Madoff Public Commentary in SEC filings

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MADOFF: Our firm has made a, you know, fairly 13 decent living as a fast market competing with a slow market, 14 so I'm not sure that it's in our own best interests to have 15 everyone on a fast market but, since our good Chairman has 16 asked us all to take off our selfish hats and speak for the 17 public good, I'm going to try to do that. ...
MADOFF: Our firm has made a, you know, fairly 13 decent living as a fast market competing with a slow market, 14 so I'm not sure that it's in our own best interests to have 15 everyone on a fast market but, since our good Chairman has 16 asked us all to take off our selfish hats and speak for the 17 public good, I'm going to try to do that. ... If you were in a situation just 21 looking at the NASDAQ world today, which is operating without 22 a trade-through rule, which is a fast market, I don't think 23 this discussion would be taking place for the most part. ... 7 But the ECNs who don't really have their own 8 capital that they can put into play, they are just 9 representing customer orders, they cannot make capital 10 commitments and therefore, do not protect orders in a 11 marketplace, and that's why it makes it very difficult for 12 them to compete in an area where there's a trade-through 13 rule. 14 And if you look at the fact that they were able to 15 successfully compete in the NASDAQ market where there isn't a 16 trade-through rule and it's fast market against fast market, 17 you're now asking them to compete with a slow market that has 18 a trade-through that doesn't allow that to take place. ... 21 If you want a clear example of the difficulty of 22 having a fast market compete with a slow market and not 23 having chaos with a rule that says they can't trade through 24 it, you just have to look at the AMEX trading of ETFs with 25 the NASDAQ marketplace. When it first happened, and I can 65 1 tell you as a very active player in the ETF world, it was 2 sheer chaos the first few days when you allowed trading of 3 ETFs on both the AMEX and in the NASDAQ marketplace where you 4 had a clear example of a slow market competing with a fast 5 market. ... I know of no reason why slow markets today, and let's 9 talk about the New York because that's basically what we're 10 here to talk about, if they automated their marketplace, 11 which they certainly have the capability to do, and probably 12 will do, then, and you -- you said that there was a 13 trade-through rule that you could not, fast markets could not 14 trade through other fast markets, we would support that. ... I just 24 want to know that when I see a quote, that that quote is 25 immediately accessible and the only way that that quote will 66 1 not be accessible to me would be if another automatic 2 execution takes place before mine. 3 If I'm going to send an order to a marketplace and 4 someone is going to be able to take that order, hold it up 5 for 30 seconds or even five seconds, show it to other orders 6 that are in the crowd who are going to get a second look, 7 that's not fair. ... But you cannot have an order go down to a 15 marketplace in an automatic fashion and then once it arrives 16 at that marketplace, manual intervention takes that order and 17 then delays the execution of that order because, while that 18 process is going on, even if it might afford a better price 19 to the order that is currently shown in that marketplace as a 20 quote, I may very likely and probably will miss executing 21 that order, and then the order that is below that price will 22 no longer be there because those orders come and go, you 23 know, literally before you can blink your eye. ... 2 Now, to deal with the opt-out issue, I believe that 3 there should be an unfettered opt-out of a slow marketplace 4 because, as a practitioner in the marketplace, it's very 5 important for me to have a rule that I can comply with. ... And the opt-out has to be unfettered because I 14 have concerns that even with this one, two and three cents 15 ban that you are proposing, because in a marketplace that 16 takes place today, these prices flicker and I don't know 17 whether a spread that is three cents, when I decide to opt 18 out, may be two cents, you know, by the time I press that 19 button. 20 So it sounds simple to -- and I'm not sure how much 21 compliance there is, even with the three cent de minimis ban, 22 and -- I mean, somebody here, I guess Bob Greifeld, said the 23 problem is going to be how do you surveil, you know, all of 24 these -- all of these issues. ... 3 I would like to start with the premise that most of 4 the practitioners in our industry come in to their firms in 5 the morning saying they want to comply with the rules, they 6 want to do what is best for their client. ...I would also like to say that I think the 19 industry and investors would be very well served if all of us 20 that are participants in this marketplace focused in on what 21 we think is the right thing for the investor and for the 22 market, overall. ...The proposed requirements for such an "opt-out" of 'hon-automated oder execution facilities should only be governed by the fiduciary requirements of "best execution". http://www.sec.gov/rules/sro/ise/ise200601/ibg021006.pdf Firms pro\.iding x~oluntary price improvement on an exclusi~e basis to their customers or to customers of their affiliates use it as a marketiilg ad~antage to gain customers and nlarket share. ... http://www.sec.gov/rules/proposed/s71004/blmadoffinv020305.pdf We applaud the Commission’s proposal to limit protection to only those quotes that are immediately and automatically accessible through automatic execution, with no human intervention in the process. Under the proposal’s definition, a trading center’s quotation may not be deemed automated unless the trading center: (1) immediately and automatically executes an incoming order up to the quotation’s displayed size and cancels any unexecuted portion of the order; (2) immediately and automatically sends a response to the sender of an order indicating what action has been taken with respect to the order; and (3) immediately and automatically updates it’s quotation to reflect any change in its terms. ... For the reasons set forth below, we respectfully request that the Commission review and reconsider their position in this context, and revise the trade-through rules or interpretations accordingly. http://www.sec.gov/rules/extra/s72303comsum.pdf One argument submitted was that the proposed bid test failed provide market makers with the ability to fulfill best execution obligation with respect to price and timeless of customer buy orders. ... We are not clear as to whose tax identification number it means to cover - the employee's or the employer's; we oppose the suggestion that execution times or order sequence numbers should be captured in EBS because we believe that it would be inordinately expensive, and possibly entirely unfeasible in some situations, to capture this information in a central electronic data base; and the proposal should be modified in some respects to better correspond with current accepted practice in complying with the EBS requirements of self-regulatory organizations. http://www.sec.gov/rules/concept/s71697/langley1.htm A.

http://www.sec.gov/comments/s7-21-06/dpatch6879.pdfMarket makers are provided the naked short exemption for bona fide market making activities and are provided these exemptions regardless of whether the market is a declining or advancing market. Thus, the SEC has provided legal grounds to deliberately depress the price of a security for leverage and profits. Elimination of this law will only increase those investors with this would be legal trading strategy.
In fact, in response to the Commissions consideration to eliminating the grandfather clause, market makers responded with concern stating "This [eliminating grandfather clause] is going to have a serious impact on our ability to make markets," Mark Madoff, co-director of trading at the family-owned Bernard
L. Madoff Investment Securities.
Madoff’s comments imply that market makers rely on the leverage gained by naked short selling, and the delays in the settlement process that comes with such trades, to turn profits and minimize risk. Providing further leverage beyond settlement delivery by allowing the short selling (naked or otherwise) to take place into a declining market and into a down tick will be a recipe for disaster. What leverage is available today has just been increased at the expense of the issuer and the long investor.
As the Commission considers all the positive and negatives of this proposed reform, consider one last thing:
Wall Street is not stupid. The Commission clearly and publicly identified that this pilot was to test what would happen should these restrictions be removed. The Commission identified the issuers involved in the test and Wall Street

http://www.sec.gov/spotlight/regnms/nmstrans042104.txt

12 MR. Madoff: Our firm has made a, you know, fairly

13 decent living as a fast market competing with a slow market,

14 so I'm not sure that it's in our own best interests to have

15 everyone on a fast market but, since our good Chairman has

16 asked us all to take off our selfish hats and speak for the

17 public good, I'm going to try to do that.

18 I agree a little bit with what everybody has said

19 here. And I think that really this debate comes down to fast

20 markets vs. slow markets. If you were in a situation just

21 looking at the NASDAQ world today, which is operating without

22 a trade-through rule, which is a fast market, I don't think

23 this discussion would be taking place for the most part.

24 I think what's triggered it is that you now have a

25 lot of fast markets represented primarily by ECNs that are

64

1 trying to compete with what is a slow market. We have

2 accomplished that by putting our own capital at risk and

3 being willing to protect limit orders and trade-throughs from

4 taking place because we do operate in an environment that has

5 a trade-through rule. In the NASDAQ market, we don't have

6 that issue.

7 But the ECNs who don't really have their own

8 capital that they can put into play, they are just

9 representing customer orders, they cannot make capital

10 commitments and therefore, do not protect orders in a

11 marketplace, and that's why it makes it very difficult for

12 them to compete in an area where there's a trade-through

13 rule.

14 And if you look at the fact that they were able to

15 successfully compete in the NASDAQ market where there isn't a

16 trade-through rule and it's fast market against fast market,

17 you're now asking them to compete with a slow market that has

18 a trade-through that doesn't allow that to take place. So

19 the ECNs, you had to give them the de minimis exception to

20 enable them to function there.

21 If you want a clear example of the difficulty of

22 having a fast market compete with a slow market and not

23 having chaos with a rule that says they can't trade through

24 it, you just have to look at the AMEX trading of ETFs with

25 the NASDAQ marketplace. When it first happened, and I can

65

1 tell you as a very active player in the ETF world, it was

2 sheer chaos the first few days when you allowed trading of

3 ETFs on both the AMEX and in the NASDAQ marketplace where you

4 had a clear example of a slow market competing with a fast

5 market.

6 In reality, if you made all markets become fast

7 markets and -- up to certain share size, this issue goes

8 away. I know of no reason why slow markets today, and let's

9 talk about the New York because that's basically what we're

10 here to talk about, if they automated their marketplace,

11 which they certainly have the capability to do, and probably

12 will do, then, and you -- you said that there was a

13 trade-through rule that you could not, fast markets could not

14 trade through other fast markets, we would support that. I

15 can see no justification for one fast market trading through

16 another fast market.

17 You asked for a definition of a fast market, Mr.

18 Chairman. My definition would be, which other people I think

19 have already echoed, is that an immediately accessible or an

20 automatically accessible market. It doesn't have to be under

21 a second. Our average execution speed is clearly under one

22 second for almost 99 percent of our executions. I don't need

23 to go down to milliseconds, picoseconds and so on. I just

24 want to know that when I see a quote, that that quote is

25 immediately accessible and the only way that that quote will

66

1 not be accessible to me would be if another automatic

2 execution takes place before mine.

3 If I'm going to send an order to a marketplace and

4 someone is going to be able to take that order, hold it up

5 for 30 seconds or even five seconds, show it to other orders

6 that are in the crowd who are going to get a second look,

7 that's not fair.

8 If you want to encourage people to put orders into

9 quotes, which is really what this is all about, you cannot

10 allow them to get a second look at an order.

11 I'm not going to get into the data of CLOB because

12 that's not why we're here, and I don't think that's

13 necessary. In any event, I think competition levels that

14 playing field. But you cannot have an order go down to a

15 marketplace in an automatic fashion and then once it arrives

16 at that marketplace, manual intervention takes that order and

17 then delays the execution of that order because, while that

18 process is going on, even if it might afford a better price

19 to the order that is currently shown in that marketplace as a

20 quote, I may very likely and probably will miss executing

21 that order, and then the order that is below that price will

22 no longer be there because those orders come and go, you

23 know, literally before you can blink your eye.

24 So the way to solve this issue is force all market

25 centers up to a certain share size to become automated.

67

1 Otherwise, you can opt out of that market.

2 Now, to deal with the opt-out issue, I believe that

3 there should be an unfettered opt-out of a slow marketplace

4 because, as a practitioner in the marketplace, it's very

5 important for me to have a rule that I can comply with. I

6 don't want a rule that I cannot properly comply with. And I

7 cannot comply with a rule unless there are linkages in place,

8 whether those markets are accessible, and they are accessible

9 at a fair price which I guess we'll discuss at the next --

10 the next panel.

11 So as far as opting out is concerned, you cannot

12 force fast markets, you know, to not be able to opt out of a

13 slow market. And the opt-out has to be unfettered because I

14 have concerns that even with this one, two and three cents

15 ban that you are proposing, because in a marketplace that

16 takes place today, these prices flicker and I don't know

17 whether a spread that is three cents, when I decide to opt

18 out, may be two cents, you know, by the time I press that

19 button.

20 So it sounds simple to -- and I'm not sure how much

21 compliance there is, even with the three cent de minimis ban,

22 and -- I mean, somebody here, I guess Bob Greifeld, said the

23 problem is going to be how do you surveil, you know, all of

24 these -- all of these issues. That's a very difficult

25 situation and I genuinely believe that most practitioners in

68

1 the marketplace want to comply with the rules. They are not

2 trying to disadvantage anybody.

3 I would like to start with the premise that most of

4 the practitioners in our industry come in to their firms in

5 the morning saying they want to comply with the rules, they

6 want to do what is best for their client. I don't think

7 anybody is trying to opt out of an execution that they think

8 they could really get.

9 So those are the issues that I think are important

10 to dealing with in any rule proposal that you may make.

11 Thank you.

http://www.sec.gov/spotlight/marketstructure/mkts102902-hrg.txt

5 Bernie Madoff?

6 MR. Madoff: Good morning. I'm Bernie Madoff from

7 Madoff Securities. These are very difficult issues, and I

8 have been participating in -- in this process for certainly

9 close to 30 years of the 40 that I've been in the industry.

10 And I would like to thank the Commission for establishing

11 this type of forum.

12 I would encourage the Commission to not give up on

13 the industry's role in helping to participate in solving the

14 problems that we are constantly facing. That being said, I

15 think the Commission plays a pivotal role. And, as Rick

16 Ketchum said, the only way that these issues will ever hope

17 to be resolved is with the active participation of the SEC in

18 this process. I would also like to say that I think the

19 industry and investors would be very well served if all of us

20 that are participants in this marketplace focused in on what

21 we think is the right thing for the investor and for the

22 market, overall. And I've never been sure that those are two

23 related issues. And to lay aside the individual marketing

24 and the individual self-interest that the various market

25 participants all have in this whole issue.

1 So this is a difficult process. I'm sure it's --

2 it'll be ongoing. And I think this is a great opportunity

3 for all of these issues to be aired. So thank you for having

4 this function.

http://www.sec.gov/litigation/aljdec/id112mcb.txt

By executing trades with customers at the NBBO and then trading for
its own account on the third market, which in some cases offered prices
better than the NBBO, PMC was able to take advantage of a process called
price improvement. Bernard L. Madoff Investment Securities ( Madoff ),
with which PMC effected approximately eighty percent of its principal
trades,<(6)> offers price improvement by holding the order and
guaranteeing the price at NBBO, while attempting to obtain a better price
for sixty seconds if the spread between the consolidated national best bid
and offer is greater than $1/8. (Tr. 335-36, 341-42, 554.) Should a
better price occur in the market, through entry of a quote at that price or
an actual transaction during the pending sixty seconds, then the customer
receives the better price. (Tr. 341-42.) If a better price does not
occur, the customer receives the NBBO as guaranteed at the time the order
was placed. (Tr. 343.) Over fifty percent of those transactions which
qualify for price improvement result in Madoff s customers receiving a
price better than NBBO. (Tr. 346-47.) When PMC traded as an agent, its
client received the benefit of any price improvement in transactions
executed with third market dealers, but when PMC traded as principal it
took its client s opportunity for price improvement. (Tr. 297-98, 424-25.)
PMC disclosed to its clients only that it would be acting as a principal,
not that it would profit thereby because as Respondent Geman testified at
the hearing in this matter, I ve never run across a single individual . .
. who didn t understand that when you act as principal it means you re
either going to make money or lose money. So we disclosed that we act as
principal. We didn t have another phrase on that that said that means we
make or lose money. (Tr. 309.)

http://www.sec.gov/rules/proposed/s71004/s71004-587.pdf

11. Introduction

Once considered a radical practice but only a minor source of inefficiency, payments for

order flow -agreements by which dealers offer monetary rewards or other non-pecuniary

services to brokers in exchange for the routing of retail market bid or ask offers116 -have

become a core regulatory concern. The controversy became prominent in 1993, when Madoff

Investments mysteriously garnered 10% of NYSE-listed volume through a legal "kickback"

scheme that permitted brokers to increase personal revenues without obtaining the consent of

their clients.'I7 The practice spread rapidly and the routine soon became formulaic: Rather than

actively pursuing opportunities to improve upon the quoted spread, as specialists on an exchange

With regard to the latter, while brokers may change their pricing option, they must provide their clients with 90-

days notice in order to prevent any confusion.

'I6 Chordia, Tarun and Avanidhar Subramanyam. "Market-Making, the Tick Size, and Payment for Order Flow:

Theory and Evidence." The Journal of Business Oct. 1995, Vol. 68, Iss. 4. pp. 543.

'I7 Vise, David A. "A Broker and the Angry Exchanges: Bernie Madoff s Stock Buying Rivalry Irks NYSE,

AMEX." Washington Post 14 Apr. 1993. F1.

http://www.sec.gov/rules/concept/34-49175.htm#P263_75032

73 See ONLINE TRADING In Slow Times, Net Brokers Look For New Revenue, Investor's Business Daily, Section A, p.5 (August 3, 2001): "Under decimals, the smallest spread between the bid and offer price for a stock is now just a penny. Prior to the Nasdaq's switch to decimals in April, spreads were at least 1/16, or .0625, of a dollar. That smaller spread is eating into the profit of market-makers like Knight Trading Group Inc. That's forced them to cut back on a practice called payment for order flow. In return for a commitment to send Knight much of their customers' orders, Knight has been paying brokerages up to a couple of dollars on each trade. Now that they're struggling to remain profitable, market-makers can't afford to pay out as much." See also comments of Bernard L. Madoff, Bernard L. Madoff Investment Securities LLC, at SEC Market Structure Hearing, October 29, 2002: "I remember everybody saying ban payment for order flow. They're still saying ban payment for order flow. We don't even pay for order flow any longer, although we're considering going back to paying for order flow. [A]ll of these things are constantly resurfac[ing]."

http://www.sec.gov/rules/proposed/s71004/testimony/Madoffs71004.pdf

Madoff Securities has held a long-standing position that the integrity of the quote is

instrumental to the efficient functioning of a national market system ("NMS''). Investors

must be assured that regardless of where their orders are routed, they will be in a position

to reap the benefits of the NMS. It is our belief that the foundation of this system should

be that publicly displayed quotes are firmand accessible. The best way to insure this

result would be to require all "quoting" market centers to employ an automated order

execution faci.lityY'for "inter-market" orders, Furthermore, effective linkages,both

public and private, must be jn place and the price displayed must truly reflect the actual

cost oftrading.

In the absence of a mandatoxy automated order execution facility for all "quoting market

centers", it is critical to the success of any "trade-through"proposal that those markets

unwilling to implement such a mechanism be designated as a "non-automated"order

execution facility, subject to an unfettered "opt-out". The proposed requirements for such

an "opt-out" of 'hon-automated oder execution facilities should only be governed by the

fiduciary requirements of "best execution".

http://www.sec.gov/rules/sro/ise/ise200601/ibg021006.pdf

Firms pro\.iding x~oluntary price improvement on an exclusi~e basis to their customers or to customers of their affiliates use it as a marketiilg ad~antage to gain customers and nlarket share. See, e g., Website of Bernard L. Madoff In~estment Securities LLC ("Madoff')("The hallmarks of our system are price improvement, speed, and enhanced liquidit) delivered with a level of client sen ice that sets us apart from our competitors. Madoff utilizes a market based. algoritlimic approach to defining price improvement and enhanced liquiditj-."). There l~as i~e\~er

been any suggestion that such marltet malters must accept price impro\ elnent orders or pro\-ide ~oluntarl price improvement to competitors or to customers of competitors. To require that market malters price improx,.e orders from competitors' customers 011 an equal basis with orders from their own customers 1%-ould elimiilate the \ erj7 purpose of these price improvement programs.

Indeed in this respect price improvemeilt is similar to payment for order flow. Both payment for order flolv and price irnpro\lemelit come from the sanie source of funds -namely, "extra" profit that a specialist or market rnalter realizes in a securities transaction by virtue of the bid-ask spread. A marltet Inalter may voluntarily rebate some of this "extra" profit back to the customer by giving a fill at a price better than the Firm Quote -in which case it is called price impso\-emeizt. Or a nlarket maker may voluntarily rebate some of this extra profit back to the broker that sent the order -in \~hich case it is called payment for order flo~v.

http://www.sec.gov/rules/proposed/s71004/blMadoffinv020305.pdf

We applaud the Commission’s proposal to limit protection to only those quotes that are

immediately and automatically accessible through automatic execution, with no human

intervention in the process. Under the proposal’s definition, a trading center’s quotation may not

be deemed automated unless the trading center: (1) immediately and automatically executes an

incoming order up to the quotation’s displayed size and cancels any unexecuted portion of the

order; (2) immediately and automatically sends a response to the sender of an order indicating

what action has been taken with respect to the order; and (3) immediately and automatically

updates it’s quotation to reflect any change in its terms. The proposal would also require that

quotes be appropriately flagged as either manual or automated.

However, we strongly feel that the Commission must recognize and extend the distinctive

benefits of automated quotations to all facets of the proposal, and not provide equivalent

treatment (and perhaps undue advantages) to those markets that will continue to participate in the

NMS by maintaining manual quotations, even after Regulation NMS is approved and

implemented. This equivalency (and perhaps advantage), which is wholly inappropriate, results

from the Commission’s insistence in the reproposed release that manual quotes remain not only a

part of the NBBO, but also on parity with automated quotations in the context of a best execution

analysis. For the reasons set forth below, we respectfully request that the Commission review

and reconsider their position in this context, and revise the trade-through rules or interpretations

accordingly.

http://www.sec.gov/rules/extra/s72303comsum.pdf

One argument submitted was that the proposed bid test failed provide market makers with the ability to fulfill best execution obligation with respect to price and timeless of customer buy orders. In support of an exemption, Madoff’s letter argued that market makers need flexibility to facilitate non-marketable limit orders and provide a practice known as “print protection.”225 Madoff’s letter explains that print protection allows market makers and specialists to give assurances to clients that their orders are, “protected and provided with timely execution at a price equivalent to executions taking place anywhere in the National Market System.” According to Madoff, it is critical for market makers to have the ability to sell short out of their inventory at a price that would otherwise be prohibited by short sale price test in order for market makers to preserve liquidity. Madoff’s letter further asserted that a market maker’s ability to provide effective print protection for limit orders, “is a factor in how a client defines and measures “best execution.”226

From: http://www.sec.gov/rules/sro/nyse/nyse200405/eroiter120804.pdf

24 out of the total of 32 Electronic Market Centers reported narrower effective

spreads than the 3.06 cents reported by the NYSE. Knight Capital Markets,

Bernard L. Madoff and Schwab Capital Markets accounted for 82% of the total

shares executed for orders received by Electronic Market Centers. These three

market centers reported an effective spread of 2.09 cents, versus the NYSE

effective spread of 3.06 cents (Figure III).

http://www.sec.gov/rules/proposed/s71200/Madoff1.htm

Dear Mr. Katz:

The ad hoc Committee on Electronic Bluesheeting of the Securities Industry Association ("the Committee")1 is pleased to submit this response to proposed Rule 17a-25, contained in Release No.34-42741 ("Release").

Overview.

The Release proposes a significant expansion in the role of the "electronic blue sheet" questionnaire forms ("EBS"). Proposed Rule 17a-25 would mark the first time that the Securities Exchange Commission ("Commission") has codified in its rules the requirement that broker-dealers electronically submit to the Commission staff, on request, information on customer and proprietary trading. The Commission characterizes the proposed rule as generally requiring only the specific information already required by the existing EBS system, with the exception that the proposed rule would also include three new data elements, consisting of prime brokerage identifiers, average price account identifiers, and identifiers used by depository institutions.

The general thrust of the proposed rule is a much more flexible approach to accessing trading data than the large trader reporting rules that were the antecedent to this proposal ("large trader reporting proposals"). Those rules were intended to implement authority granted to the Commission under provisions of the Market Reform Act of 1990. In its large trader reporting proposals, issued in 1991 and reproposed with certain clarifications in 1994, the Commission proposed rules that would have defined categories of "large traders." Broker-dealers would have been required to disclose to the Commission the identity and accounts of investors that the broker-dealer knew or had reason to know is a large trader, and broker-dealers would also have been required to keep extensive records of large trader transactions. SIA and other commenters raised strong concerns that the proposed rule would be unduly burdensome and costly.

The current proposal, to codify the existing SRO EBS requirements within the SEC's rules, and to expand those requirements in several respects, is preferable to the large trader reporting proposals. However, in some respects the proposal may be more expensive and burdensome to implement than the Release acknowledges. We urge the Commission to only implement the proposals in the Release that represent the most compelling ratio of regulatory cost to regulatory need. Specifically, subject to some clarifications that we describe below, we do not oppose

• the new prime brokerage identifier element;
• the new average price account identifier;
• depository institution identifiers; and
• the proposal to update the Commission on the names and contact information needed to route information request to the appropriate person at a broker-dealer.

However, we have significant concerns with other aspects of the proposal. Specifically,

• we are troubled by the proposed requirement that broker-dealers must include their customers' employers names in EBS format. Many firms do not currently keep this information in electronic format, much less on systems that can readily linked to EBS;
• The portion of the rule dealing with customer information also contains several ambiguities that should be clarified. We are not clear as to whose tax identification number it means to cover - the employee's or the employer's;
• we oppose the suggestion that execution times or order sequence numbers should be captured in EBS because we believe that it would be inordinately expensive, and possibly entirely unfeasible in some situations, to capture this information in a central electronic data base; and
• the proposal should be modified in some respects to better correspond with current accepted practice in complying with the EBS requirements of self-regulatory organizations.

http://www.sec.gov/rules/concept/s71697/langley1.htm

A. ATSs, The Exchanges, And The NASD Need

Not Be Placed In The Same Statutory

Category To Achieve Appropriate Market Regulation

As we have already noted, the SEC is correct in stating that "the distinctions between market service providers have become blurred . . . ." 33 ATSs have exchange-like characteristics, automated dealer trading systems often have more pricing impact than regulated markets, and traditional exchanges use automated execution systems to compete as dealers. But it does not follow from this blurring of traditional distinctions that the achievement of a competitively fair and investor sensitive scheme of market regulation requires the extension of the "exchange" category to non-membership, proprietary business entities.

The goal for the NMS should be the appropriate regulation of all relevant markets -- that is, all trade execution centers. We pointed out above why the proposed redefinition of "exchange," is inappropriate as a policy matter. But beyond that, such a radical regulatory initiative would not achieve the basic NMS goals. For example, under the proposed expanded definition of "exchange," Instinet would become an exchange but Bernard L. Madoff and E.B. Shaw would fall safely within the traditional broker-dealer category. This makes little competitive or regulatory sense. Market execution centers should be held to minimum standards of fairness, transparency, access and efficiency based on their market power and importance, not on whether they fit within one or another definition of "exchange."

http://www.sec.gov/news/digest/1962/dig033062.pdf

A.L.S. STEEL FILES FOR STOCK OFFERING. A.L.S. Steel Corp., 126-02 Northern Blvd., Corona, N. Y.,filed a registration statement (File 2-20079) with the SEC on March 29th seeking registratlon of 100,000shares of common stock, to be offered for public sale at $4.50 per share. The offering will be made on a best efforts all or none basis by Bernard L. Madoff, 40 Exchange Place, New York, who will receive a 45c per share commission and $15,000 for expenses. The statement also includes 6,000 outstanding shares sold to the underwriter by principal stockholders at 10c per share. The company has sold to the underwriter at Ie each 5-year options to purchase 10,000 shares at $4.50 per share. A $10,000 fee is payable by the companyto Seymour Launer and Robert Kay for services in connection with this financing.

The company's principal business consists of the sale of processed flat rolled strip steel producedto customer's specifications and requirements. Of the $350,000 estimated net proceeds from the stock sale,$50,000 will be used to pay obligations on its machinery and equipment; $150,000 for the purchase of new machinery and equipment, including new slitting and recoiling and uncoiling equipment; and the remainder of approximately $150,000 as working capital for the carrying of accounts receivable and larger inventories. In addition certain indebtedness, the company has outstanding 156,000 shares of common stock (after giving effect to a recent recapitalization whereby such shares were issued in exchange for the 60 shares then outstanding), of which Abe Eisenberg, president, Herman Loonin, treasurer, and Gabriel Sobel, secretary, own 32.1% each. Sale of new stock to the public at $4.50 per share will result in an increase in the book value of stock now outstanding from 92c to $1.93 per