:  It seems to me that partly implicit

                 in your questions on economic analysis is sort of how do we

                 -- how did we get to these fee structures in general?  I

                 mean, where did this all start?  I mean, I'm looking for your

                 responses.  


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                           It seems to me that the answers that we've gotten

                 is, "Well, we basically start from historical precedent,

                 where, you know, through -- over a period of time, there

                 seemed to have been consensus around the structures under

                 which these fee schedules were created.  And then what we do

                 is, we justify, through financial analysis or otherwise,

                 incremental changes, obviously, making sure that they don't

                 cause too much dislocation to the existing structure, and

                 that they can be justified by policy reasons, or the general

                 politics of the firms and what people" -- "what the market

                 will bear."  

                           And that's sort of what I'm taking out of the

                 answers, and I'd like to know what your response is.  Have I

                 discerned what your implicit responses are, or is there

                 something additional that you would add to that?  Bob, do you

                 want to start?       

                           MR. BRITZ:  Well, I would respond to the, "what the

                 market will bear" comment by recollecting any number of

                 meetings I have been with the SEC in, that absolutely took

                 off the table any notion of pricing for the data against its

                 market value.  So if we are somehow pricing against what the

                 market will bear -- I don't think anybody thinks we're

                 pricing what the market will bear.  

                           I also think -- you know, we've been charging for

                 market data for a hundred and thirty years, so there is some


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                 historical precedent, and I don't have any idea why the folks

                 way back then came up with a particular price.  Having said

                 that, market data revenues are embedded in our budget on an

                 annual basis, and anything we do goes to the finance

                 committee and the board.  So you get -- and the board gets a

                 monthly look at our P&L, so you -- the consensus participants

                 get a frequent look.  I don't think they're tied to any

                 historical schedule.  

                           The other thing I would say is, I don't know that

                 there's a historical precedent for nonprofessional, or

                 certainly for the internet.  So -- and the real answer to

                 your question, Annette, is it's very much a process of

                 consensus.  Joel talks about round robin drafting of a

                 document.  I recall what we did in April of '99 in terms of

                 cutting the nonprofessional fees in half, and we were

                 fortunate enough to get a consensus around an enterprise

                 agreement.  

                           And I agree with Tom, this is not the one that we

                 started out with.  We had half a dozen that we tried on for

                 size, with a very substantial number of broker/dealers and

                 buy side customers before we ended up settling on this, so it

                 is very much trial and error.  

                           Why do we create new prices?  Because creating new

                 prices is, in essence, a way of creating new product, Joel. 

                 We didn't have a nonprofessional product at a hundred and


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                 sixty eight bucks.  And so the most compelling reason to

                 create new prices is to fill a need.  You need to gauge that

                 need.  Either we wake up and identify that, or more likely,

                 firms and vendors come to us and say, "Have you thought about

                 this?" 

                           We test that, in terms of whether or not, as Tom

                 said, it's a one-off kind of need, or there is reasonably

                 broad appeal against that need.  We try and understand

                 whether there is traction against that product.  And then we

                 bubble it up through this process that we have both talked

                 about.  And at the end of the day, you get -- you either get,

                 or you do not get, consensus.  

                           Our -- price is a perfect example of that.  We put

                 out any number of metrics, and couldn't get consensus on

                 those.  We were able to get consensus on the one we finally

                 embraced, which, I repeat, was not our first choice. 

                           DEAN SELIGMAN:  Well, that's very illuminating. 

                 And what I'm hearing from both of you is, you're discovering

                 a process, you're discovering a consensus-building process. 

                 It's not driven like a cost-based model, it's not like

                 utility rate regulation.  And I think the point has been made

                 clearly.  And if I was pushing you a little on questions, I

                 just wanted to be clear that we all understood what we were

                 dealing with. 

                           Are there other questions?  And we should really do


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                 this for both Tom and Bob, and then the other Tom.  Let's

                 start with Eric. 

                           MR. ROITER:  Thank you.  I'd like you to both

                 address whether the consensus model that you've described

                 changes at all if a market center becomes a for profit market

                 center. 

                           MR. DAVIN:  I think it certainly could make a

                 difference, but ultimately, we still have the same group of

                 customers.  We have the same data customers we have, whether

                 we're a publicly traded company or whether we're not for

                 profit.  As I mentioned earlier, issuers want their data to

                 be out there.  If we are pricing this so high that the data

                 -- that that's being inhibited, we're not -- we're going to

                 lose issuers, at least on the margin. 

                           Similarly, you know, a big constituent for us is

                 going to continue to be the trading community, and brokerage

                 firms, and individual investors ultimately, and to the extent

                 that we're not pricing our data fairly, or there's even a

                 perception that we're not, that's going to impact on people's

                 views of whether or not they want to do business with the

                 Nasdaq stock market. 

                           MS. FRIEDMAN:  I do think this supply and demand

                 drives our decisionmaking, absolutely, and I think it would

                 continue, even if we became a publicly held company.  I think

                 we have to look at how we're going to make our success as a


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                 market, and if the information is not in the public's hands,

                 then we won't get order flow, and we won't get issuers.  So I

                 think it's important to note that, really, the model for

                 creating pricing really doesn't change when we become a

                 public company. 

                           MR. ROITER:  I think one difference is, though,

                 that you want to return something to your investors, and at

                 some point, you have to identify what source of revenue is

                 going to produce profit.  And we've heard described this

                 morning that, for both Nasdaq and New York, while it's

                 perhaps extremely difficult to be precise about the expenses

                 that are associated with a generation of market data, that

                 the sense of both Nasdaq and New York -- the strong sense --

                 is that market data is provided at a loss. 

                           MS. FRIEDMAN:  We actually haven't --

                           MR. ROITER:  Now, if that's the case in a for

                 profit business model, then I would ask the question, what

                 are you looking to as the source of your profits?  

                           MS. FRIEDMAN:  Well, first of all, we have not

                 maintained that position.  And I would say that throughout

                 the history of Nasdaq, we've wanted to make sure that we have

                 sufficient revenue to innovate, and to build capacity that's

                 necessary, and to reinvest any funds into the company to grow

                 it when necessary to handle customer demand, order flow, to

                 handle demand for issuers.  


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                           So I would say that we've always had that intention

                 in mind, we've always kept that in the way that we do our

                 accounting.  So I don't think that would change either.   

                           MR. JENNISON:  Can I just ask, at Nasdaq, do you

                 consider market data distribution to be profitable or

                 unprofitable?  

                           MS. FRIEDMAN:  I would say -- I mean, Nasdaq is a

                 profitable entity, so -- and I don't think we could sit there

                 and say, "Well, one piece is profitable, and another piece is

                 not."  The fact is that Nasdaq is a profitable entity, and if

                 you look at all the costs and all the revenue streams, we do

                 have a profit that we take to innovate, we take to build

                 capacity necessary for decimals, or we take to build new

                 systems. 

                           DEAN SELIGMAN:  All right.  Are there other

                 questions?  Start with Andy. 

                           MR. BROOKS:  Just one other observation, perhaps. 

                 It seems to me that the cost of distributing this data,

                 aggregating it, and pushing it out to the end users, has to

                 have come down just enormously in the last 20 years, with

                 technology and innovation, and telecom innovation.  So it

                 just -- I think it's important to kind of -- as we talk about

                 consensus pricing -- Eric sort of alluded to it, and Carrie

                 has talked about, what will the market bear?  I cannot do my

                 job without this pricing.  I will pay anything I have to, to


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                 get it, or to get that data.  I have to have it.  

                           And arguably, there are lots of people like me, and

                 arguably, the individual investor that gets the data pushed

                 to him from CNBC, or through a Charles Schwab device or

                 something, doesn't need that data to do their jobs, to exist. 

                 They would like to have that data, but there's a difference

                 there.  

                           And it seems to me that we -- as we talk about

                 this, we ought to try and keep in mind what's fair, and the

                 consensus process that you all have employed to sort of put

                 it out there and float balloons, and see how the public and

                 the environment reacts, I think, is probably a good one.  I

                 just hope it gets as much -- you know, there's as much

                 jabbing as needs to be done is happening.

                           MS. FRIEDMAN:  Can I -- I would like to respond to

                 one part of your comment, which is that the cost of creating,

                 and processing, and producing the market data has gone down

                 in the last 20 years.  And I would disagree strongly with

                 that.  

                           The costs of our organization have gone up

                 tremendously over the recent years, because of the tremendous

                 volume we've seen in our market, and we've had to build

                 capacity for that, and that then drives the data that we send

                 out.  And the more data that we have to deliver, the higher

                 the cost that it is.  


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                           Now, the data -- I think it's important to note

                 that there's tremendously more data going out, and we do --

                 you know, we increase the bandwidth on our networks, we

                 increase the size of our host machines, we do a lot to ensure

                 that the data has integrity, that it's gone out real-time,

                 that's it's completely reliable, that it doesn't go down. 

                 And all of that has a huge associated costs with it.   

                           MS. DWYER:  Well, you know, I would say that's also

                 a cost of being in business as an exchange.  

                           MS. FRIEDMAN:  Absolutely. 

                           MS. DWYER:  You can't attribute that cost, the cost

                 of capacity, to market data.  But I have a question.  As long

                 as we're on pricing.  I was going to save this for this

                 afternoon, but one thing that is intriguing to me is that

                 when I look at the -- I had my staff give me a list of what

                 we pay each market and each vendor, just so I could get a

                 view of the overall costs.  We pay a lot more for a

                 professional feed for AMEX data than we do for any other

                 market. 

                           DEAN SELIGMAN:  AMEX?  

                           MS. DWYER:  Right, AMEX.  AMEX is much more

                 expensive than any other market, so in terms of figuring out

                 the economics of pricing, it's a much smaller market, it's

                 data that's much less used by our customers than New York or

                 Nasdaq data, and yet to put it on our terminal costs us more


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                 hard dollars.  And we have to have it on every one of our

                 10,000 terminals.  How do you -- where does that come from? 

                 Is that a historical artifact?  Or is that a rational pricing

                 decision?  

                           DEAN SELIGMAN:  I wonder if we should let Peter

                 address that. 

                           MR. QUICK:  That probably goes back to the days

                 when you were at the AMEX. 

                           DEAN SELIGMAN:  Carrie, could I just ask, is that

                 absolutely or relatively.  Is it absolutely more expensive?  

                           MS. DWYER:  Yes, it's $27.90 per terminal, as

                 opposed to much less for the other two terminals. 

                           DEAN SELIGMAN:  Peter, do you want to comment on

                 that?  

                           MR. QUICK:  I actually looked into whether -- when

                 the last time the fees were changed, and actually, there was

                 a proposal back in 1984 to drop the pricing, but it did not

                 receive unanimous approval.  I don't have any further details

                 on that. 

                           DEAN SELIGMAN:  Okay.  Let's take -- I think,

                 actually, we had Bob Colby?  Okay, forgive me, Bob Britz. 

                           MR. BRITZ:  I just want to respond to Andy's

                 comment.  I think they're both right, actually.  The unit

                 cost of, at least CTA network getting market data, had

                 decreased to the user by 85 percent in the last 15 years, but


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                 the actual cost of producing and delivering the data

                 continues to go up for the very argument that was made.  

                           Just by way of example, New York doubled its

                 capacity at the switch, switching order-processing capacity

                 in the year 2000 off of a double in year 1999, and we'll

                 increase by 50 percent this year.  And Carrie is absolutely

                 right.  That's a stake in the ground that the New York has

                 put, that that's critical to conducting our business, but

                 remember, if we cannot take in at the switch level, an order,

                 you cannot create market data at the back end.  

                           So I think Andy and -- I'm sorry, the one with the

                 -- I'm sorry, I apologize -- are both right.  And the

                 community has, in fact, gotten extremely more market data,

                 and more valuable market data over the last 15 years, at a

                 significantly reduced unit cost.  So to the extent that's

                 been invisible to you, I understand that on one level, but

                 now you're enlightened, Andy. 

                           DEAN SELIGMAN:  Are there other opportunities for

                 enlightenment here?  Eric. 

                           MR. ROITER:  I think we heard from New York that it

                 has not returned or rebated market data fees.  Is that also

                 true of Nasdaq?  

                           MS. FRIEDMAN:  Yes.  We don't rebate market data

                 fees. 

                           DEAN SELIGMAN:  And what about AMEX?  


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                           MR. QUICK:  The AMEX does not rebate market data

                 fees. 

                           MR. NICOLL:  It's not true. 

                           MS. FRIEDMAN:  In what way?  I'm sorry. 

                           MR. NICOLL:  You rebate market data fees from your

                 competitors, that you receive from your competitors. 

                           MS. FRIEDMAN:  Oh, you're talking about

                 intermarket, but that's Network A, that's not Nasdaq. 

                           MR. NICOLL:  But I do think -- I mean, in all

                 fairness, you ought to disclose the fact that you do have a

                 program and that other -- regionals around here have a

                 program where they rebate market data fees to various

                 participants. 

                           MS. FRIEDMAN:  Right.  A lot of the UTP

                 participants have that program, and we, as a third market

                 player in Network A, which is New York listed securities, we

                 do rebate our -- some portion of our fees to the people who

                 submit the orders. 

                           DEAN SELIGMAN:  I would be interested if either of

                 you want to just illuminate us a little bit more how that

                 works.  You could do it now, or if you want to send a memo

                 in, but I think that's worth getting on the table. 

                           MS. FRIEDMAN:  Well, this is -- it's actually a

                 pilot, I believe, but I think it's -- and it's one that we

                 continually go and get resubmitted to the SEC for


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                 continuation, but we basically -- we call it the

                 "intermarket," and it's a way that we are a smaller player in

                 New York listed securities for member firms that are not

                 members of New York, or choose not to trade through New York

                 or another CTA participant.  

                           And we allow them to come in and submit quotes,

                 submit orders, and submit trade reports through Nasdaq

                 systems, and they then -- we, in turn, Nasdaq, receive some

                 portion of the Network A revenue.  And we then recently have

                 started a program to supply some of that revenue back to the

                 participants who are placing the orders with Nasdaq.  

                           MR. MADOFF:  I think you should elaborate on that. 

                 I think in fairness to full disclosure on this issue, I guess

                 that you would say that -- I think it would be safe to say

                 that the industry feels that all the exchanges, in one form

                 or another, are passing through CTA revenue, or market data

                 revenue.  Some are doing it in a more defined manner, but all

                 of this was a competitive issue.  

                           In other words, there were people -- although the

                 New York, I think, officially does not rebate part of the

                 market data fee, I would say that there are a lot of people

                 that would take the position that the specialist posts are

                 subsidized by the exchange, in anything from free rent, to

                 technology, to things of that sort.  

                           Then the Chicago started rebating fees directly


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                 back to their specialists on the floor.  I'm not sure what

                 some of the other regionals do.  Cincinnati certainly does

                 it.  And Nasdaq felt compelled to do it as a competitive

                 issue.  

                           So although everybody has different ways of doing

                 it, different schedules, pretty much, but I think that -- my

                 guess would be, as someone who trades on all of those

                 exchanges, I could say that the opinion -- our opinion would

                 be that every exchange is involved, in one form or another,

                 of rebating part of its market data fees back to

                 participants.  

                           DEAN SELIGMAN:  Now, there's a difference in what

                 you're describing on some exchanges and, I take it, what

                 Adena was describing, which is, you file the pilot, the

                 nature of the rebate is in a document, it's public.  Is the

                 nature of the type of rebate you're describing publicly

                 knowable?  

                           MR. MADOFF:  Probably not.  I would say, certainly,

                 the rebate that we get from Nasdaq on third market trades is

                 because it was filed.  What -- I'm not familiar with what

                 filing, if any, Cincinnati has done on rebating part of their

                 fees, and I don't -- I'm not familiar with -- I can't speak

                 for the other exchanges.  But some are, and some aren't.  The

                 bottom line is, the effect is the same. 

                           DEAN SELIGMAN:  Paul?  


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                           MR. O'KELLY:  The Chicago stock exchange does have

                 a rebate program.  It's part of our rules, which are a public

                 document.  The rebate program is filed --

                           DEAN SELIGMAN:  Paul, I think you need to turn on

                 your --

                           MR. O'KELLY:  Ours is a program that is part of our

                 rules, it was filed with the SEC.  Anyone who goes to our

                 rulebook will see the rebate program.  What you don't see in

                 our rebate program -- or what you will see in our rebate

                 program that based upon our specialist maintaining certain

                 market share, and when they receive certain market share

                 levels, they get a rebate of part of the market data fees. 

                 What they do with those fees are up to them, the specialists. 

                 It's up to them to do whatever they want with those fees.  

                           But I can tell you -- and we don't try to hide this

                 fact, although we don't know the exact quantities of this --

                 those fees are, in many cases, returned to the order-sending

                 firms that are sending those specialists the order flow that

                 helped them gain their market share.  And what you see

                 happening here is that, in Chicago's case, we are getting

                 market data fees that we see are more than we need to run the

                 exchange, we're turning around and giving them to

                 specialists, who are turning around and giving them to the

                 people that are bringing us the order flow.  

                           We think that's a pretty good model, and we think


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                 it works, and it's something that we're neither ashamed of,

                 nor are we reluctant to publish.  

                           DEAN SELIGMAN:  Peter, is there anything like this

                 on the American Stock Exchange you want to tell us about?  

                           MR. QUICK:  No, there is no payment for -- no

                 rebating back -- I'm sorry -- of the exchange fees.  

                           DEAN SELIGMAN:  Bob, do you want to illuminate us

                 as to whether the New York Stock Exchange has a practice here

                 that would be of relevance to us?  

                           MR. BRITZ:  That would be . . .

                           DEAN SELIGMAN:  Relevant to the discussion.  That

                 is, Bernie has characterized --

                           MR. BRITZ:  We have no such practice.  I -- with

                 all due respect, I can't make any sense out of what Bernie

                 was saying vis-a-vis the New York.  I do understand what he

                 said vis--vis Nasdaq and the other markets.  

                           MR. MADOFF:  Would you like me to elaborate?  

                           DEAN SELIGMAN:  I think it might be useful. 

                           MR. MADOFF:  Again, I will -- I stated that this is

                 my interpretation, but I would say that it probably is the

                 interpretation of most markets in this sense.  Depending on

                 the way you slice it, I would say that, clearly, the ones

                 that disclose it as part of their program, like Chicago and

                 Cincinnati, and probably Nasdaq   and maybe there are other

                 regionals, I'm not sure -- you know, it's relatively easy to


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                 decipher.  

                           This started, I would say, that people felt that,

                 although the New York does not -- and it started all with the

                 payment for order flow issue, going back originally.  And I

                 will add that I agree that it is -- most people feel that it

                 is passed on back, eventually, to the customer, although

                 everybody could debate that one way or another.  But it was

                 -- I think it would -- I thought it would say -- it would be

                 naive to think that the various exchanges, even before this

                 started to happen in a formal practice, were not somehow or

                 other using the market data fees, or revenues from the

                 exchange. 

                           Again, it's very hard to sort of go through the

                 veil of subsidizing the specialists, market makers, whatever

                 you want to call them, in their trading operation.  So yes,

                 you probably do not have a formal fee.  But I will tell you

                 that technology, and all sorts of things, are made available

                 to the specialist, and people would look at that as a way of

                 the exchange using revenues that come in from market data

                 fees to subsidize the specialists.  

                           Now, I'm not going to debate the issue, because I

                 don't think it's important enough, other than the fact that I

                 would say that that's probably the opinion out there.  Maybe

                 it's not correct in the New York or in the AMEX, but in my

                 experience, and people I've spoken to, pretty much people


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                 seem to be of that opinion. 

                           DEAN SELIGMAN:  All right. 

                           MR. MADOFF:  And I don't think there's anything

                 wrong with it, by the way, so to me, it's academic whether

                 someone has a formal way of doing it or not, because I think

                 nobody really cares about that.  I think that's really public

                 relations, more than anything else.  

                           The bottom line is the revenues -- and I think

                 that's, quite frankly, why we're all here.  I think that

                 there's a whole issue of, people feel that the market data

                 revenue is -- has to be restructured, the way the whole thing

                 happens.  And the issue is, whose revenue is this, and how

                 should it be distributed.  

                           And I think what you saw, before this committee

                 even formed, was the movement taking place, people putting

                 pressure on the various market centers, and saying, "Listen,

                 you have this revenue, it's being generated from trading that

                 our customers, or your customers, are bringing to the table,

                 and we want part of that back, or we want the accounting to

                 be there."  And I think that's really what this is all about. 

                 I think it's naive to think that it's not related.   

                           DEAN SELIGMAN:  Okay.  Bob, do you want to --

                           MR. JENNISON:  I'd just like to echo that.  You

                 know, whether it's rebates, or whether it's fees or tariffs,

                 they all lie on the same continuum, and as a person at a firm


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                 that executes on all these exchanges, I would say that the

                 one universal fact that I see out there right now -- that we

                 see -- is fees and charges on the exchanges right now tend to

                 be soft, whether they're specialist fees, or something like

                 that.  They tend to be subject to heavy negotiation.  I've

                 seen that.  

                           And I guess I'd also just point out that I find

                 this discussion a little bit curious, in that the two tape

                 plan administrators told us that they can't really tell us

                 whether it's profitable or unprofitable, but in the scheme of

                 their entire enterprise, the entire enterprise is certainly

                 profitable.  And that's understandable, but -- and we also

                 heard that the pricing mechanism is really just kind of

                 consensus-based.  

                           It's curious that, you know, oddly enough, the

                 nonprofessional fee is both a dollar.  I mean, that kind of

                 makes sense, it's all centered around the same number.  And

                 they're roughly both 20 to 1, or 25 to 1.  But it's -- you

                 know, I still get back to this point, where I think if we're

                 going to push down, we may push down and talk down the price

                 on market data.  I fully expect the price of something else

                 to pop up.  It will appear somewhere, is my point.  

                           I feel like we have the two big plan administrators

                 here, telling us that they don't look at this as a business

                 unto its own, but they look at the entire enterprise, and


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                 that enterprise is profitable.  I'm willing to bet that if we

                 make this less profitable, by driving the price down to them,

                 or to the plan, they'll restore their profits elsewhere, and

                 it'll come to me on a different bill with a New York Stock

                 Exchange, or Nasdaq, or AMEX, or Chicago stamp on the

                 envelope.  I mean, that's kind of how it works on the user

                 end. 

                           DEAN SELIGMAN:  Okay.  Are there other questions?  

                           MS. DWYER:  Joel, I don't have a question, but I

                 have some comments, if it's appropriate to offer those at

                 this point. 

                           DEAN SELIGMAN:  Due course, and then I think Bob

                 had his hand up. 

                           MS. DWYER:  Bob, do you want to respond to that?  

                           MR. BRITZ:  No, go ahead. 

                           MS. DWYER:  Okay.  People did a tremendous amount

                 of work for this meeting.  I think it's been really helpful. 

                 It was somewhat at my behest that we actually get into the

                 facts of how it works, and I think it's been really useful. 

                 I enjoyed looked at the FISD's white paper.  And I didn't get

                 it ready for today, but in the next couple of days, we have

                 some sort of specific additions to the data that have been

                 offered here, based on our experience, that I'll circulate

                 around to folks. 

                           But, you know, I was struck by all of these


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                 presentations, really.  I would suggest we look at them a

                 slightly different way.  The question that Michael put

                 forward right at the beginning was, who should determine the

                 business practices of the exchange.  And then that has kind

                 of framed all of this, and our level of ability to affect how

                 they run their business, and so forth, and how they do run

                 their business.  

                           I don't think that's the question.  I think this

                 has been very useful to illustrate what is the question,

                 which is, how should basic market data be distributed.  The

                 exchange is in this business because of a government mandate,

                 but the objective is to treat -- I think, should be to treat

                 market data as a shared resource that's essential to the

                 functioning of the market.  So whether it's cost-based

                 utility regulation, or free market competition, I think we're

                 struggling with all of that.  But I think that is more the

                 question than, "Gee, should we tell the exchange how to

                 manage its internal affairs?" 

                           I think that what all of this illustrates is that

                 market data for the past 25 years has been treated as a

                 product to be licensed under a claimed proprietary interest. 

                 All these contracts we've been talking about are,

                 essentially, license agreements that are designed to track,

                 control, and price this proprietary interest.  It goes all

                 the way down to the individual user level.  I was -- in my


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                 briefcase, coming out here, I had asked for a new RIM pager

                 last week.  Well, I have four --

                           DEAN SELIGMAN:  A what?  

                           MS. DWYER:  It's Blackberry.  Gives you e-mail,

                 lots of other things.  You can get real-time quotes.  So I

                 have four brokerage accounts.  I've signed to market data

                 agreements with each of the markets for each of those.  I use

                 voice products, so at Schwab, I then have another agreement. 

                 Schwab then pays an additional fee for my access through that

                 channel.  I have web access on each of my four brokerage

                 accounts, so I've done the infamous click-through agreements

                 for all of those.  

                           And so here I have 15 pages of this -- I don't know

                 if you can all see it, I can't even read it with my glasses

                 -- from all the exchanges.  I have to sign and execute.  And

                 as I did pour through them -- you know, it even restricts

                 what I do with the pager.  If I were to let my daughter use

                 my pager, following the letter of this agreement, to check

                 her e-mail, I would have lost control of the device and be in

                 violation of the agreements.  

                           So this is the pervasiveness of this licensing of

                 what is the most simple level of data in the market.  I

                 thought the FISD paper told us very clear -- a 50-page,

                 four-column spreadsheet of all the essential terms in the

                 markets contracts, 230, I think it was, individual policy


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                 considerations that the contracts deal with.  

                           I mean, the enormous complexity of this -- Schwab

                 has a dedicated team of folks who do nothing else but

                 administer the Schwab side contracts.  And they do all of

                 these things, billing, collection, auditing, reporting, as

                 well as -- and I beg to differ with the markets --

                 negotiation.  These -- every time we -- you know -- well, let

                 me just go back through what the FISD listed.  

                           These are the conditions of the license.  Prior

                 approval.  The assumption is that for any use you make of

                 market data is prohibited unless you receive prior approval. 

                 User classification systems that change how you pay for

                 market data, and what you can do with it, depending on who

                 you are.  

                           Units of count, which they list as being by,

                 "device, user, location, or identification based," and are

                 fairly inconsistent throughout the industry.  

                           Subscriber agreements, which I've mentioned, are

                 these product licenses.  And then, you know, they're pretty

                 onerous billing and reporting requirements, which are

                 audited, and so forth.    

                           All of this to support control and pricing of this

                 licensed data.  And when we negotiate our Exhibit A, we're

                 required, for prior approval, to disclose all kinds of

                 interesting information about exactly what our business model


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                 is.  Every time we change a facet of our business, we need to

                 go back and amend these agreements, and make sure we have

                 prior approval. 

                           And I will tell you that those are bilateral

                 negotiations, with unilateral interpretation.  And my people

                 spend a great deal of time.  They're engaged in negotiations

                 right now with both the Nasdaq and the New York Stock

                 Exchange about various things.  We are never not negotiating

                 one of these things.  

                           So to say that the contracts are up on the web, and

                 they're -- they are not done that way.  Because of the

                 variability of business, and the difficulties of interpreting

                 use, and counting, and so forth, they're very complicated. 

                 And this isn't to say there's bad faith from the exchanges,

                 but it is a bilateral negotiation every single time.  And

                 that produces enormous discretion, and that produces the

                 questions that asked about, are people really treated

                 equally?  Is -- you know, there is very little transparency

                 around these negotiations.  

                           If I can cut a special deal, I have to assume

                 somebody else can.  Am I being treated the same?  I don't

                 know.  Maybe I am.  But the fact that I worry about it is

                 something that bothers us.  I will produce this white paper. 

                 I think we can give some concrete examples of some of these

                 things, where we have really spent an inordinate amount of


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                 time and effort and pain, negotiating through these things. 

                 And I just didn't want to leave that unsaid.  

                           But I think what we have to deal with is the fact

                 that -- should market data be a product that is licensed

                 under these kinds of conditions.  And that rather than

                 meddling with the exchanges business model, which I think we

                 don't want to do.  They run a fine business, they're entitled

                 to do that.  But -- and I should say, the exchanges.  I think

                 that's really the issue we ought to focus on when we talk

                 about these issues this afternoon. 

                           DEAN SELIGMAN:  I do appreciate that Michael Atkin

                 used the phrase, "business model," and it obviously does not

                 bind the committee.  It does describe, though, I think,

                 perhaps the way his business looks at this.  I appreciate

                 your comments.  I do think this afternoon I want to get back

                 to the prior approval a little bit when we get to

                 administration plans.  I'm interested in, among other things,

                 not only in the complexity, but the time it takes.  

                           Let me turn to Bob, who --

                           MR. BRITZ:  No, I'll pass, Joel.  Thank you. 

                           DEAN SELIGMAN:  It is now noon.  I think we've had

                 a good morning, in terms of putting a lot of background on

                 the table.  What I'd like to suggest is, let's take a

                 one-hour lunch, and get straight back to work at 1:00.  I

                 want to go straight to transparency issues.  I've called it,


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                 "item E" on page 3 of the agenda that's been distributed. 

                 We'll proceed from there to what we should refer to as,

                 "nondiscrimination," or most-favored-nation kinds of

                 concepts.  I want to go on to pilots.  

                           I want, as well, to take up the administrative and

                 technological issues if we're able to today.  I'll give you a

                 brief overview when we come back, as to how this relates to

                 fees, but by and large, I think we know where we're going,

                 and I think there are now some tough issues we need to

                 wrestle with.  

                           Let's pick up again exactly at 1 o'clock.  For

                 those who would like to join us for lunch, there's lunch in

                 the same back room we had it last time. 

                           (Whereupon, at 1:00 p.m., a luncheon recess was

                 taken.)

                                           * * * * *

                                A F T E R N O O N  S E S S I O N

                           DEAN SELIGMAN:  I think it's time to begin.  

                           Let's start with E, which deals with transparency. 

                 Obviously, both in the last meeting and in this one, there

                 was a great deal of reference to the notion we need more

                 sunshine in the process.

                           Before the meeting, we posed five questions as to

                 various ways in which more transparency might be achievable. 

                 I'd suggest Question 5 might not really be on the table,


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                 given the statements of the plan administrators this morning,

                 but we can take it up.

                           I would almost, I guess, like to go around the

                 table and ask each of you I guess to focus on the five

                 questions collectively and focus on the following issue, and

                 you can take them up one by one.

                           If we need more transparency, why?  And what

                 specific information should we focus on requiring in addition

                 to what's already out there?  Clearly, Michael Atkin began

                 today by giving us a sense of a database that will be

                 communicating contract types, fees schedules and so forth,

                 not only for North American equity markets, but indeed for

                 global ones.  

                           Clearly, the plan administrators made it reasonably

                 clear that contract types, fee schedules, are very much

                 available, and there's no reason why one would expect that

                 there wouldn't be.  But the real ball game here I think may

                 be in Questions 2, 3, 4 and conceivably 5.  I'd like to know

                 specifically from each of you your sense, if we need more

                 information, precisely what it is and why.

                           Let me start, Michael, with you -- I know this is

                 an area you've given some thought to -- then we'll go back to

                 our normal alphabetical conventions.  Give me your sense,

                 focusing hard on Question E, if you will, 4(e), what your

                 recommendations and thoughts would be for us, and we'll keep


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                 going around the table.

                           MR. ATKIN:  Well, all five questions, Joel, or are

                 you just talking about --

                           DEAN SELIGMAN:  Yes, it may be too ambitious to do

                 all five.  I'm trying to proceed in a way where we have an

                 opportunity this afternoon to cover a lot of ground.  Let's

                 do it maybe -- I don't know.  Is there a sense that we'd be

                 better off segmenting this, doing them one by one?

                           MR. BROOKS:  I think they run together, these

                 questions, Joel.  

                           DEAN SELIGMAN:  All right.  Let's almost think of

                 this like a congressional committee.  Does anyone want to

                 segment these or shall we address all five collectively, each

                 of you have a statement on it?  We can follow up with more

                 specific questions if we need to.

                           Michael, you've got the floor.

                           MR. ATKIN:  I think everybody agrees that

                 transparency is good.  I think that for the fee schedules and

                 contracts, they're available.  I think it's just a question

                 of aggregating them and making them easy to understand.  So I

                 think on Question 1, "Should the contracts and fees be made

                 available?"  I think yes and I think they are.  I think

                 there's a separate question of whether you make the costs

                 available, which I assume is what Question 2 is trying to get

                 at.


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                           Yes?

                           DEAN SELIGMAN:  Yes.

                           MR. ATKIN:  If you don't mind, I think we should

                 separate out whether the contracts and fees are made

                 available --

                           DEAN SELIGMAN:  You know what?  Let me step back. 

                 Let's start this again.  Let's take them up one by one. 

                 We'll do crisper answers.

                           The only real question on one is not so much,

                 should this be available, it is available.  It should be

                 filed with the SEC.  I'm not quite sure that that gets us a

                 lot more than we already have.  

                           Anyone want to make the case it should be filed

                 with the SEC or are you more or less comfortable where things

                 are in terms of contract types and fee schedules?

                           MR. ATKIN:  Bob, aren't contracts currently filed

                 with the SEC?  I thought they were.

                           MR. COLBY:  I honestly don't know.  We have them. 

                 We have the individual contract model.  We certainly do not

                 have the individual contracts with respect to particular

                 parties.  There isn't a filing requirement, but the model

                 came in as an attachment to the plan.  And I can't remember

                 if it was filed or not, so --

                           MR. ATKIN:  Joel, we found that it's not a question

                 of having the contract available.  It's a question of, what


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                 does that mean in the contract?  What are the obligations

                 required as part of this contract?  The reason we built our

                 database was not to make the specific contracts available. 

                 It was to try to explain what all the requirements and

                 obligations were in terms of administration.

                           DEAN SELIGMAN:  Let me take it another step.  This

                 is not only contract types, but it goes to the specific

                 contracts with users.  That, I take it, is not filed with the

                 SEC or available?

                           MR. ATKIN:  The specific Exhibit A and Attachment A

                 or --

                           DEAN SELIGMAN:  No, it includes Exhibit A, as well.

                           MR. BRITZ:  But, Joel, if I may?  Exhibit A is a

                 printed form, as I've said before, so certainly that's either

                 filed or available.  I won't argue the technical term.  And

                 the notion of making available to the SEC every broker/dealer

                 and institutional investor's individual Exhibit A, frankly,

                 would be okay with us as the administrator, but may or may

                 not be okay with the firms.

                           MR. ATKIN:  I don't think you gain anything by

                 making the Exhibit As available to anybody.

                           DEAN SELIGMAN:  Let's play it out around the table.

                           Anyone want to make the case that the individual

                 contracts, including the Exhibit As, should be available?

                           (No response.)


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                           DEAN SELIGMAN:  Okay.  So what I'm basically

                 hearing on Number 1 is more or less there's a comfort level

                 that -- the basic structure of the contract, the basic forms

                 are available one way or another, whether technically filed. 

                 With respect to individual firms providing, either through

                 the SROs or otherwise, all of the individual contracts,

                 including the Exhibit As, I hear nobody saying we should do

                 that.  I don't know if we need to go further with Question 1

                 unless anyone wants to address that?

                           (No response.)

                           Let's go on to Question 2.  Question 2?

                           MR. NICOLL:  I'm sorry to interrupt you.

                           DEAN SELIGMAN:  Don't worry about it, Ed.

                           MR. NICOLL:  But you actually haven't formally

                 asked whether we were all in favor of transparency, in this

                 particular case, as a foundation.  I mean I don't know

                 whether that's on the table or not, but I'd like to call into

                 question whether or not we understand what that means.  We,

                 for one, would actually dissent, in this particular case, the

                 transparency if by "transparency," you mean that all rates

                 should be publicly available, is necessarily the correct

                 starting point.

                           DEAN SELIGMAN:  Okay.

                           MR. NICOLL:  And I would like to make an argument

                 that, in fact, is not in the industry's best interest.


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                           DEAN SELIGMAN:  Let me do this, Ed.  Let's, rather

                 than taking the generic, is transparency a good thing or a

                 bad thing, let's relate it to specific types of information.

                           MR. NICOLL:  Right.

                           DEAN SELIGMAN:  We'll take up your point and your

                 opportunity to articulate it at more length when we get to

                 Question 3, which deals with revenues and would include

                 rates.  At the moment, though, I take it we really looked at

                 Question 1 insofar as we want to.  There doesn't seem to be

                 any great difference of opinion.  

                           Let's go on to Question 2.  This deals with the

                 costs incurred by the plan processor, in essence,

                 administering the plans.  Who wants to make the case that

                 this should be done?  And maybe we don't need to go

                 systematically around the table, but let's just see who wants

                 to chime in.

                           Bob?

                           MR. BRITZ:  Again, I think it is done, Joel, and

                 Bob Colby may correct me, but I actually think this is

                 technically filed if you're talking about the Consolidated

                 Tape Association P&L audited -- I think that is technically

                 filed with the SEC.  

                           MR. COLBY:  I will have to check.

                           MR. BRITZ:  Okay.  It's certainly given to the SEC,

                 audited, in hard copy form.  


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                           MR. JENNISON:  But, Joel, is that the question or

                 is the question the cost that the plan administrator, the New

                 York Stock Exchange and Nasdaq, incur in distributing market

                 data.

                           DEAN SELIGMAN:  Question 2 goes to the plan

                 administrators.  It's perfectly appropriate, though, to

                 follow up that with the point that you're making, George.  If

                 you look not just narrowly at CTA/CQ, and obviously NASD and

                 potentially OPRA, the related costs that let's say the New

                 York Stock Exchange or the NASD have with respect to market

                 information, I take it are not disaggregated and disclosed. 

                 And the question is, do we want to focus on that issue then? 

                           Does anyone want to make the case that those costs

                 should be more carefully -- or more precisely, I'm not going

                 to use the word "careful" -- more precisely disclosed than

                 they are currently?

                           MS. DWYER:  Joel, I guess I would almost answer

                 every one of the questions in this section by saying if you

                 wanted to have a pervasive SEC-controlled scheme of

                 regulation of this business as a public utility, then you

                 would probably want all of this stuff on file, reviewed,

                 disclosed and publicly available -- but only then.  If you

                 were moving to a more competitive model, then I would think

                 none of these questions would be relevant.

                           DEAN SELIGMAN:  Well, in effect, we're probably


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                 going to have an analysis which is going to look at both

                 different types of approaches.  Clearly, if you go to a more

                 competitive market model, that's a plausible outcome.  For

                 the moment, if you assume the SEC might have something like

                 its current regulation in place at the end of the day -- I'm

                 trying to understand exactly what transparency has meant. 

                 We've heard the phrase over and over again over the last few

                 sessions.  I'm not seeing a whole lot of hands basically

                 saying that people are interested in more costs in terms of

                 plan administration, more data there.  There's obviously

                 either not a sense of need or the sense of what's being

                 provided already is adequate.

                           MS. DWYER:  Well, I guess one thing I would add is

                 that sort of where we started this discussion, which was

                 cost-based, if this is a public utility, and needs to be more

                 highly regulated by the SEC, then you would want to know the

                 answers to the questions we asked this morning.  What does it

                 cost to produce this?  How does that match against the

                 revenue?  Is that a fair cost setting?  "How do you set the

                 fees?" the question you asked.  How do you set the

                 professional fees and the nonprofessional?  That would be

                 where I would say there would need to be much more

                 transparency.

                           DEAN SELIGMAN:  That really goes to Question 3. 

                 It's okay.  Let's focus on that one.


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                           MR. ATKIN:  Joel, if I could just, on Question 1,

                 just make one point?

                           DEAN SELIGMAN:  Sure.

                           MR. ATKIN:  If you want people to comply with the

                 rules and understand what their obligations are, they need to

                 be published and clear.  In the current model of what the

                 rules are, in order to have people comply with them, you need

                 to know what they are.  So I mean I think in that case

                 everybody would probably support full transparency.

                           DEAN SELIGMAN:  Well, but we keep using the phrase

                 "transparency," and I think it's real important now to pin

                 down what we mean by it.  In essence, what I'd like to focus

                 on is people feel like they know what the contract types are,

                 they know what the fee schedules are, they don't seem

                 terribly excited about learning more about the cost of

                 administration.  

                           Question 3, which may be the one that's nearest and

                 dearest to certain hearts in the room, goes to more detailed

                 information about the revenues generated by market data, fee

                 arrangements such as the revenue produced by each type of

                 fee, and the revenues distributed back to each SRO

                 participant.  Is that something that someone wants to make

                 the case there should be greater disclosure of?



                           Andy?


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                           MR. BROOKS:  I mean I guess I'm not asking for a

                 more intrusive process from a regulator standpoint, but I do

                 think it's important for us to understand, and the public to

                 understand, what drives pricing decisions and what drives

                 routing and flows and what drives people's -- sort of their

                 process and whether an order goes to the third market and

                 gets printed here or it goes somewhere else, I think that

                 that kind of information ought to be in the public domain so

                 that people can understand perhaps the true cost of doing

                 business, the true cost of trading, the true cost of

                 executing that order.  I think that would probably be a good

                 thing.

                           DEAN SELIGMAN:  The statements we heard earlier

                 today from the two Toms, in effect, were that, at the moment,

                 there didn't seem to be that precise a level of accounting

                 that was available.  Clearly, one must assume that the

                 various plans know what their revenues for market information

                 are.  But the true cost of providing various types of market

                 data, I didn't get the sense that was disaggregated with

                 great precision.

                           Now, Bob, is that a fair statement?

                           MR. BRITZ:  You have to identify at what level in

                 the aggregation process you're at.  The participants clearly

                 know what the revenues are.  They clearly know what the

                 direct processor costs are and they clearly know what the


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                 administrative costs are, all at the collection,

                 consolidation, redistribution level.  

                           Only vertically within their own marketplaces, do

                 they know what the production -- Chicago does not know what

                 the production costs of market data are for New York, nor do

                 I know Chicago.  But there is a CTA P&L that starts at the

                 revenue line and does, in fact, go through the costs

                 associated with that collection and consolidation function. 

                 So they know it at that level, Joel.

                           DEAN SELIGMAN:  Andy, to go back to your comment,

                 what you're talking about, though, is something different,

                 correct?

                           MR. BROOKS:  I think it is.  I mean the Commission,

                 I believe, has asked for more transparency in terms of where

                 orders are routed and what might be received by the

                 broker/dealer for that routing.  If you look on the back of a

                 confirm, it will tell you that perhaps moneys have 

                 been -- you've received payment for order flow or it's gone

                 to this exchange or somebody might have a proprietary or

                 principle interest in something.  

                           I just wonder if it wouldn't be consistent in that

                 end of the transparency spectrum to want to have in the

                 public domain some filings or some full explanation of some

                 of these revenues that are generated by market data fee

                 arrangements and reciprocity and some other things.  That's


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                 what I was trying to drive towards.

                           Does that make sense?

                           DEAN SELIGMAN:  I think I understand what you're

                 saying.  But it's like on an order ticket basis?

                           MR. BROOKS:  Right now you have that on an order

                 basis, I think.  Don't you, Ed?  I see you shaking your hand,

                 but I don't want to be too intrusive about it, but I do think

                 that for all classes of investors to truly understand the

                 market data fees that are being charged, they've got to

                 understand what the reciprocity is and what's sort of

                 connected to it.  I don't think you can talk about one

                 without talking about the other or at least putting it in a

                 filing or sort of somewhere.

                           MR. NICOLL:  I just find it ironic, Andrew.  I mean

                 you of all people know that there are times -- and you will

                 argue -- that there are many times in the marketplace where

                 transparency is not a good thing.  It does not create

                 efficient outcome.  Institutional investors talk all the time

                 about the fact that they need a certain amount of opacity in

                 order to move in and out of the market without creating

                 market impact.  

                           It's not clear to me that transparency does the

                 industry, does the users, the good that they think that it

                 does, nor that notions like most favored nation pricing

                 schemes will do for Carrie want she wants it to do.  In fact,


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                 I would argue that it's as likely do to the opposite and

                 that, in fact, the level of transparency that we have

                 mandated does the opposite.  

                           I mean we all know that this is a pricing

                 discussion.  It seems to me that sort of the 900 pound

                 gorilla sitting in the corner is the fact that none of us are

                 sure that market data is being priced correctly, whatever

                 that means.  Many in the industry suspect that it's being

                 overpriced right now and I think that's much of at the core

                 of the reason why we're here.  

                           And the issue is, why are we at this point?  I

                 think there's a very good argument to be made that even

                 within the model that we're talking about here, which is the

                 model of essentially a mandated BBO where, arguably, the

                 providers of the quotes can exercise market power, that you

                 would get a lower, more efficient price if large users were

                 allowed to negotiate in the dark, then you get today where

                 when a large user gets a big price discount, the producer of

                 that product is required to disclose that to the world and

                 thereby is disincented from doing the kind of volume pricing

                 that it would normally do under normal market conditions.  

                           And it is not clear to me that this notion that if

                 everything is published we'll be better off is, in fact, a

                 good thing from a user's point of view or from the consumers'

                 of the data's point of view even under these circumstances.


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                           MR. SELIGMAN:  Peter.  

                           MR. QUICK:  I have a question.  We keep hearing the

                 word "Most Favored Nation."  Can't we all agree that there is

                 no favored nation in terms of everything is either on the

                 NASDAQ or the New York Stock Exchange web site or NASDAQ

                 Trader.com web site in terms of what the contracts are, what

                 the pricing schedule is?  Is there an enterprise license that

                 somebody can take advantage of?  Yes.  But there is no Most

                 Favored Nation pricing?  

                           I mean, nobody gets -- you know, other than the

                 published pricing schedule there is no such thing as Most

                 Favored Nation. 

                           MR. NICOLL:  Well, I'm just making an appeal to my

                 counterpart over here.  I actually think that there could

                 very well be negotiations about what appear to be process

                 which could, in effect, have real meaning in terms of what I

                 pay versus what Schwab pays for quotes. 

                           And the devil is always in the details, and I, too,

                 have a staff that does nothing but deal with these issues and

                 spend a fair amount of time and resources about that.  So I'm

                 not sure that it is as cut and dry and made out to be, and I,

                 too, have my suspicions that in the details of the data -- or

                 the stuff that is not disclosed; that is, how I'm charged and

                 how I collect data and then how I report that data versus how

                 Schwab does is necessarily the same. 


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                           MS. DWYER:  Let me just --

                           MR. SELIGMAN:  I'll be right back to you. 

                           MS. DWYER:  Okay.

                           MR. SELIGMAN:  Let me just see if I can link this

                 to where we are.  I mean, what you're really saying is the

                 details of what you provide, essentially, to the SROs through

                 your Schedule A may create interpretation issues which could

                 lead do different types of pricing structures for you, for

                 Schwab versus whomever. 

                           But what I'm hearing at the same time is two

                 things.  Number one, as you put it, there is some suspicion

                 that there's more money in the system than should be, that

                 people are struggling, is there a way that you can address

                 the allocation of fees; but number two, but nobody wants to

                 go to full disclosure of Schedule A(s) and greater

                 transparency on that point. 

                           MS. DWYER:  Well, to respond to Ed, I think we're

                 actually in the same place.  What I was, apparently,

                 inarticulately trying to say was all of this mandatory

                 disclosure, rules, restrictions, and so forth, make sense if

                 you're regulating a utility, and we see from California how

                 difficult that actually turns out to be.  It causes

                 dysfunction. 

                           But if you are move to a purely competitive market,

                 if I don't like the terms one market is offering me for the


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                 data, I can go somewhere else.  And if one entity has a very

                 complex, very onerous contractual regime, I'd like

                 alternative to that to get the data, and I think that

                 produces benefit for everybody. 

                           So I'm not sure we're very far apart.  In a

                 completely competitive world, I'd like to be able to

                 negotiate whatever I can. 

                           MR. NICOLL:  This will be the end.  I want to make

                 the point -- and I want to be specific about this -- that

                 certainly I would prefer and I'm here to advocate for a much

                 more competitive model on all levels. 

                           But even if we accept the predicate of this full

                 committee, which is that generally we're going to be within

                 the same regulatory regime that we are now, that we're going

                 to have the display rule, for instance, that we're going to

                 have -- and with all that comes, that follows from the

                 display rule, all I want to put up for everybody's

                 consideration is to think that even with that monopoly and

                 market power on one side that it may be that you will get

                 lower prices at the end of the day by allowing larger --

                 prices are set -- a long time we've known that prices are

                 established at the margin. 

                           And it may be that we'll get better pricing if we

                 allow large, sophisticated, knowledgeable negotiators to

                 negotiate with the exchange in the dark to create lower


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                 prices for them than we have today. 

                           And if I were an exchange, I would love it -- if

                 Schwab came to me and pounded me for a discount and I just

                 said to Schwab, "I'm sorry.  If I give you a discount, I've

                 got to disclose it, and everybody's going to get the

                 discount.  Therefore, I can't." 

                           It may be that what we have is because of the

                 regulatory regime the market is not operating as it should,

                 and because of the mandate for the disclosure of every

                 different pricing scheme that the exchange enters into that

                 that prevents a more efficient outcome from occurring even

                 under the present regulatory regime. 

                           MR. SELIGMAN:  Thanks, Ed.  Simon. 

                           MR. JOHNSON:  I just don't want us to get bogged

                 down on this issue because I'm not sure it's what you want us

                 to do, but I'm not following the argument that says that we

                 get lower rates either on average or particularly for small

                 investors in a situation where every deal is secret. 

                           I mean, I can think of a number of instances where

                 it would go the other way where I think the people that had

                 the monopoly power would be delighted they can discriminate

                 very carefully between different kinds of consumers according

                 to their ability to pay.  So that I can understand. 

                           But whether that's going to bring down prices on

                 average and particularly prices for relatively small


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                 investors who I think of you, Ed, as actually advocating and

                 trying to help those guys, I'm missing something here. 

                           So maybe we can talk about that separately.  Maybe

                 it's not central to the agenda.  But if it is central to the

                 agenda, I think we need a lot more debate about it because

                 it's really not clear to me at this point. 

                           MR. SELIGMAN:  Let me, I guess -- to try to adjust

                 transparency, see if I can start this once more, I'll throw

                 out the question in these terms:  Is there a category of data

                 that anyone at this table wants to recommend that is not

                 currently disclosed that should be disclosed?  If so, what is

                 that category.  If so, why? 

                           When we talk about transparency, that's what we're

                 really talking about.  Is it just, basically, when we use the

                 phrase we're saying we like what we already have or we think

                 in a general sense it's a good thing, or is there something

                 specific that we want to take up? 

                           Eric. 

                           MR. ROITER:  I think, perhaps, the reason people

                 are struggling with this is that need to step back and ask

                 what is promoted by transparency.  I think of two basic

                 objectives. 

                           One is to influence behavior.  That might be to

                 deter undesirable behavior.  If you're a corporate director

                 and you have to disclose in the company's proxy statement


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                 that you haven't showed up for at least 75 percent of your

                 company's board meetings, that's going to influence your

                 behavior.  You're more likely to attend 75 percent or more of

                 the meetings. 

                           I'm not sure that has much relevance to this

                 particular context.  Second is that transparency promotes

                 pricing efficiency.  I think pricing efficiency depends on a

                 multiplicity of buyers and sellers.  And perhaps the reason

                 people aren't leaping forward to say that we need lots of

                 transparency is that underlying this discussion is

                 recognition that we don't have multiple buyers and multiple

                 sellers of data. 

                           At least if you look all the way to the origination

                 of that data, you've got one ultimate seller per market.  And

                 for the primary market, whether it's Nasdaq or the New York

                 Stock Exchange, you've got that threshold bottleneck, I would

                 say. 

                           Now, perhaps the consensus process that has been

                 described here today ameliorates the difficulties that come

                 from that bottleneck.  I don't see really how transparency,

                 if that's taken to mean filing Schedule A(s) as they are

                 actually filled in by different subscribers, is going to

                 alter the fact that you've got a single market center, at the

                 end of the day, setting the price for its market data. 

                           It may be important for the SEC itself to have


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                 access to those Schedule A(s) and other arrangements,

                 individual arrangements with subscribers so that the SEC can

                 assure itself that the non-discrimination standards of the

                 statute are met. 

                           But unless you move to a system where you actually

                 can have multiple buyers and multiple sellers driving pricing

                 efficiency, then making all of this information transparent

                 doesn't really change things. 

                           MR. SELIGMAN:  Okay.  Bob. 

                           MR. COLBY:  Eric, is there any value in the

                 consensus fee-setting process of having more information in

                 order to form the consensus? 

                           MR. ROITER:  I suppose there's some marginal

                 benefits, but I'm not sure where the balance is.  If you have

                 a comment process and require fees to be filed and you have

                 an inspection program and you have the market centers

                 representing that the fees that are explicitly set forth in

                 their standard forms of agreement are, in fact, the fees that

                 are charged, then I don't know, at least on the revenue side,

                 what more you can get. 

                           And I listened intently to Carrie's description of

                 what she called the negotiation process.  I'm not quite sure

                 that I would describe it as negotiation.  When I go to a

                 restaurant and I see many choices and I ultimately select

                 from the menu, I don't see that I've negotiated anything with


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                 the restaurant.  I've chosen from among a variety of options.



                           On the cost side, I might turn the question back to

                 the staff to ask whether, after all these years of overseeing

                 the process of fee-setting by the exchanges whether the staff

                 has felt that it has been in the position to make a good

                 judgment about whether the fees that are filed are reasonable

                 or not. 

                           And as I say, there may be some marginal benefit or

                 making more information available.  I don't know that it has

                 to be out there for everyone so long as it's available to the

                 SEC staff through inspections or otherwise. 

                           MR. COLBY:  As to fee review, the question is what

                 decision should be made?  And I agree with Carrie.  If you're

                 going to do rate regulation, you need a great deal more cost

                 information than we have, if you're doing, certainly, utility

                 type regulation. 

                           I would just like to ask in a different way.  If

                 user is trying to look at the information -- look at the fees

                 that are being set today and you want to make a judgment

                 about whether this is the right balance in dealing directly

                 with the boards of exchanges or trying to put input back into

                 on a published fee that's out for comment, and the like, is

                 the information that you really, sort of, need to start

                 getting a feel even on the rough sense available readily now,


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                 or would more information be useful? 

                           MR. ROITER:  Again, I apologize for repeating

                 myself.  I think there may be some incremental benefit.  I do

                 draw a distinction between for-profit and not-for-profit

                 market centers.  At the end of the day, the for-profit market

                 center has to have a return for its shareholders. 

                           And yes, there will be an equilibrium that is

                 arrived at for the for-profit market center.  It may not be

                 the same equilibrium that's arrived at in the not-for-profit

                 market center.  

                           It may be more useful to get that kind of

                 information when you were getting market data from a for-

                 profit market center because then you can start dealing with

                 the questions of whether that source of revenue is providing

                 a reasonable rate of return to the market center, which I

                 think is a different question than market centers that aren't

                 operated for profit have to answer. 

                           MR. SELIGMAN:  I think, given the response from the

                 group on this question, it's worthwhile going on to the next

                 one.  Question IV-F really focuses on the SEC's rate review. 

                           There seemed to be a pretty clear consensus last

                 meeting that this group did not recommend moving towards a

                 more cost-based or utility type of rate regulation.  There

                 have been suggestions by some of the members of the group

                 that the answer here is what was referred to as Most Favored


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                 Nation pricing. 

                           Let me just by way of putting us in statutory

                 context, we all appreciate that the SEC review focusing on

                 the concept of discrimination or what has sometimes been

                 referred to as non-discrimination. 

                           The current statutory context, however, it's very

                 important to appreciate precisely what the words are.  The

                 SEC has to ensure that all persons may obtain market

                 information on terms that are "not unreasonably

                 discriminatory." 

                           And among other things, the Commission, clearly

                 within the context of that phrase has recognized that it is

                 permissible, at least to date, to have separate fees for

                 professional and non-professional subscribers.  It has

                 approved enterprise fees in one context.  It has approved

                 varying levels of rates based upon volume and usage. 

                           So that what we have is not the equivalent to, sort

                 of, a one price fits all model, but we have a model where

                 there has been a great deal of variation. 

                           Now, the suggestion has been made -- and maybe

                 we'll start with Carrie, who propounded it, perhaps, most

                 eloquent -- that the answer here, in part, turns on "Most

                 Favored Nation" pricing as an alternative to what we now

                 have. 

                           Maybe to get this part of the conversation going if


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                 you'll articulate again for us precisely what you mean by

                 that and why that is different than what we now have. 

                           MS. DWYER:  I'll try.  If I've said it eloquently

                 before, please refer to my former remarks. 

                           MR. SELIGMAN:  Well, you wrote it eloquent before. 

                           MS. DWYER:  Simple concept, again, is in moving out

                 of the current highly regulated environment, which is where

                 we think we ought to go.  So it depends on what you're

                 talking about. 

                           But it was an idea intended to counter the concern

                 about market power of the Nasdaq or the New York Stock

                 Exchange in a post-regulated market data environment.  And

                 the idea was that if there was still a regulatorily required

                 piece of data, consolidated quote, that for that information

                 there should be Most Favored Nation pricing. 

                           As I understand it, that's typically understood to

                 mean that the price I charge to you must be as good as I

                 charge anyone else and that that would be something SEC could

                 oversee.  For that regulatorily required piece of data, you

                 would ensure that the continuing monopoly at least was

                 administered fairly. 

                           MR. SELIGMAN:  Now, when you say, "the price I

                 charge to you," does this acknowledge that there can be

                 different types of category of users of the data, or is it,

                 basically, there's just one "you"? 


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                           MS. DWYER:  I assume you could stratify that.  It

                 would be up to the exchanges.  They have professional and

                 non-professional fees now.  If those categories made sense

                 going forward so that similarly situated people were treated

                 equally, you could do that. 

                           Personally, we would be interested in moving to a

                 world where a feed is supplied, and it doesn't matter how you

                 use it or what kind of person you are, and the pricing would

                 be uniform for that.  That was what we intended. 

                           MR. SELIGMAN:  Now, as I understand what was said

                 earlier today, both the Nasdaq and the New York side

                 basically represented with similarly situated users the fees

                 were the same at this point. 

                           MS. DWYER:  Okay.  Well, that's definitional again,

                 and I think Bernie described it pretty well.  We have

                 experience with this.  Is that with or without rebates or

                 other offsetting fee reductions?  What's the price?  Is it

                 simply the stated price on the rate card, or is it the price

                 all in for market data?  There's quit a lot of variability

                 about that either explicit or implicit in various markets. 

                 Bernie, sort of, nailed most of the forms it takes. 

                           MR. SELIGMAN:  Okay.  Now, Bernie referred to

                 various implicit or explicit rebate as being responsible for

                 variability.  Is there any other concept you want to put on

                 the table so we'll all be sure we're talking about the same -


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                 -

                           MS. DWYER:  Well, we have in the past talked

                 about -- and this is where we came from on this issue -- the

                 differential pricing for, you know, say, online users.  It's

                 not explicitly keyed to -- I don't think it was intended to

                 discriminate against people, but it actually made for, at

                 least a period of time, the access to the markets via a

                 computer terminal more expensive than access through a

                 broker.  And we have always said that we think that access to

                 market data should be channel neutral.  

                           You saw on the price scheme up here today there's a

                 price for accessing a voice recognition product, a price for

                 computer terminal, a price for broker.  Probably, you'd want

                 to level all those differential prices. 

                           MR. SELIGMAN:  Michael. 

                           MR. ATKIN:  We're talking strictly about U.S.

                 equities?  Because in the futures and options markets,

                 there's first location fees and other pricing distinctions

                 that are in play that I would think would be part of this

                 conversation. 

                           MR. SELIGMAN:  I think we really are limited

                 ourselves to U.S. equities here. 

                           MR. McNELIS:  Joel, could I add a comment? 

                           MR. SELIGMAN:  Yeah. 

                           MR. McNELIS:  One of the things that we, of course,


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                 have an interest in is selling data feeds, and there's

                 differential pricing for data feeds even for the same type of

                 user. 

                           There's an extra charge for one of our customers to

                 receive a data feed and distribute data to professional

                 brokers than there is for that person to take that same data

                 on a proprietary terminal.  So there are these

                 discontinuities. 

                           Another thing that seems to us to be an issue, in

                 the earlier discussion we were talking about transparency and

                 should we make the documents public, and all of that.  The

                 documents are public.  We all more or less came to the

                 conclusion that, yes, the information is available. 

                           But Mike Atkin made a very important distinction. 

                 He said they had to be published and clear.  One of the big

                 problems is yes, they're published, but nobody knows what

                 they mean.  So every time you go on the margins to build a

                 new type of business, a new outlet or a new market, you have

                 to go back and negotiate either a new Exhibit A or some type

                 of an agreement that classifies this new type of user so that

                 you can get a price for how that user will be charged. 

                           And so yes, it's published, but it's not clear. 

                 The documentation is retrospective, but the business is

                 prospective.  So you never know what the cost is going to be.

                           MR. SELIGMAN:  Let me see if I understand this. 


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                 What I'm hearing a little bit is the issue is more turning

                 not so much on whether people who are "similarly situated"

                 are treated the same, but the categorization of where you are

                 among a series of categories the interpretation, perhaps, by

                 the SROs as they analyze a Schedule A as to whether or not

                 you're subject to this bucket or that bucket. 

                           MR. McNELIS:  I mean, that is certainly part of it. 

                 And as Carrie says, there is significant negotiation that

                 goes on about that.  It's one thing to say, yeah, here's the

                 schedule, but which part of the schedule applies?  And that's

                 where the negotiation gets pretty serious. 

                           MR. ATKIN:  Joel, we documented over 37 different

                 types of redistribution that existed as we were planning our

                 database just as a test to see whether we could pull out the

                 right information.  

                           I think what Brian is saying is every permutation

                 of all of these applications have got to be evaluated against

                 your contract and your pricing schedule, and it's not as

                 clear where those things fit. 

                           MR. QUICK:  Michael, would that be -- if I can ask

                 you a question about that, pertaining to the U.S. equities

                 markets, how many permutations would that be? 

                           MR. ATKIN:  There's a lot of permutations.  You've

                 got vendor/sub-vendor redistribution to some application for

                 some usage, and depending on who owns and controls the


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                 entitlements of the data you've got different pricing and

                 different contractual terms. 

                           MR. QUICK:  Well, certainly, I think the exchanges

                 or the CTA can go ahead and make a pricing schedule up, but

                 they can only deal with the facts at the time they deal with,

                 and as the market changes, you know, whether it be individual

                 investors being able to get it on their Blackberrys or

                 whether it be getting it by voice recognition, you know,

                 there are different situations that arise that call for

                 interpretation.  I'm not sure where we're going to be able to

                 solve those questions. 

                           MR. SELIGMAN:  Well, there is a different slant on

                 this we could talk about, and that is maybe what I'm hearing

                 is not so much anyone wants a different SEC role if we keep

                 this model or wants a different statute, doesn't want more

                 transparency, but maybe what you're focusing is on the

                 administration, perhaps at the SRO/CTA level,

                 standardization, more rapid review, fewer categories,

                 simplification of a process as a way that particularly users

                 would more quickly be able to negotiate and start data feeds

                 and more effectively operate. 

                           MS. FRIEDMAN:  If I could comment on that, first of

                 all, in terms of trying to standardize the pricing across

                 different types of delivery mechanisms, meaning voice port

                 versus for query versus dynamic display, versus television,


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                 for that matter, I mean, I don't think that we could apply,

                 you know a per query rate to a dynamic ticker on a

                 television, and I don't think you could apply the same kind

                 of rate on a voice port mechanism. 

                           You can't fit them all together into one single

                 pricing scheme, and I think that once they are set, though,

                 we do apply them equally.  We apply them fairly across anyone

                 who comes and asks for that specific type.  Signing up of a

                 vendor does not take a long time.  I mean, it's not a lengthy

                 negotiation.  It takes about two to three weeks at most, and

                 it's not a lengthy conversation. 

                           We have pretty cut and dry standards for which fees

                 apply to them, and the Schedule A that people keep referring

                 to we do have to look at system descriptions so we know that

                 they will have the ability to pay us because we actually do

                 vendor billing rather than direct billing. 

                           But I don't believe that there are a great deal of

                 negotiations that go on between how that Schedule A is

                 applied.  They are individual, that's true.  They go between

                 Nasdaq and a specific vendor at the time, but I don't believe

                 there's a great deal of negotiation within those schedules. 

                 I just wanted to respond to a couple comments I'd heard. 

                           MR. SELIGMAN:  Trying to link the comments

                 together, has it been your experience that you can,

                 basically, when you change a process, be signed up within two


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                 or three weeks?  Has it been more frustrating? 

                           MR. McNELIS:  Well, certainly, Nasdaq has been very

                 proactive in trying to smooth out the process, and CTA has

                 not been quite as proactive in that regard. 

                           When you go to the markets with a whole new

                 delivery scheme, there is negotiation there that has to be

                 dealt with because it doesn't fall into any of the buckets. 

                 What would be nice is that it wouldn't matter. 

                           I can understand there's a difference between,

                 obviously, television and working on a PC, but there are

                 finer gradations, and things could be more closely linked,

                 and there could be less worrying about the actual delivery

                 vehicle than the fact that someone is going to use this data

                 when they get it, and the pricing should be used on the fact

                 that somebody is going to use the data when they get it, as

                 opposed to how any vendor chooses to deliver it. 

                           MR. SELIGMAN:  If you were czar of the universe,

                 what would you do to change the process? 

                           MR. McNELIS:  Probably set flat fees based on large

                 numbers and forget about counting widgets, and all of those

                 things.  Probably. 

                           MR. SELIGMAN:  Let's go around the room.  Eric, if

                 you were czar of the universe, what would you do to change

                 the process? 

                           MR. ROITER:  I don't have a ready answer for that,


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                 as you can tell. 

                           MR. SELIGMAN:  You're only czar for a moment, Eric.

                           MR. ROITER:  I think we're working within the four

                 corners of the statute, and if your question is working

                 within that statute or recasting the statutory terms? 

                           MR. SELIGMAN:  You're czar.  You get to choose. 

                           MR. COLBY:  Joel, are you asking about the contract

                 administration process? 

                           MR. SELIGMAN:  I am trying to tease out -- we're

                 here because there seems to be a great deal of underlying

                 conflict and controversy in the field, and I'm dealing with

                 as quiet a group as I've dealt with in four meetings, and I

                 feel like a dentist trying to get a tooth out. 

                           MS. NAZARETH:  Could I raise this?  I'm, sort of,

                 wondering whether we've, sort of, come back a bit to the

                 question I raised this morning, which was when we talked

                 about, you know, the existing system and changes over time. 

                           And I said it seems like the descriptions were all

                 that -- we started with a basic fee structure, complex though

                 it is, and then we make incremental changes.  I guess one of

                 my questions is is part of what we're hearing or were you

                 suggesting that maybe that's what's wrong, that we should not

                 only be rethinking details of administration and details of

                 contracts, contract language which is a decade old and hasn't

                 kept pace with the technological changes? 


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                           Are you, basically, suggesting that this whole not

                 only administration but fee structure should be rethought in

                 light of the fact that the technology and the way firms are

                 using the data has changed so significantly that we should be

                 starting from scratch in that regard?  

                           Because that does sort of relate to, I think, where

                 I was this morning, which is I'm not quite sure whether there

                 was ever consensus that everybody is happy with this and we

                 should just, sort of, keeping building incrementally, or

                 should we be thinking more broadly about changes to that? 

                           MR. McNELIS:  Well, I don't think you can start

                 from scratch.  I mean, everybody has got Legacy systems that

                 still operate under the old methods, and the pricing is

                 probably settled and appropriate.  People may or may not like

                 the price levels.  That's a different question. 

                           But certainly in terms of trying to advance a

                 business you certainly want to have more flexibility when

                 you're dealing with a supplier when you don't have any choice

                 in suppliers just so that things could move more quickly,

                 people would price products appropriately and get on with

                 business and not be wrestling with these issues. 

                           MR. BRITZ:  Maybe I can comment on that a little

                 differently.  This consensus thing cuts both ways.  I

                 mentioned earlier that we do have an Enterprise agreement. 

                 It was not our first choice by any means. 


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                           Tom Haley earlier in the day showed you a 14-tier

                 professional display unit schedule.  If we had our druthers,

                 we would not have a 14-tier display unit schedule.  In fact,

                 we have made quite a few proposals to industry groups to

                 reduce that to two or three in favor of simplicity. 

                           The problem is that even if you do that on a

                 revenue neutral basis, even if you do it on a revenue cut

                 basis, individual firms within that you will provide winners

                 and losers.  And we have been trying for four or five years

                 to get a consensus around a much contracted professional

                 display device schedule without any success. 

                           So I'm reacting to your point that to some extent

                 the schedule is a little bit of goulash.  We started

                 somewhere.  Someone said, "Hey, we need this kind of a rate." 

                 We put it on.  Someone said we need that kind.  There's no

                 question about that.  I just want to emphasize the degree of

                 difficulty of starting with a blank sheet of paper given that

                 firms do pay what they pay today, and blank sheets of paper

                 approach tend to produce winners and losers off of that. 

                           MR. SELIGMAN:  Good point.  Pete, let me --

                           MR. QUICK:  Certainly, the tape A revenue is

                 charged strictly on a terminal basis, and there is a schedule

                 that the tape A actually deals with, and it is what it is,

                 and it has been that way for quite a few years.  

                           But we do have the Enterprise fee, too, if somebody


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                 would like to take that, and there are a couple of firms that

                 do take advantage of that.  But it's single pricing, and that

                 differs somewhat from the New York. 

                           MS. FRIEDMAN:  Could you explain it further? 

                           MR. QUICK:  Bid and offer I believe is 13 and

                 change.  Last sale is $13 also.  And if you get both, it's

                 $26 or $27. 

                           MS. FRIEDMAN:  Actually, I meant the Enterprise

                 license.  Could you, kind of, go through how it works? 

                           MR. QUICK:  It works similar to -- I don't know the

                 details of it other than it's a flat fee similar to the New

                 York.  We do have two firms that use it and redistribute the

                 data both to, I believe, the retail and the professional

                 customers, and we've got a similar pricing scheme in terms of

                 individual users, $1 a month. 

                           AUDIENCE:  Do you -- 

                           MR. QUICK:  No.  It's just a flat fee. 

                           MR. SELIGMAN:  Let me see if I can -- I'm sorry,

                 Eric.

                           MR. ROITER:  I didn't want to take a complete pass

                 on your question.  When one gets to these knotty questions,

                 perhaps it's more useful to try to eliminate the things that

                 people can agree really aren't going to help much, at least

                 to narrow the range of choices of things that actually could

                 help. 


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                           I started out thinking months ago that having a

                 competitive bidding process for a single consolidator might

                 be an improvement.  I think at this point that doesn't seem

                 to yield much benefit, because as we learned earlier the

                 consolidator, SIAC, really doesn't operate for profit.  

                           It, basically, operates at cost, and you wouldn't

                 really introduce any appreciable economic benefits by opening

                 that up to competitive bidding.  There are also high levels

                 of barrier entries, perhaps, as well. 

                           Then we turn -- and I don't want to prejudge the

                 outcome of the work of the subcommittee that Don is heading,

                 but we've been considering the alternative model of multiple

                 consolidators.  I, at this point, have the preliminary view

                 that at least from a pricing standpoint that is not -- I'm

                 not yet convinced that's going to lead to any great pricing

                 improvements. 

                           It may, perhaps, introduce more innovation and some

                 different choices in terms of the data that's massaged, but

                 from a pricing standpoint, so long as the market centers

                 themselves ultimately retain the ability, at the end of the

                 day and at the end of the process of consultation, if you

                 will, and give and take, a multiple consolidator model

                 doesn't seem to me to hold out much promise for introducing a

                 great deal of pricing improvements. 

                           Once you eliminate those two, and these are


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                 preliminary views, you get back to a choice, a more narrow

                 choice, among imperfect models.  I think we are always going

                 to have to choose among imperfect models. 

                           I'm uncomfortable with a model that enables a

                 market center that is operated for profit to set a price

                 unless you have an active role by a governmental agency to

                 discipline that.  

                           At the end of the day, a for-profit market center

                 if it's the primary market and has the benefit of a

                 regulatory requirement that brokers display best bid and

                 offer in that market is able to impose prices that aren't

                 reflective necessarily of the real cost of the data or the

                 cost plus a reasonable rate of return. 

                           I think that there may be a different outcome

                 depending on whether the data is being originated in a market

                 center that's operated for profit versus one that's not. 

                 Perhaps the existing model that we have for the non-profit

                 market centers, imperfect as it is and susceptible to some

                 marginal improvement, is, basically, the least imperfect

                 model. 

                           With regard to the for-profit market center,

                 perhaps there is a different model that would be less

                 imperfect.  I haven't really arrived at it yet.  But I think

                 there is some serious questions, because I think there are

                 some fundamental differences. 


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                           Once a market center that is an SRO and has the

                 governmentally granted license to require market participants

                 to pay for the data they generate, there is a different

                 standard of fairness, I think, and reasonableness that

                 attaches to their pricing. 

                           MR. SELIGMAN:  Eric, if you focus on the model we

                 currently have, it's essentially a process model.  It's one

                 in which, through various means, the actors in the industries

                 get various types of inputs.  There's this consensus-building

                 process. 

                           The SEC, if you will, rate review is under

                 standards that are different than a public utility.  It

                 hasn't played a particularly active role at a formal level. 

                 I suspect at an informal level it has raised lots of

                 questions.  It's sometimes poked a little bit. 

                           But the essence of what you've got right now in the

                 not-for-profit SRO context is the notion of bringing various

                 actors to the table.  We talked some on March 1 about

                 bringing more actors to the table one way or another, and

                 that's one increment you can pursue. 

                           In terms of how the SEC might review this process

                 model with either the current or somewhat expanded cast of

                 characters at various tables, turning on profit versus for-

                 profit, that's one that's harder for me to immediately fathom

                 how you make that distinction meaningful under the current


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                 statutory framework. 

                           Do you any ideas or suggestions you'd want to

                 pursue? 

                           MR. ROITER:  I agree.  I think it is hard within

                 the current statutory agreement to really -- current

                 statutory framework to make that much of a distinction,

                 although I think the SEC has ways to find flexibility. 

                           It may be that the statutory standards should be

                 revisited for for-profit market centers.  I know it's out

                 of -- it's not within the present debate to talk about the

                 application of the antitrust laws, but certainly that's an

                 alternative that could constrain any tendency of a market

                 center that has real market power from extracting uneconomic

                 prices, and that would relieve the SEC of having to set or

                 review the setting of rates. 

                           How you'd reconcile the application of the

                 antitrust laws within a regulatory environment where the

                 market center is, for other purposes at least, subjected to

                 SEC regulation, oversight, is something I hadn't thought

                 through correctly, but it strikes me that that is an

                 alternative. 

                           If you choose to operate for profit, which means

                 you're choosing to produce returns for owners of the market

                 center -- and that's the American way, thank goodness -- to

                 me there is some inherent tension in that approach and when


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                 measured against the traditional premises that underlie the

                 '34 Act and self-regulation. 

                           And perhaps an SRO or market center that chooses to

                 operate for profit could be subject to SEC oversight

                 regulation in certain respects but, in other respects, for

                 example, the setting of market data fees and, perhaps, other

                 fees that market center might be told, "You're on your own,

                 and if you engage in pricing that is monopolistic or

                 otherwise violative of the antitrust laws, you'll be

                 susceptible to those laws." 

                           MR. SELIGMAN:  Let me take a narrower question.  We

                 posed the question should SROs be permitted to distinguish

                 among subscribers based upon whether the subscriber competes

                 with the SRO for order flow, and that really would be a

                 question whether or not you have for profit or not-for-

                 profit. 

                           MR. QUICK:  Can you repeat that? 

                           MR. SELIGMAN:  I'm looking at Question 4.  "Should

                 SROs be permitted to distinguish among subscribers based on

                 whether the subscriber competes with the SRO for order flow?"

                           MR. QUICK:  The SROs really don't set the -- I

                 mean, the SROs, in conjunction with each other, are setting

                 the prices.  It's not one particular SRO. 

                           MR. SELIGMAN:  That's a fair point.  Let me try to

                 start this again.  Under the current structure, let see if we


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                 can see if there is general agreement on the following

                 propositions:

                           The "not unreasonably discriminatory" concept, in

                 essence, focuses on similarly situated subscribers being

                 subject to the same market data prices, and I take it that

                 that concept is one that there's comfort in the room with? 

                 If you're similarly situated, the question is how you

                 determine who is similarly situated, and the administration

                 we'll put to one side for a second. 

                           MR. QUICK:  I'll just note that the America Stock

                 Exchange membership has its privilege, and there is a slight

                 difference between a member and a non-member rate with the

                 information. 

                           MR. SELIGMAN:  But all members would have the same

                 rate.  All non-members would have the same rate. 

                           MR. QUICK:  Yes. 

                           MR. SELIGMAN:  Okay.  Second, is there comfort at

                 the table on the concept that under the current regime that,

                 in effect, there can be distinctions based upon types of use,

                 such as professional versus non-professional subscribers? 

                 And does anyone subject that there shouldn't be distinctions

                 based upon that kind of distinction? 

                           MR. ATKIN:  Joel, I have a question. 

                           MR. SELIGMAN:  Sure. 

                           MR. ATKIN:  The reason I feel kind of like a deer


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                 in a headlight in this is you keep saying "the current

                 structure."  And I believe there are at least three

                 structures that are under consideration here that make it

                 difficult. 

                           MR. SELIGMAN:  Fair enough. 

                           MR. ATKIN:  And the structures that I see are one

                 dealing with the regulatory regime of NBBO versus display

                 rules and information competition.  That's a structure for

                 debate.  The second one is the business model structure.  I

                 think Brian was articulating the problem of time to market

                 and clarity of rules and pre-authorizations, and that's a

                 structure we have to deal with. 

                           And then there is the oversight and the fee-setting

                 structure, you know, how it works with filing with the

                 Commission and public comments, and I'm personally just

                 having a little difficult time understanding which part of

                 that --

                           MR. SELIGMAN:  We've been focusing or at least I've

                 attempted to focus us on the third, the fee-setting aspect of

                 it, which is where the SEC currently has a role. 

                           We've heard references to non-discriminatory

                 pricing, Most Favored Nation.  I'm trying to determine

                 whether or not this group wants to see if there should be

                 different approaches the Commission should take if it doesn't

                 go to a multiple consolidator system of some sort. 


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                           MR. ATKIN:  If everything else stayed the same,

                 would we change the fee-setting structure?  Is that the --

                           MR. SELIGMAN:  I think that's a fair way to put it.

                           MR. ATKIN:  Okay. 

                           MR. SELIGMAN:  Within the current fee-setting

                 structure, in other words, there is this notion that "not

                 unreasonably discriminatory" certainly permits different

                 types of fees for different types of users. 

                           There is a presumption that within a category of

                 user similarly situated users would be charged the same, and

                 I think we've heard statements today that that's what the

                 practice is.  

                           I'm trying to see if anyone would suggest that

                 those aspects of what we currently have now are ones that

                 people would propose we change if we keep the current type of

                 structure and don't go to a multiple consolidator structure. 

                           MR. QUICK:  I think what you're asking is is it

                 reasonable, and you've used that term before.  And I would

                 suggest that it is reasonable for the distinctions. 

                           MR. SELIGMAN:  Take it a second step, then.  Is it

                 reasonable, from the perspective of this room, to have

                 Enterprise fees, which certain of the systems currently have

                 and certain do not?  An Enterprise fee is a type of

                 discrimination.  Is it one in which the people in this room

                 would recommend should not exist or should exist? 


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                           MR. JOHNSON:  Joel, are we talking about the market

                 centers remaining SROs or becoming for-profit -- sorry, being

                 non-profit or for being for-profits?  I think Eric put his

                 finger on something really very critical in what he said,

                 which is also the concept -- SEC concept release I think hits

                 this directly, and we haven't talked a lot about it. 

                           If you have for-profit market centers, then I

                 think -- unless we find a competing consolidator model, which

                 we'll put to one side, but if we don't find that, if we're

                 talking about within the existing system, then, I think if

                 you have a for-profit organization which has substantial,

                 apparently, monopoly-type power, then you would worry a lot

                 about how they're exercising that power. 

                           I'm not sure that I would want to specify that we

                 could write down exactly what would be reasonable or

                 unreasonable, but if you are a for-profit monopoly, then you

                 actually have a obligation to generate a profit.  You would

                 expect that to be a regulated monopoly.  If it's non-profit,

                 then it's a little bit different.  So that's why I'm asking

                 can you clarify?  Are we talking purely non-profit world or

                 for-profit? 

                           MR. SELIGMAN:  We're about to have a world in which

                 there will be NASD, which will be going to a for-profit

                 model, and New York for the moment is not.  So we assume

                 we'll have both to wrestle with under the same statutory


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                 structure.  Jim? 

                           MR. DOUGHAN:  I'll make my first point of the day. 

                 I guess one thing -- when people talk about monopoly pricing

                 power, one thing to realize, I guess to keep in mind, is that

                 the relationship between the people providing the quotes and

                 the people consuming them is a lot more complex and subtle. 

                           Usually, it's broker dealers paying for quotes from

                 exchanges, and they have a very complicated relationship. 

                 It's not just merely someone who walks into a store and has

                 to buy something.  It's a lot more complex than that.  So I'd

                 just be very careful about assuming that there is necessarily

                 a monopoly pricing power there immediately.  It may be.  It

                 may not be. 

                           MR. JOHNSON:  But if it's the case that some people

                 who are dealing with this monopoly provider are the

                 shareholders or other interests so you have a complicated

                 relationship, and some people don't, and if we're worried

                 about non-discriminatory access, so, you know, do small

                 investors get charged reasonable prices, which, I guess, is

                 one of the ultimate questions here -- I mean, your concern,

                 your point is a legitimate one, a very important one. 

                           That makes a situation more complicated and makes

                 us more cautious, if anything. 

                           MR. DOUGHAN:  My simple point is it's extremely

                 complex. 


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                           MR. SELIGMAN:  Simon, why don't you take it a step

                 further.  We soon will be dealing with at least one for-

                 profit system.  How would you suggest that would change how

                 we should analyze it. 

                           MR. JOHNSON:  Well, I think I'm in the minority of

                 one on this issue, perhaps.  And I came in late, so I was

                 hesitant to speak up earlier on the previous questions. 

                           But I think if you have a for-profit monopoly with

                 the potential of exercising market power, then I think it has

                 to be regulated like a monopoly.  If you're telling me that

                 you have a non-profit -- if you'll make this work in a non-

                 profit way, somehow put that between the for-profit guys in

                 the market, maybe we can talk about that. 

                           But if it's a for-profit monopoly, I don't see how

                 you avoid being a regulated monopoly. 

                           MS. FRIEDMAN:  I would have to say that you're

                 assuming we're going to be a monopoly when we're for-profits. 

                 We have to go through a lot of steps in order to become a

                 for-profit company. 

                           We have to register as an exchange, which is a very

                 complex and in-depth and lengthy process.  There are others

                 who are also registering as an exchange to trade the same

                 securities that we trade and to receive market data revenue

                 on the same securities that we trade. 

                           There are already exchanges out there who are


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                 trading the same securities we're trading.  There are seven

                 participants in the UTP plan.  So you're assuming we're a

                 monopoly and we're going to maintain our monopoly status

                 forever despite the fact that we're a for-profit company. 

                           And once we become an exchange there are going to

                 be other choices where people put their trade reports and

                 where they put their quotes.  And there already are, but I

                 think that will proliferate quickly, and I would have to

                 argue that you're maybe operating under the wrong

                 assumptions.  For-profit entity doesn't necessarily mean a

                 for-profit monopoly. 

                           MR. COLBY:  Joel, could I try to reprise a little

                 bit the discussion?  And tell me when I get this wrong.  This

                 group was pulled together to see if there's some better way

                 to look at market data prices than the way we're doing it and

                 whether a flexible cost base structure is the right way or

                 whether the structure needs to be changed or whether there's

                 other ways to go at it. 

                           And we've probed a lot of different respects, and

                 Eric I think has summarized his views on a lot of the items

                 that came up.  And then it comes down to this question of

                 whether there is market power or monopoly power, and where

                 does it derive from? 

                           And one place people have pointed to it deriving

                 from is the display rule, which, if everyone has to buy this


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                 information from everyone, then that gives this power to

                 everyone.  So there is talk about getting rid of the display

                 rule, and we had a discussion about that, and most people

                 thought it should be retained, and the subcommittees talked

                 about narrowing it some. 

                           That certainly does spread.  If there's market

                 power to be had, it spreads it over the number of markets

                 that exist because it means even the smallest one has some

                 form of power.  But let's say that wasn't there, not that I'm

                 advocating that, but let's say that wasn't there. 

                           Then the question is do large dominant markets have

                 market power?  So maybe users can -- the smaller people

                 either charge very low fees, or they give their data away,

                 but do then the large dominant markets still have market

                 power? 

                           Andy said he could not live without -- what was it? 

                 New York's data? 

                           MR. BROOKS:  All the data. 

                           MR. COLBY:  All the data.  Let's say you could pick

                 and choose.  Then the question is, presumably, if there's a

                 dominant market, can you live without the dominant market

                 data?  And if you can, then their market power is no so

                 strong, and if you can't they have pretty strong market

                 power.  And if they do have market power, then the question

                 is how can it best be addressed? 


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                           MR. DOUGHAN:  Well, I guess what I was getting at

                 was that it's even more subtle and complex than that, because

                 not only do have you to face the issue as to whether or not

                 you can live without what it is they're selling, but the

                 question is do you have any other -- is your relationship

                 with person who is selling you something more complicated

                 than that? 

                           Do you have other leverage on them other than the

                 fact that you just have to buy this product?  Do have you a

                 decision as to where you can take your order flow?  Do you

                 have a decision as to where you can execute your trades?  Do

                 you have a decision as -- on many, many other items, and can

                 you apply that leverage in return when they apply leverage to

                 you?  That's what I was really addressing. 

                           MR. COLBY:  And that's a pretty -- I think we sort

                 of need to know or take a guess at that.  Then, if I can just

                 continue on, there have been a number of proposals, I think,

                 laid out to talk about how to reduce that market power. 

                           And at risk of doing injustice to any of them, is

                 it all right if I can trot along? 

                           MR. SELIGMAN:  Go ahead. 

                           MR. COLBY:  Ed suggested in some context that the

                 data could be replicated.  Other markets might model it and

                 sell it out-modeled.  I don't know if -- I thought Carrie --

                 I don't know if you want to say this, but implicit in your


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                 remarks was that the data is licensed, and if there was no

                 license, then it could be copied and re-disseminated, and

                 that would certainly reduce market power data. 

                           There was another -- oh, another one that has sort

                 of been floated is if the people that make up the market

                 information can vend it out from under the market, then that

                 would undermine market data -- market power, excuse me.  I

                 thought we started out this conversation trying to explore

                 whether Most Favored Nation pricing would undermine. 

                           And I think the answer is the only way you could

                 set a fee is to charge one fee.  Whoever walks in the door

                 everyone gets charged the same fee, I think that undermines

                 market data because, presumably, the person with the largest

                 economies of scale can walk in, pay that one fee and re-

                 disseminate it.  But it shifts the market power over to that

                 person.  Is that right? 

                           MR. JOHNSON:  Mm-hum. 

                           MR. COLBY:  So those are the notions I've period. 

                 So the we is -- and then New York Stock Exchange said, "Well,

                 we really don't have market power because we're at least --

                 we're constituent driven and member governed, and so that

                 constrains our market power.  Is that a fair statement? 

                           I feel like where we are is that there has been

                 these, sort of, four or five -- there's a question of how

                 much market power there is absent the best bid and offer,


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                 display requirement, and there are these four or five notions

                 of how to address it all of which have consequences. 

                           That's where we are, I think, and we're trying to

                 think if there are any other alternatives other than rate

                 regulation, if there is market power. 

                           MS. NAZARETH:  I just want to make one other point

                 also.  I don't disagree that for-profit exchanges do raise

                 additional issues, but I'd also be cautious not to make too

                 much of that, because I don't think anybody in this room

                 would say that the New York Stock Exchange is a charitable

                 organization either. 

                           I mean, we've all talked about the different ways

                 that profits get redistributed, and the fact that it's a

                 mutual and that these costs, you know, offset other costs, we

                 still have concerns about pricing, whether it's a mutual or a

                 for-profit. 

                           So I'm not sure that -- preliminarily, my own

                 thinking would be that I would not have vastly different ways

                 of regulating this issue, whether it was for-profit or not. 

                           MR. SELIGMAN:  Adena. 

                           MS. FRIEDMAN:  Well, I would argue that there is

                 another area to look at in terms of, kind of, diffusing

                 market power, and that is just to build a competitive

                 structure where people could compete for order flow, compete

                 for listings, compete for other areas of the market. 


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                           Because if we don't disseminate our information

                 broadly, then our issuers are not going to get the,

                 basically, advertising that they get through the

                 dissemination of the market data related to their stock. 

                           And if they don't get that, then they're more

                 likely to go somewhere else where they can get more broad

                 access.  So it's much more complex than just saying that one

                 market has a certain dominance in its data, and therefore has

                 market power. 

                           Data is just one interrelated piece of an entire

                 market structure that works or doesn't work, and if it works

                 well, then there is value there.  And if it doesn't work

                 well, then there's not, and people have a choice to go

                 somewhere else. 

                           MR. DORSEY:  I think you also have to look at it

                 globally, because to pick up on what Adena was saying is that

                 in New York were to shut down and not distribute its data,

                 the flow isn't going to go into New York.  We would put the

                 prints up on, say, Nasdaq Europe.  We would quote AOL and IBM

                 over there, and Andy could trade with us in Nasdaq Europe. 

                 We could just expand the hours to cover the U.S. market. 

                           MR. COLBY:  Well, but Mike, you already do, but the

                 order flow is still going to New York. 

                           MR. DORSEY:  No.  I'm saying if he shuts down and

                 does not distribute his data. 


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                           MR. COLBY:  Well, the question is probably, though

                 I'm not absolutely sure, if they stopped redistributing data

                 they would lose order flow.  But that's not what they're

                 going to do.  The question is can they so constrain it

                 without hurting their market, and that's a question. 

                           If they can't, then this is really a moot

                 discussion because if just operating a market means that you

                 need to distribute your data just as broadly as possible,

                 then we don't need to bother with this committee anymore.  Am

                 I right? 

                           MR. DORSEY:  I think it becomes optimal pricing. 

                 If you price it too low, you're giving it away.  If you price

                 it too high, you're cutting off flow and maybe directing it

                 elsewhere. 

                           MR. BROOKS:  I think, if you're running a market,

                 you have to distribute your market data, and you've got to

                 make it accessible to everybody because that's one of the

                 premises of the national market system, connectivity, access

                 and transparency in the context of seeing things. 

                           And to your point, Ed, that you made earlier,

                 you're right.  Institutions like it both ways, and we will

                 always try and be speaking like it. 

                           MR. ATKIN:  Asymmetry of transparency. 

                           MS. FRIEDMAN:  But there's a competitive interest

                 in doing just what Michael Dorsey said.  There's competitive


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                 interest in getting it out to the broadest population.  I

                 mean, it's not just a mandate.  It's the competitive interest

                 in getting that out there because we want to make sure we

                 drive back to our market rather than driving it to Chicago or

                 somewhere else. 

                           MR. JOHNSON:  Sorry to go on about this, but the

                 way that competition usually works in this kind of market

                 where you have intrinsic market power or potential market

                 power -- not to say that you always exercise it and not to

                 say you always exercise it to the fullest extent -- what

                 usually happens is you have a period of intense competition

                 followed by consolidation, and out of that consolidation come

                 one or two dominant players who could be the existing

                 consolidators now, or it could be a question, as Bob said, of

                 transfer of market power. 

                           So the market power is not held where it is now,

                 but it goes to somebody else who their hands on this data,

                 and you have a natural monopoly and a natural tendency to --

                 you have a responsibility to your shareholders, if you're

                 for-profit, to maximize your profit. 

                           You're going to have an opportunity, perhaps not

                 tomorrow but in a year or in two years or whenever the

                 situation settles down, and you're going to say here we can

                 raise prices because we have the ability to do that because

                 we have this market power that derives naturally from the way


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                 that information is --

                           MR. DORSEY:  But people would generate information

                 away from the marketplace.  We generate about 10 percent of

                 the Nasdaq information, and if they don't disseminate it to

                 draw in order flow, we'll generate that data somewhere else

                 in some other competing market. 

                           MS. FRIEDMAN:  I think as long as there's a healthy

                 competitive system in place there's going to be -- we're

                 always going to be looking behind our shoulders.  We're

                 always going to be looking around at potential competitors. 

                           I understand -- whether you call it a natural

                 monopoly or not, if it's free market and the economy is

                 working properly to create proliferation,

                 consolidation/proliferation based on whether we do a good job

                 or not, isn't that what we're after? 

                           MR. JOHNSON:  There are always constraints on your

                 ability to exercise -- this is not a perfect analogy, but if

                 you think about the development of railroads, for example,

                 people would set up competing railroads, and there would be a

                 period of very intense competition followed by one of

                 consolidation. 

                           You could as then transport your goods through some

                 other means.  If you didn't like Commodore Vanderbilt's

                 prices, you were welcome to carry them on your own -- in your

                 own horse and cart, but Commodore Vanderbilt knew very well


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                 that once he had established control over certain routes he

                 could charge higher prices than previously. 

                           This is a form of natural market power --

                           MR. DORSEY:  And this is what killed the railroads

                 is that they were slow to change as the interstates came in. 

                           MR. JOHNSON:  It certainly hurt the railroads, and

                 it certainly hurt the U.S. economy, too. 

                           MR. SELIGMAN:  Okay.  Stepping back, at the end of

                 the day, we have to advise which direction we want to go. 

                           MR. DORSEY:  Maybe the advice is to change the '75

                 Act amendments to make it more malleable or acceptable to a

                 competing venue, trading venue type of model. 

                           MR. SELIGMAN:  Now, what do you mean by that,

                 Michael? 

                           MR. DORSEY:  I thought that was kind of evident on

                 its face, but the '75 Act amendments came in a period where

                 we're looking at -- our markets are being affected with a

                 national interest.  The exchanges and the marketplace were,

                 like, these national treasures. 

                           Now we're up to 2001, and while it's still affected

                 with a national interest, we're moving to more of a competing

                 market place type of paradigm, and I don't know if the '75

                 Act amendments where there was so much SEC government control

                 oversight of data is the same type of thing that will work

                 now in today's market structure or the changing market


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                 structure. 

                           You also have to look at this globally.  Like I

                 said earlier, we can generate our data here domestically, or

                 we can generate it overseas with Nasdaq either in Europe or

                 in Japan. 

                           MR. SELIGMAN:  At the moment, I think where the

                 committee has evolved after three and some fraction of a

                 fourth meeting is a sense -- there seems to be a preference

                 for retaining the NBBO and just unleashing everything else,

                 allowing it to be through a more free enterprise system. 

                           There is a debate we have not resolved and will not

                 try to resolve until May 14th as to whether or not we want a

                 multiple consolidator system, we want to maintain the current

                 kind of unitary consolidator system or we're going to propose

                 some combination thereof.  And we'll focus on that. 

                           If we go down the unitary consolidator,

                 essentially, what we have now, there seems to be some

                 suggestions at the margins, whether through advisory

                 committees or otherwise, you want more voices at the table. 

                           There doesn't seem to be a lot of interest in using

                 transparency as a mechanism to alter things.  With respect to

                 SEC pricing oversight, it's not in a multiple consolidator

                 system, there was very little, if any, support for a cost-

                 based system. 

                           In terms of how, under the current structure, you


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                 might alter the SEC's role using the "not unreasonable

                 discrimination" or "fair and reasonableness" standards, what

                 I've heard to this point today is, in effect, certain of the

                 dimensions of what currently goes on no one has that great a

                 problem with. 

                           This is, under the "not unreasonably

                 discriminatory" standard, everyone accepts the fact that

                 there will be categories, that you're trying to treat people

                 within categories in a common way, that innovations such as

                 enterprise fee pricing doesn't seem to trouble many people. 

                           But what we're getting pushed back towards is

                 really not the details but the model.  That is, we're really

                 talking about so far two different types of possible models

                 we can ultimately analyze and propound to the Commission. 

                           One is an incremental model.  You play with what we

                 currently have now.  You, basically, focus on the NBBO in

                 unleashing a few details of governance, maybe some

                 suggestions that will ultimately address with respect to more

                 efficient administration at least a heuristic about greater

                 standardization of contracts, and so forth. 

                           That's one level, and it may be a recognition as

                 we've looked into this it's more complicated than we thought

                 it was.  It is an imperfect model that has evolved because

                 it's a complex and squishy kind of process, and by and large,

                 to use Eric's almost Panglossian analysis, it may be the best


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                 we can do in an imperfect world. 

                           The other model is a much more radical one.  The

                 other model is, basically, to say '75 Act is over.  We want a

                 multiple consolidator system.  We're going to move to a very

                 difficult kind of world, and Don's subcommittee is focusing

                 on that, and we'll have a real discussion on that May 14th. 

                 We'll try to focus on the dimensions of it. 

                           Let me pose this broad question right now since

                 we've now had a lot of time to work through this:  Is there

                 any other model we should be looking at?  I mean, are these

                 really the two choices that we can contemplate given the

                 realities of where we are now?  

                           MR. ATKIN:  Just a question. 

                           MR. SELIGMAN:  Sure. 

                           MR. ATKIN:  Is there some combination model between

                 this?  I heard the alternative multiple consolidator as being

                 one.  Where would be modification of display rule?  Could

                 that exist in either model? 

                           MR. SELIGMAN:  Potentially, I would think. 

                           MR. NICOLL:  Could I just interrupt for a moment? 

                 I actually do think that we came to a bit of a consensus in

                 our committee that to talk about multiple consolidators as a

                 solution is just a complete chimera. 

                           The issue of consolidation is a $7 million a year

                 savings that if there is market power it does not come from


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                 the consolidator; it comes from the markets themselves and

                 that market power is either exercised as a result of the

                 display rule -- I think there is strong evidence to suggest,

                 with all due respect to my good friend, Mr. Quick, that it's

                 happening here because it is interesting that the smallest

                 markets here actually charges the highest rates of the three

                 that are represented here. 

                           But it either comes from the display rule or it

                 comes from -- without a display rule, it will come from the

                 traditional notions of imposing monopoly rents and that

                 either we have to introduce competition at that level and

                 solve the problem that way and that -- and there are some of

                 us that want to introduce that competition. 

                           But I think there is a consensus that just

                 introducing competition at the consolidator level solves

                 virtually nothing. 

                           MR. ATKIN:  But Ed, how about the concept of

                 consolidation every market has to be included in the best bid

                 and offer?  That's not a means of consolidation.  That's a

                 idea of consolidation. 

                           MR. NICOLL:  Well, I would just put that under the

                 notion of the display rule, that once you mandate that

                 consolidation then you get into all kinds of issues of market

                 power ironically of the smallest player rather than the

                 largest. 


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                           Once you do away with that consolidation, then you

                 have the issue of the market power exercised by the largest

                 players rather than the smallest.  And in a way, the SEC is,

                 sort of, caught in-between these two things, and overlaid on

                 all that is its own mandate and, arguably, the mandate of

                 Congress, to disseminate widely data to investors in a non-

                 discriminatory way. 

                           MR. JOHNSON:  I agree with Ed exactly on the point

                 that if you're going -- and I think this is what Michael was

                 saying as well, which is if you really think of introducing

                 or going through this competing consolidators route you're

                 led naturally to the display rule. 

                           I completely agree with the -- I'm not sure how

                 widely it's circulated, Ed -- summary proposing the competing

                 data consolidators.  I think it's exactly right.  I think

                 that if you follow this logic through you have to abolish the

                 display rule. 

                           I think I disagree with you completely that that's

                 a good thing to do because I think you and I have different

                 views about the market power consequences of this.  I think

                 you would initially have a period of very intense

                 competition, and I think you would then have consolidation. 

                           You mights have fragmentation, of course, back to

                 the pre-'75 situation, which I don't like, and I think you

                 would also have market power held by different people,


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                 perhaps, than hold it now, so a change in market power, a

                 reallocation or transfer of market power, as Bob was saying. 

                 And I think that would actually be a rather bad outcome.  But

                 I agree with you completely on the logic of your argument. 

                           MR. NICOLL:  Well, the fact that neither one of us

                 actually knows what's going to happen is not going to stop

                 either one of us from arguing the point, unfortunately. 

                           MR. QUICK:  Certainly, Ed, when you describe the

                 AMEX's plan, it really depends upon what perspective you come

                 to it from.  As you heard I think the New York Stock

                 Exchange, if you had one device on a machine or one device,

                 it will actually cost you $128, as opposed to the AMEX,

                 whether you want the bid or ask only, it would cost you $13

                 or the maximum of $27. 

                           So certainly, depending upon who you are sitting at

                 this table and how many devices you have really depends upon

                 how you look at the fee schedule. 

                           MR. ATKIN:  So Joel, the two models are either fix

                 the current system or amend the display rule?  Is that --

                           MR. SELIGMAN:  No.  I think it's really what we've

                 got is --

                           MR. NICOLL:  -- Talking about that's a notion that

                 our subcommittee is talking about, multiple consolidators

                 really being a solution to this problem.  I think we have a

                 general consensus that it's, you know, marginal.  It's


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                 probably not worth -- it's certainly not worth the time of

                 all the people sitting around this a table to talk about

                 multiple consolidators, in and of itself. 

                           MR. SELIGMAN:  So, basically, what you're dealing

                 with is, on the one hand, fix the current system.  On the

                 other hand, the subcommittee is going to come forward.  We

                 will see how it ultimately is framed, but will probably

                 either be multiple consolidators or multiple consolidators

                 plus, conceivably, recision of the display rule. 

                           MR. ATKIN:  I think the point is, and I've talked

                 to a lot of people about this, is 100 percent agreement that

                 who does consolidation is of little consequence, but that the

                 display rule issue is only question that should be talked

                 about in terms of an alternative model.  So I'm trying to

                 reconcile --

                           MR. COLBY:  See, Mike, I don't understand that. 

                 The display rule, arguably, spreads power to small markets,

                 but it doesn't change whatsoever the power of the dominant

                 markets.  So before there was a display rule there was a

                 dominant market that had pricing power over its data.  And

                 after there is a display rule, presumably, there will be

                 dominant markets, maybe not the same one, but -- and then the

                 question is -- it would appear to be there would be. 

                           It would be constrained to some degree, but the

                 question is how much by other forces of competition, and I


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                 think that we just can't waste a lot of time focusing on the

                 display rule unless you're absolutely confident that there is

                 not a market power issue underlying it that has to be

                 addressed, because then you've just moved the problem. 

                 You've just shifted it, and the same problem exists. 

                           MR. DORSEY:  You're presuming, though, that

                 somebody could hang onto their market by not displaying their

                 information or doing it in such way as to, you know, just do

                 it sporadically. 

                           MR. SELIGMAN:  Well, there's a different argument

                 that has been made.  If you have a best execution rule, which

                 you, presumably, would also have, if you rescind the display

                 rule, if you, second, go to a multiple consolidator system,

                 then you have a situation where it's not so much the dominant

                 market but also the fringe markets anybody in the position

                 where unless their data were reviewed in some sense by broker

                 dealers before execution there would be potential fiduciary

                 duty violations, and that would give the fringe markets the

                 kind of market power they don't currently have. 

                           MS. DWYER:  But Joel, how realistic is that?  A

                 fringe market wants to disseminate its data and be as useful

                 as it possibly can be in order to attract liquidity and --

                           MR. DORSEY:  Flow is king in this business. 

                           MS. DWYER:  I would just flip the question around

                 and say is anybody convinced that the current single-source


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                 monopoly system that was created before current technology

                 and before the current kinds of diverse uses of market data

                 we have today is really necessary?  Does anybody think market

                 data would degrade, that there wouldn't be consolidation,

                 that there wouldn't be useful new products created? 

                           We had market power before the '75 Act.  I will

                 tell you there is market power now in terms of dealing with

                 the single-source monopolies for market data, and we're on

                 record, you know, with a petition and quite a few other

                 written comments to the SEC about the discriminatory effect

                 of the current pricing structure.  We don't believe it

                 complies with the statute. 

                           So what is the risk going forward to say do we need

                 in this day and age a government mandated structure for the

                 display of certain minimum data and investing market power in

                 a couple of historically large markets? 

                           MR. SELIGMAN:  Okay. 

                           MR. ATKIN:  And that would be keeping the best

                 execution rules, right? 

                           MS. DWYER:  Yeah. 

                           MR. SELIGMAN:  I understand the question.  It has

                 been posed, and --

                           MR. QUICK:  I'd certainly argue from a market

                 integrity aspect and investor confidence that you would want

                 to display the consolidated best bid or offer and continue to


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                 do that. 

                           MR. SELIGMAN:  What I'm hearing is, basically, in

                 effect, on the equity side, the punch line of the story is

                 May 14th, when Don's subcommittee comes back.  What I'm

                 hearing from Ed, and he tells me that the subcommittee has

                 reached at least a tentative consensus, is multiple

                 consolidators alone isn't the issue.  The issue is the

                 display rule. 

                           I think those who feel that way should have the

                 right to the most eloquent articulation of that, and it would

                 be useful to do it in writing as well as orally.  I think the

                 subcommittee really needs to focus on that. 

                           My impression is there will be a division.  My

                 impression is we started with somewhat of a majority in favor

                 of retention of the display rule, and we'll see if once

                 you've talked through why you feel this way, if there's new

                 information that will change some minds. 

                           MR. ATKIN:  Joel, I heard everybody in favor of

                 keeping some form of NBBO, but I'm not sure if I heard that

                 everybody was in favor of keeping some form of display --

                 keeping the display rule.  Maybe I missed that. 

                           MR. SELIGMAN:  That's fair.  We posed it in terms

                 of NBBO, and maybe that's a distinction we should draw out. 

                           MR. JOHNSON:  Could I just respond to Carrie's

                 question?  I'd like to turn it around.  Given that the exist


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                 system works pretty well -- I understand it's not perfect.  I

                 understand not everybody is equally happy with it -- who

                 really believes that we should take this, basically,

                 tremendous gamble of abandoning the basis of the national

                 market system for possibly some gains for perhaps some

                 individual firms, maybe some collective gains -- perhaps the

                 system could work better, if you believe Ed -- but it's very

                 risky. 

                           You have a system that, basically, works.  And we

                 have an opportunity to make some proposals.  I thought

                 actually, Joel, from your list, the one thing that we agreed

                 on last time, at least it was in the minutes, was changing or

                 some sort of advisory committee structure within the plans as

                 a way to try and tinker with the -- and see if that makes

                 people a little bit more happy. 

                           MR. SELIGMAN:  I think I alluded to that. 

                           MR. JOHNSON:  I'm sorry.  I missed that.  So I

                 think the alternative is not something that works and could,

                 perhaps, be made a little bit better and something about

                 which we know very little and which would be extremely risky. 

                 And if you damage the integrity of the markets, you undermine

                 investor confidence.  That's not going to be easily undone. 

                           MR. ATKIN:  Wasn't the issue that the NBBO was not

                 the most useful piece of data any longer and that your

                 comments that the markets work great now is somewhat in can


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                 he because maybe they -- you know, if you continue with this

                 one piece of data and you don't allow for more enhanced data

                 and some competition on transparency, if you will, that's

                 when the markets work better.  And that's what I thought --

                           MR. SELIGMAN:  I thought where we were, at least

                 when we focused on the NBBO, was two separate conclusions. 

                 On the one hand, there seemed to be a majority which favored

                 retention of the NBBO.  On the other hand, there was always

                 tremendous sentiment in favor of allowing the exchanges and

                 others to compete on everything else. 

                           So that, in effect, there would be this "mandatory

                 minimum" was the phrase we used, and then there would be kind

                 of a free market for the rest --

                           MR. ATKIN:  NBBO to do your best execution

                 obligations is what I heard.  So everybody is going to have

                 to calculate -- they're going to have to have an NBBO, but as

                 a piece of data, as the piece of data that's mandated to be

                 displayed, as opposed to mandated to be offered, I thought

                 that was the question. 

                           MS. NAZARETH:  I thought where we came out, I have

                 to check the minutes, is that there was a majority that said

                 mandated to be displayed only as that, sort of, minimum, and

                 then the rest would be not mandatory, optional and that

                 individual market centers however defined -- I'm not sure

                 we -- would be able to sell the additional data or package


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                 however they chose. 

                           MR. JOHNSON:  Some of us advocated mandating more

                 data, the point you're alluding to. 

                           MR. McNELIS:  Could I just comment on that last

                 point, though?  One of the things that we find is that there

                 are a number of users who are not immediately going to invest

                 and that they don't need a BBO because they're not

                 immediately going to invest.  And we would advocate that we

                 should have flexibility to sell to that type of user data

                 that is below, if you will, the minimum standard because they

                 don't have a requirement for it. 

                           MR. COLBY:  Not to front run, one of the things

                 that's being talked about in the subcommittee is whether, if

                 you retain a display rule, whether it should be focused on

                 the portion of the execution process where it's most needed,

                 which would be making sure that customers, if they're

                 supplied data at the time of entering an order, gets data

                 that reflects the best price across markets. 

                           But at the other point in the spectrum, like when

                 you're not going to trade, that you wouldn't be required to

                 use the BBO. 

                           MR. SELIGMAN:  Adena, let me recognize --

                           MR. BRITZ:  If I may, I'll be my usually diplomatic

                 self and suggest that, in our view, that borders on, frankly,

                 fraudulent. 


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                           MR. COLBY:  I'm sorry.  What borders on --

                           MR. BRITZ:  The notion of flashing a brand X quote

                 and a brand Y quote up until you fill out the order template

                 and then giving you the real quote.  We have seen this movie

                 before.  It's a variation on the theme that says I'll give

                 you 20-minute delayed.  I'll give you 20-minute delayed.  

                 Fill out the template, hit the "send" key, and if you

                 request, I will now give you a real-time quote.  This is an

                 idea that substitutes giving you delayed for giving you

                 inferior. 

                           I took a look just for the sake of argument at

                 Citigroup the other day in a quote montage, totally arbitrary

                 on my part.  Any of you can look at a quote montage.  I

                 promise you this is what you will find.  I chose Citigroup

                 because I thought it would be the most meaningful in terms of

                 finding meaningful away quotes. 

                           The market in New York is bid $43.58, offered at

                 $43.59, 6,600 shares bid for 3,300 shares offered.  The

                 market in Boston, which is on Auto Quote, is 10 cents away

                 from the bid, 10 cents away from the offer, 100 shares by 100

                 shares.  Chicago is exactly the same. 

                           The market in Cincinnati is 14 cents away from the

                 primary bid, and I can't even do the math in terms of how far

                 they're away from the offer, one by one.  The market in

                 Nasdaq is about 50 cents away on the bid and another 40 cents


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                 away on the offer, 5 by 10, and so on.  Won't talk about

                 Philadelphia and Pacific, but it's similar. 

                           I don't mean to be making any market quality,

                 market structure or competitive order flow kind of comment

                 here, just a market data comment and whether or not there's

                 value to a consolidated display and offer. 

                           The most diplomatic thing I can say about these

                 away quotations is that they're silly.  They're of no value

                 whatsoever.  My friend Andy is not here.  I have no doubt

                 Andy is going to get the New York quote in this example.  The

                 question is where is Nasdaq's 50-cent quote away from New

                 York going to go?  Where is Boston's quote going to go? 

                           I have no horse in this race one way or the other. 

                 We're not strongly in favor of the display rule or against

                 it.  We're in favor of this group doing something with full

                 knowledge.  So I'm trying to hold the mirror up and say,

                 here's what it looks like, and be sure you like what you see

                 before you take some action.

                           MR. NICOLL:  Joel, I just need to respond to that. 

                 Almost throughout this debate I have agreed with almost

                 everything the New York Stock Exchange has said, but that's

                 unfair.  That's very unfair because I would submit that those

                 quotes are there simply because of both of explicit and the

                 implicit agreements that are going on now in the marketplace

                 in response to the regulatory regime. 


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                           The mean, the fact of the matter is we all know

                 that the regionals -- or that it is put forth almost as a

                 fact that if the regionals didn't get their share of the

                 market data that they go out the business.  Many people have

                 said that, and it hasn't gone -- it has not really been

                 challenged. 

                           And one of the reasons that they Auto Quote is

                 because they have to have a two-sided market, and because the

                 way that we share revenue now is not by who is competing for

                 quotes but who is competing for orders, because the way you

                 distribute and share your market data fees is by the number

                 of transactions that cross the tape. 

                           So as an exchange, I have incentive to auto execute

                 without auto quoting.  That is to say, to get the volume

                 without taking any of the risks, to be parasitic to your

                 marketplace, get the volume, and at the end of the month we

                 divvy up all of the market data revenues based upon how many

                 trades I put across the tape versus how many trades you put

                 across the tape. 

                           That directly incentivizes me to be as far away

                 from the market as possible to get my trades by not competing

                 for them through putting my capital at risk but rather

                 through doing deals with the providers of order flow so that

                 I derive my prices off of yours and without actually being up

                 on the box. 


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                           And then I get the print, and then I get my share

                 of the market data.  That's the way that the system works

                 now, so I have an incentive to be away on the quote and to

                 get the trade because not only do I benefit from the trading

                 profits that can be derived from that arrangement, but I

                 benefit from the peculiar arrangement that we have for

                 sharing market data revenue. 

                           MR. BRITZ:  One wonders how you get the trade

                 without being competitive on the quote.  The market that did

                 the --

                           MR. NICOLL:  Because I auto execute against your

                 quote.  You know that as well as I do.  If I'm out of

                 Chicago, I auto execute against your quote rather than auto

                 quote against it. 

                           MR. BRITZ:  I do understand that. 

                           MR. NICOLL:  And you know that because you've been

                 complaining about it for 20 years.  And you've described

                 competing markets as being parasitic, and many people have,

                 against the quote that you're putting up there. 

                           MR. BRITZ:  I raise this, Ed, in the context of

                 what has now come up, this motion of vending the away

                 market's quotations up until the very last moment.  I suggest

                 it's a variation on a movie we have seen before --

                           MR. NICOLL:  It didn't come from me, and I don't

                 know what I think about it, but I do think it's just


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                 disingenuous to take the facts as they exist today simply

                 because -- I would argue because of the regulatory regime

                 that we're under and because of the implicit agreements that

                 exist now between the various parties and to propound that

                 that is what it's going to be like tomorrow when the

                 regulatory regime changes. 

                           I agree with -- Simon has a point of view as to

                 what's going to happen tomorrow when that regime changes.  I

                 have a different point of view.  I think I understand what --

                 I think the SEC is trying to tell us that they're not going

                 to assume that you're not going to be able to exercise market

                 power, and I think that we have to -- if we really want the

                 SEC to think strongly about making a significant change, we

                 have to address that issue, and I'm not sure that we can. 

                           But I do think it's disingenuous to take what

                 exists today and argue that this is good evidence for what

                 the markets are going to look like tomorrow.  I said submit

                 and I've submitted before that you could argue that the exact

                 flip is going to happen, that what you're going to

                 incentivize is exchanges to auto quote rather than to auto

                 execute. 

                           And so all of a sudden now you're going to have

                 Boston with a very tight against yours, and the only problem

                 they're going to have is that they're actually going to have

                 to compete against you in the marketplace for people to hit


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                 their bids and offers which they may not want. 

                           MR. BRITZ:  Not for 100 shares.  Not much of a

                 problem.  You have a clarity of vision vis-a-vis the future

                 of markets that mine is not quite so clear. 

                           MR. NICOLL:  I just offer it as a possible

                 alternative.  I do not take lightly the notion of changing

                 the regulatory regime, and part of this process -- and I

                 agree that it wouldn't make sense for us to take monumental

                 risks for incremental benefits.  I don't disagree with that,

                 but that is a different position. 

                           That's a risk analysis position rather than a

                 position based upon who can exercise market power.  It's sort

                 of a different argument. 

                           MR. SELIGMAN:  But I think the risk analysis have

                 to be part of what we focus on. 

                           MR. NICOLL:  Absolutely.  I absolutely agree with

                 that. 

                           MR. COLBY:  I just can't resist.  The interesting

                 thing, as you look at Nasdaq and the market makers there,

                 there is no -- there is a two-sided quote requirement. 

                 There's a prohibition on auto quoting.  There is no

                 requirement that you put up a quote from any regulatory

                 standpoint.  There's no requirement that you be a Nasdaq

                 market maker.  And what do you see? 

                           You often see a lot of ECNs -- I have to say this -


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                 - a lot of ECNs up at the top vibrating in and out of the

                 best quote.  At the bottom, there are some astounding things. 

                 There are market makers that have hundred-point spreads, and

                 that's not being driven by any of the things that you said. 

                           There's some other reason why people will put

                 quotes up.  Presumably, they're not trading at those hundred-

                 point spreads unless some order comes out of an ECN and -- 

                           MR. QUICK:  You also have short sale exemption for

                 dealers who post quotes.  Whether or not they're real quotes

                 or --

                           MR. COLBY:  Yeah, but those things all prevail on

                 the listed -- and margin all prevail in the listed market,

                 too.  So I don't know if this is driven by the quote rule,

                 the best bid and offer or the two-sided quote requirement. 

                           MR. McNELIS:  Could I just make one further

                 comment? 

                           MR. SELIGMAN:  Sure. 

                           MR. McNELIS:  I'm sorry I stirred up this hornets'

                 nest of discussion of whether people are putting up -- quotes

                 or not.  My point was not to people who are ever going to

                 trade but people who are working in departments of firms that

                 are not involved in trading and that don't need that

                 information because they're not involved in trading, had

                 nothing to do with the quality of markets that the people are

                 putting up. 


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                           Perhaps there are people in other countries who you

                 know, have an interest in the markets but don't really need

                 the full extent of high quality information that is needed

                 for domestic traders. 

                           MR. SELIGMAN:  What I'm hearing, basically,

                 consolidating a series of discussions to this point is we're

                 probably dealing with a bi-modal choice.  The other shoe will

                 be dropped, if you will, May 14th.  We'll see if the

                 subcommittee comes back with analyze seriously multiple

                 consolidator system with or without recision of the NBBO, but

                 that's seems to be the parameters of what the discussion will

                 be. 

                           What I want to complete today is if we're,

                 basically, dealing with increments, dealing with the current

                 system, some of the increments we've discussed so far would

                 be, in effect, if we keep the NBBO, making it very clear

                 we've unleashed everyone for everything else, dealing a

                 little bit with governance. 

                           I haven't heard anything on transparency that there

                 seems to be much interest in in this group.  We've heard

                 references to Most Favored Nation, but I haven't seen so far

                 today any sense as to how that would play out in any

                 different type of SEC rate regulation. 

                           It may be that what we're, basically, saying is

                 we're realizing our choice is either really very small


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                 changes in the current system versus a very radical type of

                 proposal.  And we'll tee them both up.  We'll analyze both of

                 them.  Well present them to the Commission.  We'll explain

                 risks and benefits. 

                           Let me, though, before we let today go focus on

                 three subsidiary issues and be sure we don't want to add

                 these to the mix.  I want to focus on pilots.  I want to

                 focus a little bit more on plan administration, and I want to

                 focus a little bit on technology. 

                           I'm going to suggest that unless people feel

                 strongly let's just keep rolling.  Let's not take a break. 

                 We'll probably finish before 5:00.  We'll probably finish

                 maybe about 4:30 if we go through this, and some of you can

                 catch planes earlier, and all the rest. 

                           Let me take a few minutes and let us focus on 

                 pilots.  We've heard today, I think somewhat contrary to

                 concerns or suspicions that there appear to be fewer pilots. 

                 The NASD side has, basically, said they've recently filed the

                 pilots --

                           MS. FRIEDMAN:  Well, actually, we do file all our

                 pilots, and we are looking -- we are getting board approval

                 to, and we'll have to go to the operating committee, too, but

                 to get permanent approval for two of our pilots. 

                           MR. SELIGMAN:  The New York Stock Exchange CTA/CQ

                 side, basically, said they have one pilot at the moment, none


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                 in the pipeline.  Let me propose the following:

                           Would a constructive suggestion or recommendation

                 to make to the Commission be simply that there be a mandate

                 that pilots be filed; that they be -- certainly, the possible

                 of pursuing them be retained.  Within the filing would be the

                 duration of them and other dimensions, but they would be

                 publicly disclosed and that, in effect, that would be an

                 appropriate to dealing with some of the concerns that have

                 been expressed about this. 

                           The Nasdaq seems to have already, kind of, gone

                 that direction.  Could you live with, basically, a

                 requirement that in the future you'd have to take what your,

                 if you will, best practice is and formalize it? 

                           MS. FRIEDMAN:  Well, I would have to argue that it

                 depends on the structure we end up with.  And I don't mean to

                 go back to this mandatory minimum versus enhanced data, but

                 under the mandatory minimum, if there is one and is there is

                 a vendor display rule that governs that mandatory minimum, I

                 think it would make logical sense that these type of pilot

                 programs be filed and that the SEC maintain some oversight. 

                           On information that's no longer mandatory minimum

                 or enhanced information, voluntary information, I do not

                 believe those pilots should be filed. 

                           MR. SELIGMAN:  That's a good point.  Bob, suppose

                 there was a requirement that within the framework of the


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                 mandatory minimum, if you will, there be filing of pilots,

                 what would the take of the New York Stock Exchange be on

                 that? 

                           MR. BRITZ:  I guess within the framework of the

                 mandatory minimum that would probably be okay.  I will tell

                 you that in the past more pilots have been brought to us by

                 firms than we have cooked up and gone out to firms with. 

                           And there has been great concern among those firms,

                 again, once within a small group that we'd identified that,

                 yes, there was need here or an opportunity, there has been

                 great concern among those firms vis-a-vis speed to market

                 vis-a-vis competitive advantage. 

                           To the extent that you go to -- and maybe this is

                 solved by the mandatory minimum.  I'm thinking out loud here. 

                 But to the extent that you go to pilots being filed and

                 disclosed, and so on, for innovative products, then you've

                 done a disservice, perhaps, to the smart and the nimble

                 because the less smart and the less nimble can throw sand in

                 the gears via the regulatory process and, basically, hold up

                 the folks who have been creative enough to come up with it. 

                           I just raise that as a -- I know that's what we've

                 heard in the past.  Ironically, the progenitor of the most

                 pilots is the sharp firm, and that has been a great -- this

                 all predates Carrie, or most of it predates Carrie.  

                           It has been a great concern of theirs and other


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                 firms, to be fair that having thought of a new distribution

                 channel or a new idea the notion of having it fully exposed

                 and delaying the time to market and giving the competitors a

                 chance, and so on, has been problematic. 

                           But it's, frankly, you know, an SRO issue I think

                 than it is the sponsor of the particular pilot. 

                           MR. QUICK:  I would certainly say on behalf of the

                 AMEX the AMEX would not have a problem with regard to filing

                 pilot programs.  We only have one existing right now with

                 regard to broadcast that was not filed, but certainly, in the

                 interest of a level playing field and total disclosure, we

                 would not be opposed to that. 

                           MR. BRITZ:  There was a point, Joel, where you

                 talked about not necessarily dealing with filing but

                 notification of the existence of the pilots.  Clearly, you'd

                 have to do that under the fairness and uniformity notion that

                 we discussed earlier. 

                           There are no pilots that fit just one firm.  They

                 have to be made available to all firms.  But there may be a

                 speed to market reward for the particular firm or firms that

                 have crafted the pilot in the first place and brought it to

                 the marketplace. 

                           MR. SELIGMAN:  Let me go back to Adena for a

                 second.  Actually, maybe I should start with Bob on this.  If

                 we're outside of a mandatory minimum, what kind of pilots


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                 would we be talking about?  Would there still be any filing

                 requirements in that context in any event? 

                           MS. FRIEDMAN:  There are filing requirements with

                 anything that we were charging a non-member, so yes. 

                 Anything where we charge a non-member we have to file. 

                 Therefore, it allows any competitor to come in and comment

                 and try to squash anything that we do. 

                           So it really does cause a great deal of --

                 basically, a lack of incentive to innovate in terms of the

                 data world.  So if it's -- and our position is that if it's a

                 voluntary data product and it's not impacting the mandatory

                 minimum or it's not related to the mandatory minimum

                 information that the SROs should be able to compete on a

                 level playing field with any other provider of voluntary non-

                 mandatory information and be able to create a pilot without

                 SEC oversight. 

                           MR. SELIGMAN:  The question I was focusing on,

                 would you have to file that in any event? 

                           MS. FRIEDMAN:  Yes.  We do have to file it today

                 because as long as we charge for something we have to file. 

                           MR. SELIGMAN:  Okay.  The other concept that

                 received a fair amount of attention with respect to pilots is

                 that while you could initiate them or can initiate them,

                 rather, at the moment, under some circumstances under the

                 plans, a question was posed whether there should have to be a


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                 filing of some sort within a period of time after initiation. 

                           That is, with the ones outside of the mandatory

                 minimum, should there be a requirement that you can start

                 them and within, fill in the blank, six months, one year,

                 there would have to be a filing? 

                           MS. FRIEDMAN:  Well, one thing you can look at is

                 the trading system pilot program that the SEC has put in

                 place in terms of they have a volume parameter that you

                 have -- as long as you're under a certain amount of volume

                 then you're not required to file. 

                           So you could look at something like that or a time

                 parameter, but you want to make sure that you give the SRO,

                 the innovator, essentially, a chance to be able to go out and

                 try it out and make sure that they've priced it correctly,

                 make sure that they have a chance to build a customer base

                 and give them some level of time-to-market advantage if they

                 have some innovative product. 

                           MR. SELIGMAN:  How much of a time would they need? 

                           MS. FRIEDMAN:  Generally, our pilots run two years

                 today. 

                           MR. SELIGMAN:  Okay.  That sounds like a long time. 

                 Does that trouble anyone?  If, basically, you moved towards a

                 system where outside of a mandatory minimum, if you had

                 pilots, there would have to be filing with the SEC? 

                           MS. FRIEDMAN:  It doesn't mean a competitor can't


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                 come in and immediately create a comparable product.  It just

                 means that --

                           MR. SELIGMAN:  I understand that. 

                           MS. FRIEDMAN:  -- the SEC doesn't have regulatory

                 oversight. 

                           MR. COLBY:  There's, sort of, two questions on

                 filing, if you will, pilots.  The first is the process of

                 getting something that's filed through the Commission.  The

                 second is the fact of telling people there is a pilot

                 running.  Should those things be split? 

                           What really gripes me when I go to the phone

                 companies finding out that there was a better rate that I had

                 no idea I failed to ask for, and so I'm the fool on the block

                 because I should have asked for this better rate, but they

                 never told me about it, and I wasn't smart enough to ask. 

                           MS. FRIEDMAN:  Well, first of all, I would argue

                 that -- well, I would agree.  Disclosure of fees and what the

                 pilot is and who it's available to I think is important, and

                 certainly, if we were to create a data product we'd want to

                 get that disclosure out there to try to bring customers in. 

                           But filing it is quite a different matter, a very

                 different matter.  You could actually have a negative comment

                 and, you know, things that really could prevent you from even

                 to move forward.  So being able to get it out there and build

                 customers and show that it's equitable and make sure we work


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                 out pricing issues and make sure that it's out there and, of

                 course, disclosed, I think that's a very appropriate way for

                 an SRO to act in a competitive environment. 

                           MS. DWYER:  Doesn't the filing requirement adhere

                 to the SRO so as Nasdaq becomes more of a pure market, pure

                 vendor separated from the SRO functions you'd have less of a

                 concern about the fees that they charge for this, sort of,

                 off-market product?  You could think about not overseeing

                 fees for market data products other than the mandatory

                 minimum.  And if did you oversee it, on what basis would you

                 oversee it. 

                           MR. COLBY:  I'm sorry.  I'm going to be maybe

                 repeating myself now.  Do have you to notify publicly that

                 there is this pilot being run?  Another is do you have to

                 file it?  The third is the level of review.  The statute

                 doesn't -- it just talks about these standards for

                 information with respect to quotations and transactions in

                 securities.  It doesn't differentiate between this and that

                 and this and that. 

                           But the pilots right now, they run -- as I

                 understand them, they run privately -- not discriminatorily,

                 but you have to know that there's a pilot going on in order

                 to know that there might be a rate that you might be entitled

                 to if you were to ask for it. 

                           MR. QUICK:  This is something that was -- I think


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                 DTTC was very mindful when they recently announced their deal

                 with Nasdaq Europe in terms of, you know, while they had

                 worked on something with Nasdaq specifically to facilitate

                 the clearing of transactions that will take place on Nasdaq

                 Europe that there were other members of DTTC, New York, AMEX

                 and everyone else that they certainly wanted to let them know

                 that they would help them in any way they want on any

                 overseas project. 

                           So likewise, with this, I'm not sure it should

                 necessarily be filed for an approval process but more filed

                 for a public notification that it's, in fact, out there with

                 some kind of time limit on how long that pilot can be out

                 there for, let's say, a year before it needs to go for, you

                 know, a permanency. 

                           MS. FRIEDMAN:  Can I ask why -- why would it ever

                 need to be filed for approval? 

                           MR. QUICK:  Because it would be a fee. 

                           MS. FRIEDMAN:  It could be a new product.  It could

                 be a fee structure.  SROs have a general obligation to

                 provide fair and equivalent access to their information, so

                 the fee -- if there's a pilot, it's applied to all.  Maybe

                 there is a disclosure requirement through notice to members

                 or through a public document, but why would it ever need to

                 be approved -- I'm talking enhanced state, not mandatory

                 minimum.  Why would it ever need SEC approval? 


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                           MR. QUICK:  I'm just looking at the pilot that

                 we're running now for the broadcast, and that is something

                 that we envisioned --

                           MS. FRIEDMAN:  Is that for the mandatory minimum

                 information?  Because I would agree that the pilot for the

                 non-professional level one fee that we currently have running

                 eventually should be filed and approved.  But that's

                 mandatory minimum information. 

                           MR. COLBY:  I'm sorry.  Everyone is getting tired,

                 so I -- if there's market power, there's market power not

                 just for the mandatory minimum but for the enhanced data.  So

                 if that's a concern and it's not addressed any other way,

                 then the point of filing is so the people can comment on the

                 rates that are set for information that -- where the SRO

                 operates market power. 

                           MS. FRIEDMAN:  But wouldn't you argue that in a

                 totally voluntary data product, meaning that they can choose

                 to take or not, they can choose to -- it's not mandatory for

                 best execution or to comply with any rules.  Then, it's

                 voluntary.  Wouldn't supply and demand determine the proper

                 pricing? 

                           MR. JOHNSON:  Supply and demand will determine the

                 pricing, but I think you're illustrating perfectly how market

                 power can work in a situation.  Now, this may be more market

                 power than we're comfortable with, and that's okay.  I'm not


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                 saying necessarily has to regulate it. 

                           But I think that what you're illustrating,

                 certainly over this time period two years seems like a long

                 time, but let's say over the two-year time period you're able

                 to price discriminate across customers.  So you would offer

                 different deals to different people. 

                           MS. FRIEDMAN:  That's not what I would --

                           MR. COLBY:  Let's take an example.  Once an --

                 becomes an exchange, the mandatory minimum is the best bid

                 and offer of the single best dealer quote --

                           MS. FRIEDMAN:  NBBO. 

                           MR. COLBY:  The NBBO of Nasdaq.  So Level 2, as we

                 know it, would then be all enhanced data, right? 

                           MS. FRIEDMAN:  Right. 

                           MR. COLBY:  So we're talking about whether that

                 sort of Level 2 enhanced data is the sort of information that

                 shouldn't be filed and approved.  Right?  That's what we're

                 talking about. 

                           MS. FRIEDMAN:  That's one of many examples.  That's

                 one of many. 

                           MR. SELIGMAN:  Bob, let's take a second step, not

                 so much filed and approved but filed for notification. 

                 Should there be a requirement with respect to the non-

                 mandatory data that when you start a pilot or whether we call

                 it a pilot or not, there be notification of a new product, if


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                 you will? 

                           MS. DWYER:  Why would it be different for any

                 vendor or broker dealer who wanted to offer enhanced data?  I

                 mean, they wouldn't have a filing obligation today, and yet

                 the exchanges, in competing with them, presumably, would

                 retain these vestiges of the regulatory structure.  You'd

                 have to make that decision somehow. 

                           MR. SELIGMAN:  I'm posing the question is this a

                 direction we should go?  I recognize there are different

                 obligations for SROs, broker dealers, and so forth. 

                           In other words, within the mandatory data, what I'm

                 hearing, although there has not been a lot of discussion, is

                 that there seems to be some sentiment that to have filing and

                 conceivably seeking approval of pilots seems to have some

                 support or at least doesn't seem to have any opposition. 

                           Within the enhanced data framework, the question

                 that Bob posed when he talked about the telephone service

                 was, in effect, how are competitors who could use this going

                 to know about it?  Do you need a notification mechanism of

                 some sort to ensure it? 

                           MS. FRIEDMAN:  I don't think that we would be

                 opposed to a notification mechanism as long as it's not

                 saying that the -- if I were the SEC, I'd be concerned that

                 by notifying people through the Federal Register that they're

                 somehow endorsing or giving some level of -- I don't know. 


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                 Obviously not.  Just general notification we would not be

                 opposed to --

                           MR. COLBY:  -- We pay for the Federal Register. 

                 I'm not advocating anything, but --

                           MS. FRIEDMAN:  But we have other --

                           MR. COLBY:  -- notification can be done in a lot of

                 ways. 

                           MS. FRIEDMAN:  Right.  We have certain notification

                 mechanisms, too.  But in any event, we have no problem with

                 notifying people.  We have an obligation as an SRO to supply

                 data on a fair and equivalent basis, so I don't think there

                 would be concern that we would do any sort of discriminatory

                 pricing for particular participants.  It's more innovative

                 products or innovative pricing. 

                           MR. SELIGMAN:  Peter, I take it from the AMEX point

                 of view there wouldn't be any problem with a notification

                 process of some sort? 

                           MR. QUICK:  That's correct. 

                           MR. SELIGMAN:  Bob? 

                           MR. BRITZ:  No. 

                           MR. SELIGMAN:  Okay.  Let's move on.  With respect

                 to administration, there have been a fair number of comments

                 about the complexity of having particular fee arrangements

                 approved, and it's focused on a kind of prior approval

                 framework, the time for it, the number of buckets, and so


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                 forth. 

                           One level of analysis may be picking up where

                 Michael began this morning is to say that's really the

                 business of the SROs or the business of the exchanges.  We

                 shouldn't go there. 

                           Another level of analysis is to say some of the

                 discomfort with the system, if there is discomfort with the

                 system, has focused on the slowness of approval on the sense

                 that there's a complexity which frustrates people. 

                           Giving an illustration, I know Enterprise fees are

                 approved.  There are still some firms seeking Enterprise fees

                 that haven't been able to secure it yet.  The review process

                 seems to take a while. 

                           The question I want to pose with respect to this is

                 what should we recommend with respect to administration?  Is

                 it a question of greater standardization?  Is it a question

                 of focusing on the time for approval?  Is it a question of

                 just recognizing these are business realities; it's a complex

                 world?  What's the approach we should take with respect to

                 the administrative issues here? 

                           MR. QUICK:  I'm not sure what has been done in

                 terms of -- I'm sympathetic with Carrie.  She may not be the

                 average trader with four different devices, but certainly

                 with the volume of paper that any subscriber would have to

                 fill out to get access I'm not sure that the Nasdaq -- the


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                 three different networks might not be able to speak to each

                 other with permission of the SEC, of course, and if it needs

                 to standardize some kind of forms and to look at how

                 different the language is in the three different agreements

                 to make it easier to subscribe to the different data. 

                           MR. SELIGMAN:  Michael, to what extent are there

                 variations in the contracts among the three networks we're

                 talking about today? 

                           MR. ATKIN:  I don't think there's a whole lot of

                 variation, actually, in a lot of the things.  Like, there's

                 not a whole lot of variation in subscriber agreements. 

                 There's not a whole lot of variation, I think, in the terms

                 and conditions of their business policies. 

                           I guess I come at it this way, Joel:  It seems to

                 me that everybody agrees that we should standardize,

                 automate, simplify and do everything we can to make the

                 business processes smoother.  I'm just not sure what we would

                 ask the Commission to do about that. 

                           I would love to have it happen faster.  I think the

                 whole industry would.  But I'm not quite sure we would be

                 asking for except for it's a good idea, get on with it. 

                           MR. SELIGMAN:  Well, sometimes when firms in

                 competition talk to each other there are anti-trust

                 questions, so you need, in effect, the shelter, if you will,

                 of the Commission for those discussions to take place. 


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                 That's one possible issue. 

                           If what you're saying, Michael, is this is one

                 where the SEC shouldn't have a particularly proactive control

                 but should just, basically, encourage, perhaps, the three

                 networks to talk to each other to see if there is capacity

                 for greater harmonization or standardization and nothing

                 else, I can understand that point of view. 

                           MR. ATKIN:  Sit around and listen to a lot of

                 people get really frustrated with the pace of innovation in

                 terms of development and business process activities, but at

                 the end of the day I'm not sure anybody is asking for the

                 Commission to do anything about that.  I don't know.  Brian,

                 do you disagree with that? 

                           MR. McNELIS:  No.  I wouldn't disagree with it, and

                 I'm not sure either what the Commission itself would do on

                 it.  But we certainly would welcome more harmony and

                 standardization of the process. 

                           One of the things, for example, Nasdaq does not

                 require prior approval, but CTA/CQ does.  I mean, maybe, you

                 know, we could -- maybe it would just help to even get an

                 explanation as to why that difference exists. 

                           We're not sure, you know, why it's okay in one and

                 not in the other, you know, and those kinds of things.  And

                 there is just all these little things which they're probably

                 Legacy things, and maybe they just haven't been picked up and


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                 addressed. 

                           But again, whether or not the regulators need to do

                 anything I'm not clear, but certainly moving -- urging

                 everyone to try to work together to smooth the process I

                 think would certainly be a help. 

                           MR. SELIGMAN:  Is there anything more we should be

                 focusing about with respect to administration, or is it,

                 basically, we'd like to encourage greater standardization

                 but, by and large, the Commission should stay out of the way

                 and leave it to the various plans? 

                           Let me pick up, I guess, on Brian's point.  There's

                 a variance between prior approval and discretion.  That's

                 strikes me as pretty fundamental.  Should we be focusing on

                 whether there should be a recommendation that there not be a

                 approval prior --

                           MS. FRIEDMAN:  I actually thought that years ago

                 the FISD had an effort to try to standardize the contracts

                 across exchanges, and it never came to a conclusion. 

                           MR. ATKIN:  That's true. 

                           MS. FRIEDMAN:  And I believe, and I don't know why

                 because I wasn't here then --

                           MR. ATKIN:  The lawyers got involved. 

                           MS. FRIEDMAN:  Yeah.  Right.  And that will happen

                 again.  And actually, I was going to say that you get the

                 lawyers in the room, they each have their own risk profile,


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                 their own willingness to withstand certain liabilities, and

                 you're just -- I mean, I don't necessarily think it's a bad

                 idea from a private enterprise basis through the FISD or some

                 other might be organization to try to do this again. 

                           But do I believe that you're going to find that --

                 I don't think having SEC mandating any sort of

                 standardization is going to help.  I think you have to

                 determine whether each of the exchanges are willing to

                 withstand certain changes to their risk profiles or to their

                 liability and see if there is standardization that way. 

                           In terms of the prior approval, that's something we

                 could probably talk about in the context of the FISD or some

                 other private -- that's what I would suggest.  We're not

                 averse to looking at that, absolutely not.  But I don't know

                 whether an SEC mandate --

                           MR. ATKIN:  Nobody wants to volunteer for

                 regulation.  It might be conceivable that, you know, if these

                 issues get to be very frustrating and intractable, you might

                 want to be able to appeal to a higher authority, if you will,

                 to move things off the dime.  And that threat is a pretty

                 useful tool to have.  

                           "Gee, we'd better do something because we don't

                 want to be sitting in this room having Bob yell at us."  That

                 might be the extent that we might want to consider any kind

                 of government involvement, in essence, a message saying,


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                 "Good idea.  Get on with it.  Don't make us call you back

                 here" type of thing. 

                           MS. DWYER:  Just so you don't think there's

                 consensus, I'll just go back to my earlier comments that the

                 entire property right licensing process is one that I would

                 hope we could consider, the SEC could consider or

                 legislatures could consider as imposing huge costs on the

                 industry as well as our customers. 

                           MR. SELIGMAN:  I think that would be one the

                 legislature would have to consider, given the current

                 framework.  But other than that, I think we are in a

                 situation where at least under the '75 Act amendments the SEC

                 has pretty broad authority to deal with market data

                 information. 

                           I'm not sure either the Securities Act amendments

                 or the legislation itself focus precisely on property rights,

                 but they did focus on the power to regulate. 

                           MS. DWYER:  I know they did not focus on property

                 rights. 

                           MR. SELIGMAN:  I'm not hearing, unless someone

                 wants to add anything, that there's a sense that through the

                 question of administration of a system that people at this

                 table want to make recommendations beyond the kind of

                 Michael's cheerleading that we'd like to see greater

                 standardization.  


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                           We think the industry can do it.  Perhaps we could

                 even go further and say there has been some new databases

                 with respect to contract policies, and so forth. 

                           The SEC, regardless of what we say always retains a

                 residual authority given the current statute.  But I don't

                 get the sense that people think that's one that's going to

                 make a significant practical difference. 

                           MR. ATKIN:  Actually, Carrie, if you don't get --

                 if intellectual property rights doesn't get addressed

                 correctly, would there be anything else that you could think

                 of that we'd want to use this process for? 

                           MS. DWYER:  To use this committee's process for? 

                           MR. ATKIN:  Well, the authority of the SEC, I guess

                 is the process we're talking about here. 

                           MS. DWYER:  Well, I mean, we filed a petition a

                 couple of years ago talking about the administration of the

                 process as imposing -- as being unreasonably discriminatory,

                 and for the reasons we talked about this morning, reason to

                 get into how the contract process is administered was to

                 illustrate the incredible amount of discretion in terms of

                 use, users, technology, and so forth, that the markets have,

                 which puts them in a very difficult position when they were

                 competing against their members, in some cases, and wielding

                 sole-source monopoly power. 

                           I mean, to me, that's the issue.  It has been the


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                 issue for several years now.  We don't appear to be moving

                 forward to resolve that issue here, but I think that the way

                 the structure is set up, the way it's administered is

                 discriminatory, and we just keep making that point. 

                           MR. SELIGMAN:  In the May 14th meeting, we will

                 have a shot at a very different approach, and we will see if,

                 in effect, the proponents of the different approach can sell

                 it to the committee.  At the very least, in one form or

                 another, it's clearly going to be articulated in a final

                 report. 

                           Let's just deal with one more, then.  I know in

                 Don's subcommittee there was a fair amount of discussion of

                 the way in which market information is validated, and so

                 forth.  Clearly, when we get to our last meeting and focus on

                 options there will be a fair amount of concern with respect

                 to capacity issues which have been much on the mind of the

                 options markets. 

                           We've talked here from time to time about

                 competitive bidding.  Eric is skeptical at this point it will

                 make a practical difference.  It will clearly be an issue

                 we'll discuss in an ultimate report.  There were several

                 proponents of it.  Indeed, I think there were a majority, if

                 we retain the current system, who favored it. 

                           Above and beyond competitive bidding as one

                 approach within the structure, the question could be posed if


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                 we need minimum technological and data quality standards, who

                 should set them?  Is this a role where we, basically, defer

                 to either the current CTA/CQ, Nasdaq UTP and just, basically,

                 take a cheerleader role?  Is this one where the SEC should

                 have a more active role?  What's the sense of this group? 

                           MS. FRIEDMAN:  We were talking a little bit about

                 that in the multiple consolidator model, and we've been

                 talking about who, kind of, setting the standard for these

                 consolidators.  I would argue that in a single consolidator

                 world where you have a plan of SROs that they should have the

                 ability to set the standard as a collective group because

                 they're the ones who have to make sure the data gets out

                 there. 

                           It's their revenue at stake.  It's their integrity

                 at stake, and it's their, kind of, image as a market as

                 stake.  So I believe that it really should be a collective

                 decision among the SROs in terms of technological

                 capabilities of a processor.  I do think there are a lot of

                 flaws in that, and I would like to hear Paul O'Kelly's view

                 because I think he sits on the other side of the table at a

                 lot of these various meetings.  But I don't see a better

                 approach.  I don't think it's perfect. 

                           MR. O'KELLY:  Well, I don't see a better approach

                 either, but I could also address this question from the CTA

                 side of things which has a little bit more history to it than


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                 our what amounts to a partnership that we have had rather

                 than, kind of, a robust OTC/UTP program. 

                           The CTA plan setting the standards for SIAC to meet

                 seems to have worked well over these 25 years.  I've heard

                 lots and lots of criticism of lots and lots of things.  This

                 is one area where I've heard no criticism.  It has worked

                 well, and so I don't see a need at this point for the SEC or

                 anybody else to get involved in setting the standards that

                 SIAC is supposed to meet. 

                           It seems to have worked well.  It's one of the

                 things that we easily agree on within CTA.  Everyone has, as

                 Adena is saying, kind of a very common interest in making

                 sure that this data is collected and put out in a quality,

                 timely fashion. 

                           With respect to the OTC/UTP plan, this could --

                 this issue of setting the standards will probably be looked

                 at in a slightly different fashion once Nasdaq no longer is

                 the SIP for the program.  Because as it's one of the

                 competitors of the other participants in the OTC/UTP program,

                 you'll have concerns about where Nasdaq is spending its

                 resources. 

                           And if it's spending them on a joint effort rather

                 than a singular -- if the choices are spending them on a

                 joint effort rather than a singular effort, you will always

                 have some concern over that.  That's not a criticism.  That's


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                 just a natural human reaction to things.  

                           As we move to independence, I think that will

                 ameliorate a lot of those concerns, and the process I expect

                 will work just as well as it does in the CTA today where

                 everyone has the same common interest in making sure that the

                 quality of the data and the capacity of the system works

                 well. 

                           MR. SELIGMAN:  My sense is where this really

                 becomes an issue would be in a multiple consolidator system,

                 and that's one I take it Don's group is going to take a look

                 at.  But as long as we're dealing with what we've referred to

                 as an exclusive consolidator issue, there just doesn't seem

                 to be one. 

                           All right.  So where are we?  We've now met for

                 four meetings.  We, basically, have evolved towards two

                 approaches.  The approach we've, in effect, exhausted today

                 has been if we make incremental changes in the current system

                 what we seem to have agreed with so far has been at least a

                 tentative conclusion would keep an NBBO but have, in effect,

                 a more free market approach with respect to all other data. 

                           A least a tentative conclusion that there seems to

                 be, I believe, a majority -- and I can't remember precisely

                 how large -- would favor a more competitive bidding approach

                 towards selection of the processor. 

                           There seemed to be in the governance area some


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                 sense of the wisdom of increasing participation by those who

                 are not at the table through some sort of advisory committee. 

                 And by and large, when we look at other issues that have been

                 on the table, while there has been a fair amount of

                 discussion there hasn't been, I think, a consensus that has

                 evolved for any of them. 

                           That is, if we were just taking the current system

                 and going forward with it, we've got a low-risk kind of

                 approach.  It's one where we may have learned a good deal

                 about the complexity of the arrangements and more sense of

                 the history. 

                           Our other approach we'll get to on May 14th, and

                 the other approach is what's called the brave new world

                 approach.  It will, at a minimum, be an analysis of multiple

                 consolidators.  It will undoubtedly have discussion if not a

                 recommendation that there be recision of the NBBO or a

                 different framing of the NBBO. 

                           And I think when we get to that alternative the

                 point that Simon emphasized today needs particular attention. 

                 And Don, in preparing for it, you may want to focus on this. 

                 The incremental approach seems relatively low risk,

                 recognition that technology -- some question about fee

                 levels, but by and large the ways to address it were

                 proposing don't sound as if they're going to threaten the

                 operation of the system in any systematic way. 


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                           In contrast, the alternative proposal I think there

                 has to be a very careful analysis of what the risks are.  I

                 think there has to be a very careful analysis of how the

                 proponents would address them, and I think that will be part

                 of our meeting on the 14th. 

                           My anticipation is that the final report is,

                 obviously, going to include discussion of both.  I think, in

                 effect, we are going to be teeing up to the Commission a menu

                 with at least two items, two very different types of dinner,

                 if you will, that they can savor. 

                           In July, we'll take a look at what we have just

                 totally put to one side to date which is the options market. 

                 By then, we will have circulated perhaps several times drafts

                 of a report on the equity side, and we'll begin to be

                 receiving your input on that. 

                           And you'll find that there will be amplifications

                 that you're going to want to make to certain points.  I think

                 it's safe to say we don't all agree on every point that we've

                 discussed in the four meetings, and there will be obvious

                 recognition of when there are dissenting or contrasting views

                 in the document.  We'll capture it one way or another. 

                           That's where we are at this point.  The only

                 question before I turn to the public and ask if there's any

                 comment is do any of you want to comment further?  Are there

                 any other thoughts that the members of the committee would


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                 like to offer?  Mike. 

                           MR. ATKIN:  Just one quick question.  You said kind

                 of a free market approach to other data in the incremental

                 approach.  Have we given any consideration to what the fee

                 oversight process is for non-mandatory minimum data?  

                           Just to give you an example, if the New York Stock

                 Exchange decided to come up with a volume-weighted average

                 price, an official exchange -- and they wanted to disseminate

                 that, would that be -- how would the access to that kind of

                 stuff work, and how would the fee oversight process to that

                 kind of stuff work?  Would that be completely free market?  I

                 mean --

                           MR. COLBY:  From a statutory standpoint, the

                 production by an exclusive processor of information with

                 respect to transaction and quotations is subject to the

                 standards of fair and reasonable charges and not unreasonably

                 discriminatory.  So it's the exact same fee standard. 

                           MR. ATKIN:  It's the same process that would file

                 with the Commission --

                           MR. COLBY:  Yes.  Yes, it is.  That's right.  

                           MR. SELIGMAN:  There would be no delineation,

                 however, by the Commission of how these new structures would

                 work.  The Commission clearly, in its interpretations of

                 "fair and reasonable" and "not unreasonably discriminatory"

                 is given an awful lot of scope under the current system and,


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                 presumably, there would be even greater flexibility in how it

                 could be charged. 

                           I will add one point, and it's worth not losing

                 track of, if at the end of the day the Commission decides it

                 wants the more incremental approach but you have a lot of new

                 products developed on the free market side, you may find this

                 a halfway house towards a new system that will evolve over

                 time. 

                           You may find that fears about market power will not

                 seem as significant if you don't see the fees dramatically

                 change, if you see them appear competitive or similar, if you

                 will, to where the mandatory minimum side of it is. 

                           That said -- Mark? 

                           MR. MINISTER:  Yeah.  I did want to go on record --

                 I think we passed by it -- stating that I do feel that this

                 discrimination between professional and non-professional

                 users is very great.  I personally do think it is a subsidy

                 paid by the professional users, but I think that the single

                 consolidators and the vendors represented here take great

                 comfort in Andy Brooks' comment that he couldn't live without

                 the data and would pay any amount for it. 

                           So even though I object to the difference, I don't

                 think it's going to matter in the long run because the

                 professionals aren't objecting. 

                           MR. SELIGMAN:  This is a public process.  If anyone


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                 in the room would like to pose questions, make a comment,

                 this is a good time to do it.  I don't see the public

                 clamoring to speak today.  That said, we're adjourned until

                 May 14th. 

                           (Whereupon, at 3:49 p.m., the proceedings were

                 adjourned.)

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