Opinion ID: 476815
Heading Depth: 2
Heading Rank: 2

Heading: Market Maker Use of the Query Function

Text: 40 NASD's second basic argument is that the SEC erred in ruling that the Level 2/3 query function is not integral to the process of collecting quotations because market makers must use the function before entering new quotations into the NASDAQ system. Market makers cannot update quotations without knowing the bids and offers of other market makers, NASD explains, and the only way for them to obtain this information is through the Level 2/3 query function. This argument was set forth in NASD's first request for reconsideration of the April order, and we think it was properly rejected by the Commission. As stated by the Commission: 41 While NASDAQ now may be the primary source for market makers to inquire as to the full quotation stream in a stock, there is no reason why that has to hold true for the future, especially after the NQDS is expanded to cover all NASDAQ securities and other vendors offer services in competition with Level 2. 42 November order, 49 Fed.Reg. at 45,284. 43 NASD objects that this conclusion is contradicted by a number of affidavits submitted by it in connection with its first request for reconsideration of the April order. 2 In these affidavits, market makers state that they currently rely on the NASDAQ query function in updating quotations and that they do not expect to ever rely on a query service provided by competing vendors such as Instinet. NASD asserts that these affidavits were the only evidence in the record concerning the ability of market makers to update quotations in reliance on competing vendor services and that the Commission cited no evidence in support of its conclusion that market makers could rely on such competing services. NASD therefore claims that the Commission's conclusion is unsupported by substantial evidence and must be reversed. 44 We disagree. The Commission was not required to cite record evidence for the self-evident proposition that market makers no longer have to rely on the Level 2/3 query function for current market information now that Instinet's competing service is available. That some, most, or even all market makers do not use the Instinet service does not mean that Instinet subscribers may be forced to subsidize the query service used by those market makers. Market makers now have a choice of query services; those that elect to use NASDAQ service must bear the costs of that service, just as Instinet subscribers must bear the costs of Instinet service. We can discern no error in the Commission's determination on this issue.