EXECUTIVE SUMMARY..... 3

On August 26, 1998, the Independent Broker Dealer Association ("IBDA") retained the law firm of Singer Frumento LLP. to provide your organization with legal counsel concerning the pending merger of the National Association of Securities Dealers, Inc. ("NASD") and the American Stock Exchange ("AMEX"), and, secondarily, the proposed merger of the Philadelphia Stock Exchange ("PHLX"). I have reviewed: 

·        Special NASD Notice to Members 98-64 dated August 10, 1998, ("NASD-NTM-98-64") [http://www.nasdr.com/pdf-text/9864ntm.txt];

·        NASD Revised Ballot 98-64 with cover letter dated August 13, 1998 ("Revised Blue Ballot") [http://www.nasdr.com/pdf-text/9864letter.txt];

·        Securities and Exchange Commission ("SEC") Release No. 34-40339; File No. SR-NASD-98-56: Notice of Filing of Proposed Rule Change by National Association of Securities Dealers, Inc. Relating to Amendment to Composition of NASD Board to Include Members of New Amex LLC and for Other Purposes dated August 19, 1998, ("SR-NASD-98-56")[http://www.sec.gov/rules/sros/nd9856n.htm]; and

·        numerous press releases and publicly available documents.

EXECUTIVE SUMMARY

·        NASD members should vote "Disapprove" on the Revised Blue Ballot 98-64.

·        NASD members should submit any additional opinions concerning the merger to:

The Secretary

Securities and Exchange Commission

450 Fifth Street

N.W., Washington, D.C. 20549

All submissions should contain six copiesand refer to file number SR-NASD-98-56.

·        NASD members should pursue discussions with NASD management, the SEC, Congressional leaders, and allied securities industry interests in an effort to engage in a constructive dialog towards avoiding the continued disenfranchisement of independent/regional brokerage firms in the affairs of the NASD.

·        Should the SEC ultimately approve the merger on terms that fail to address the concerns of the NASD's independent/regional members, serious consideration should be given to all avenues of legal recourse, including, but not limited to, injunctive relief through the courts or civil lawsuits against all responsible parties.

 Sincerely, 

Bill T. Singer

===========================================

Special NASD Notice to Members 98-64 and SR-NASD-98-56

On August 10, 1998, the NASD solicited a membership vote by forwarding NASD-NTM-98-64. The original voting date was September 9, 1998, but pursuant to a letter dated August 13, 1998, the NASD acknowledged its error in the preparation of the ballot and extended the date to September 14, 1998. Those members who had voted and returned the original ballot were required to "re-execute" their vote on the Revised Blue Ballot and mail it to the NASD. 

On August 19, 1998, SEC published SR-NASD-98-56 in order to solicit comments on NASD-NTM-98-64, as filed with the SEC on August 10, 1998 and subsequently amended on August 18, 1998. 

The Executive Summary section of NASD-NTM-98-64:

[I]nvites members to vote to approve the following amendments to the NASD By-Laws: reserve one NASD Board of Governors (Board) position for a person representing an NASD member firm having not more than 150 registered persons; reserve two Board positions for the Chief Executive Officer and one Floor Governor of New Amex LLC (the operating successor organization to the American Stock Exchange [Amex]); and other clarifying amendments.  

Also see,SR-NASD-98-56 (I.Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change). 

The Background section of NASD-NTM-98-64, states 

The proposed amendments have two purposes. The first purpose is the reservation of a seat on the Board for a person representing a member firm having not more than 150 registered persons . . .there is still a need to provide NASD's smaller members (i.e., firms with 150 or fewer registered persons) a more effective voice in matters affecting their business and their customers. To achieve this, the Board approved the establishment of the Small Firm Advisory Board earlier this year . . .

Another purpose of the amendments is to add the Chief Executive Officer and one Floor Governor of New Amex LLC to the Board, as required by the Transaction Agreement that will bring the Amex into the NASD family of companies. That agreement was approved by the Amex seatholders on June 25, 1998, and it is now necessary for the membership to approve the By-Law changes required for the implementation of the agreement.

Also see, SR-NASD-98-56 (II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change). 

NASD-NTM-98-64 and SR-NASD-98-56 further disclose that the expanded 35 member Board of Governors "shall consist" of the CEO and COO of NASD, the President of NASD Regulation ("NASDR"), the President of NASDAQ, the Chair of the National Adjudicatory Council, the CEO of the New AMEX, and one Floor Governor of the New AMEX. The Governors "elected by the members" shall include a representative of 1) an issuer of investment company shares, 2) an insurance company, 3) a NASDAQ issuer, and 4) an NASD member of not more than 150 registered persons. 

SR-NASD-98-56 states under II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change: 1. (b) Statutory Basis:

NASD believes that the proposed rule change is consistent with the provisions of Section 15A(b)(4) of the Act, which requires, among other things, that the Association's rules must be designed to assure a fair representation of its members in the administration of its affairs. The NASD believes that the proposed rule change enhances the Association's ability to assure fair representation on the NASD Board of its members, while incorporating the constituency represented by New Amex LLC. In particular, the reservation of a Board seat for a representative of a small firm assures the ongoing participation in the governance of the NASD by this important segment of NASD membership, just as the creation of Board seats for the New Amex representatives assures the representation to the Amex seatholders that was integral to their approval of the Transaction Agreement.

SR-NASD-98-56 states under II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change: B. Self-Regulatory Organization's Statement on Burden on Competition:

The NASD does not believe that the proposed rule change will result in any burden on competition . . . the proposed rule change is part of an effort to promote intermarket competition, insofar as it is a condition precedent to the closing of the transaction pursuant to which a substantial investment will be made in the New Amex equity market ...

SR-NASD-98-56 states under II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change: C. Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received from Members, Participants, or Others:

Written comments were neither solicited nor received.

PRESS RELEASES: REGULATION BY NEWSWIRE?

The Global Market Release

On March 18, 1998, the NASD issued a press release entitled  NASD AND AMEX TO  COMBINE TO CREATE A GLOBAL MARKET OF MARKETS, http://www.nasdaqnews.com/news/pr/ne_section98_30.html (the "Global Market Release").  The Global Market Release

[J]ointly announced today that their respective governing Boards have approved an agreement to merge the Amex into the NASD family of companies. The transaction is subject to a definitive agreement and the approval of the Amex membership. Structural and rule changes will require approval from the Securities and Exchange Commission (SEC). This strategic combination creates a market alliance unparalleled in technology, expertise, information and execution to meet the needs of investors worldwide. The Amex equity and options markets will operate separately from The Nasdaq Stock MarketSM and Nasdaq InternationalSM.

. . .

Under the terms of the agreement, the NASD will commit more than $100 million over the next several years primarily to install state-of-the-art technology . . .

The combination of NASD and Amex represents the first major step in creating a "market of markets" to be built and operated on a global network of computers connecting market participants around the world . . .

[T]he NASD will provide $30 million to be applied to a seat-stabilization program for Regular Amex seatowners. All such funds not applied to the stabilization program will be invested by the NASD in technology or facilities for the Amex.

As part of the NASD family, Amex will operate as an independent subsidiary of the NASD with its own Board of Directors. The new Amex Board will consist of four industry directors, four staff representatives and eight public representatives. The Amex Board will designate four members to serve on the twenty-seven member NASD parent Board.

The Merger Agreement Release 

On April 9, 1998, the NASD issued a press release entitled   NASD, AMEX                      BOARDS APPROVE DEFINITIVE MERGER AGREEMENT, http://www.nasdaqnews.com/news/pr/ne_section98_35.html ("Merger Agreement Release").  The Merger Agreement Release stated that:

The Amex would become a wholly-owned subsidiary of the NASD

. . .

Financial Commitment:

$110 million over five years on new generation technologies

$53 million on restructuring costs

Up to $50 million administered by a Fund Management Committee 

. . .

$30 million for an advertising program to promote both markets 

The definitive agreement is subject to approval by two-thirds of the Amex's 864 seatowners voting at a special meeting scheduled for May 28. Voting materials are expected to be sent to the membership in the near future. Structural and rule changes for the NASD and the Amex will require SEC approval.

Voting Materials Release

On May 18, 1998, the NASD issued a press release entitled AMEX ISSUES VOTING MATERIALS ON COMBINATION WITH THE NASD, http://www.nasdaqnews.com/news/pr/ne_section98_46.html (the "Voting Materials Release").  The Voting Materials Release disclosed that:

The American Stock Exchange today announced it has sent to its membership an Information Memorandum detailing the proposed combination with the National Association of Securities Dealers, Inc. (NASD). The Exchange's 864 Regular and Option Principal Members will vote at a Special Meeting scheduled for Thursday, June 25, 1998. A two-thirds majority vote is required to approve the transaction, which was approved unanimously by the Board of Governors of the Exchange and the Board of Governors of the NASD in early April.

PHLX Release

On June 9, 1998, the NASD issued a press release entitled PHILADELPHIA STOCK EXCHANGE TO JOIN NASD/AMEX GLOBAL "MARKET OF MARKETS", http://www.nasdaqnews.com/news/pr/ne_section98.54.html (the "PHLX Release").  The PHLX Release stated that NASD, AMEX, and PHLX:

[J]ointly announced their agreement in principle to add the Philadelphia Stock Exchange as a charter member to the proposed NASD/Amex family of companies . . .

The proposed transaction is subject to the approval of a definitive agreement by the Boards of Governors of each organization, the Amex and PHLX memberships and appropriate regulatory authorities, including the Securities and Exchange Commission.

. . .

Richard F. Syron, Chairman of Amex, said, "[F]ollowing CBOE's 1997 acquisition of the NYSE options business, we believe this further consolidation of the industry is an outstanding opportunity."

AMEX Membership Release

On June 25, 1998, the NASD issued a press release entitled AMEX MEMBERSHIP OVERWHELMINGLY APPROVES NASD/AMEX MERGER, http://www.nasdaqnews.com/news/pr/ne_section98_61.html (the "AMEX Membership Release"). The AMEX Membership Release announced that:

Amex Membership has voted overwhelmingly to approve the addition of Amex into the NASD family of companies. The vote was 622 to 206. 

COMMENT AND ANALYSIS

THE DEVIL IS IN THE DETAILS

Global Market Release

First and foremost, IBDA members cannot glean from NASD-NTM-98-64 any details about the merger; sadly, NASD members are relegated to word-of-mouth and reading the newspapers. The NASD has simply declined to provide its members with full disclosure. Hardly the basis for informed consent. Consequently, my analysis is limited largely to disclosures made in the following referenced press releases.  According to the Global Market Release,the AMEX and NASD:

·        Boards have approved an agreement to merge the Amex into the NASD family of companies.

What is a "family of companies"? What are the costs and liabilities of such a project?  What stresses will this new organization place upon already beleaguered NASD membership services?

·        The transaction is subject to a definitive agreement and the approval of the Amex membership.

Why is the transaction subject to the approval of AMEX membership, but not NASD membership? Why haven't copies of the so-called definitive agreement been circulated among the NASD membership contemporaneously with the balloting materials? 

·        Structural and rule changes will require approval from the Securities and Exchange Commission (SEC).

Why hasn't the SEC already met with constituencies of NASD members, such as IBDA, in order to fully understand the issues affecting both the public interest and that of independent/regional members? Why has the SEC given the impression that this merger is overwhelmingly meritorious and approval is merely perfunctory?  Given the recent exodus of numerous senior SEC staff to the NASD, to major NASDAQ market makers, and to prominent law firms serving the interests of the aforementioned clients, what steps has the SEC undertaken to ensure equal access for opponents of the proposed merger?  Given NASD Chairman Frank G. Zarb's former business and social relationships with major NASDAQ market makers and SEC Chairman Levitt, see, New York Times article: An Expert at Trades, NASD Chief Makes Bold Moves as Markets Combine by David Barboza ("Before long, he [Zarb] found himself at the investment firm of Cogan, Berlind, Weill & Levitt, in the company of Sanford I. Weill, now the chief executive of Travelers Group, and Arthur Levitt Jr., now chairman of the Securities and Exchange Commission.") http://www.nasdaqnews.com/news/expert_nyt.html, what steps have been undertaken to dispel even the appearance of conflict and to ensure equal access for independent/regional broker dealers?

·        This strategic combination creates a market alliance unparalleled in technology, expertise, information and execution to meet the needs of investors worldwide.

If this is an unparalleled market alliance, does it seem proper to deny NASD members an opportunity to comment on the proposal prior to voting?  Does it seem proper to deny NASD members an up-or-down vote on such a dramatic organizational change?

·        The Amex equity and options markets will operate separately from The Nasdaq Stock MarketSM and Nasdaq InternationalSM.

Doesn't the '34 Act view exchanges and securities associations as distinctly separate entities subject to separate statutory provisions, e.g., Section 15A: Registered Securities Associations of the '34 Act versus Section 6: National Securities Exchanges;Section 19: Registration, Responsibilities, and Oversight of Self-Regulatory Organizations? Will this requirement of separation result in a significant loss of economy of scale and entail additional costs? How will it be determined whether a particular listing goes to AMEX or NASDAQ? Will the AMEX and NASDAQ continue to compete for listings and attempt to persuade issuers listed on one to move to the other? Assuming that independent/regional NASD members are being asked to foot the bill for this merger, what assurances have been made that quality issuers, which normally would list on NASDAQ rather than AMEX, will not be diverted to AMEX; this latter scenario depriving such NASD members who make NASDAQ markets of trading revenue?  Further, given the recent difficulties encountered by independent/regional members when seeking permission to make markets in or to underwrite OTC Bulletin Board or NASDAQ Small Capitalization issues,  what additional regulatory initiatives will develop to further limit such members' ability to compete?

·        Under the terms of the agreement, the NASD will commit more than $100 million over the next several years primarily to install state-of-the-art technology

As a result of recent NASD misconduct attributable to the influence of major NASDAQ market makers, the NASD was required to spend $100 million over five years to upgrade its regulatory capacity. This "fine" also fell on the backs of independent/regional members who were frequently victimized by the cited misconduct.  Further, it appears that NASD engaged in unduly aggressive regulation, which resulted in increased fines (again often upon the backs of independent/regional members) as a way of levying a quasi-tax used to defray the SEC-imposed financial obligation. Why should independent/regional members now be required to shoulder the burden of upgrading the AMEX, a facility at which such members have had limited activity, if any? Further, if as a result of the improper conduct of major NASDAQ market makers the competitive edge of AMEX was compromised and weakened, shouldn't the costs attributable to this merger be properly borne by those malefactors, rather than spread among the NASD membership at large?

·        The combination of NASD and Amex represents the first major step in creating a "market of markets"

Is this "market of markets" different from the "family of companies"? Is NASD beginning to embark upon a course of unrestrained expansion and expense?  What impact studies have been done?  Assuming this is merely the "first major step" what other major and minor steps are being contemplated? Has the NASD abandoned its traditional role of serving as a market for developing companies and as an association of independent/regional members, and irrevocably aimed its sights at engaging the New York Stock Exchange in a battle for supremacy, only now fought on a global scale? 

·        [T]he NASD will provide $30 million to be applied to a seat-stabilization program for Regular Amex seatowners.

Why should independent/regional members finance a seat stabilization program for AMEX members? Why wouldn't this money be better invested in improving the technology at NASDAQ or NASD?  Why wouldn't this money be better invested in hiring additional NASD employees or increasing the salaries of those with demonstrated competence?

·        As part of the NASD family, Amex will operate as an independent subsidiary of the NASD with its own Board of Directors.

What kind of "family" is this with NASD apparently picking up the tab and AMEX operating independently? What guarantees do independent/regional members have that this arrangement won't merely result in major NASDAQ market makers (who are often members of AMEX, whereas independent/regional's aren't) effectively doubling their voting power?  Where is the fairness in imposing the costs of the merger upon all NASD members, but then allowing the AMEX members to act independently and to grant AMEX members guaranteed seats on the parent NASD Board?  Similarly, as raised earlier, what safeguards are in place to prevent the alienation of NASDAQ listings or candidates to AMEX, a key concern to independent/regional NASD members who often have NASDAQ market making approval but rarely own AMEX seats?

·        The new Amex Board will consist of four industry directors, four staff representatives and eight public representatives. The Amex Board will designate four members to serve on the twenty-seven member NASD parent Board

Again, IBDA should be wary of the manner in which NASD constitutes the AMEX Board and the numbers of seats it allocates to the AMEX on the NASD Board.  Independent/regional NASD members will have no ensured representation on the AMEX Board, but apparently will be required to contribute to the financial package involved in the acquisition. IBDA members should consider that there are only 864 seat-owners at AMEX (compared to 5,600+ NASD members) and many conduct a business limited to options, and that the AMEX seat-owners equal only 15% of the existing NASD membership (further, many AMEX members are already NASD members, particularly among the major NASDAQ market makers, raising concerns about doubling of votes).  IBDA should carefully monitor the relationship between the AMEX's size and the allocation of funds, services, and votes being offered and to be offered. IBDA should oppose any attempts by major NASDAQ market makers and NASD policymakers from using AMEX membership as a back-door vote, or from using the independent AMEX as a location at which agendas and policies antithetical to the interests of independent/regional members can be pursued and implemented.

Merger Agreement Release

According to the Merger Agreement Release:

·        The Amex would become a wholly-owned subsidiary of the NASD

It is unclear as to whether the existing securities laws as detailed in the '34 Act provide for the owning of an exchange by a securities association.  Clearly, one must wonder whether the exchange would be deemed statutorily subsumed into the association. Will the Maloney Act apply to the AMEX . . . to the PHLX?  Would AMEX and PHLX members be subject to NASD jurisdiction?  How will intra-industry arbitration disputes be resolved, and where?

·        $110 million over five years on new generation technologies

·        $53 million on restructuring costs

·        Up to $50 million administered by a Fund Management Committee 

·        $30 million for an advertising program to promote both markets 

It would appear that, at a minimum, the NASD Board, without the involvement of its full membership, and admittedly without said membership's comment, has committed to a financial package, if not a bailout, of the AMEX amounting to at least $243 million. Many disturbing questions are raised by this promise. Given the apparent desire to keep AMEX separate, what guarantees are there that the management team that brought AMEX to its precarious financial condition will not continue upon further ill considered initiatives?  What safeguards are in place to ensure that the NASD's members' money is well spent? Have monies properly earmarked for facilities and staffing upgrades at NASD been diverted to AMEX?  Will NASD guarantee its independent/regional members minimal turnaround times for the processing of membership matters such as new member applications, Restriction Agreement modification requests, etc?  Will sufficient funding be allocated to increasing NASD staff salaries in an effort to reward those employees who continue to conduct themselves in a professional and courteous manner, and assure the prompt processing of member's needs? 

·        The definitive agreement is subject to approval by two-thirds of the Amex's 864 seatowners voting at a special meeting scheduled for May 28. Voting materials are expected to be sent to the membership in the near future. Structural and rule changes for the NASD and the Amex will require SEC approval.

Voting Materials Release

According to the Voting Materials Release:

·        The American Stock Exchange today announced it has sent to its membership an Information Memorandum detailing the proposed combination with the National Association of Securities Dealers, Inc. (NASD).

Why did independent/regional members have virtually no opportunity to participate in the negotiation of the definitive agreement? Why was the definitive agreement submitted to a two-thirds approval of AMEX seat-owners, but the same opportunity denied to the NASD's members? Why did AMEX members receive a detailed package describing the definitive agreement, but NASD members are kept in the dark and asked to vote on a small-firm Board seat and clarifying amendments to the By-Laws? If the NASD Board and management is afraid to put its proposal to the same NASD membership scrutiny as offered to the AMEX, shouldn't the SEC and Congress consider such action as symptomatic of a lack of confidence in the fairness of the undertaking and further proof that the NASD has not abandoned its heavy-handedness when dealing with less powerful membership interests?  Shouldn't a regulator be guided by the principle of doing the right thing, rather than having the right to do something?

In the preface to the CCH NASD MANUAL is a section entitled History, pages 159-160.  In this section, NASD proudly concludes that it is "not an organization that was imposed upon the investment banking and securities industry . . .[t]he privilege of self-regulation was actively sought by the securities business. . ."  

The NASD Manual states that on "July 31, 1935, the Code Committee circularized all registered broker/dealers to determine whether they wished the Code organization continued on a temporary basis. More than 90 percent of those who replied approved and voted to support the organization financially."  The Maloney Act became law on June 25, 1938, and the Investment Bankers Conference then began drafting the qualifying rules and regulations to permit the creation of the first national securities association.  On March 18, 1939, the By-Laws, Rules of Fair Practice, and other proposals were submitted to the membership for comment.  On June 6, 1939 all incorporated revisions were submitted to the membership for a vote. "Unless there were disapproving votes from at least 50 percent of the membership by July 16, 1939, it was provided that the Conference would apply for registration as a national securities association. As of July 15, 1939, 757 ballots had been received, of which only 35 registered disapproval." On August 7, 1939 the SEC approved the NASD's initial registration statement.

How does the NASD reconcile its history of disclosure and up-or-down voting with its current campaign of obfuscation? What became of the hallowed practice of fully submitting matters to the membership and abiding by the member's vote? Why does the SEC stand idly by as this SRO attempts to circumvent the informed consent of its own members? When the NASD embarks upon an unparalleled worldwide market alliance,when the NASD seeks to create a market of markets on a global network,when the NASD seeks to create a family of companiesabsorbing the oldest stock exchange in the country and the second largest - - - don't those factors compel the NASD to seek a full membership vote based upon a considered membership review of all definitive documents and contemplated transactions? IBDA should oppose any NASD attempts to impose its new structure upon the investment banking and securities industry. To do otherwise would be to waive the privilege of self-regulation.

The PHLX Release

According to the PHLX Release:

·        PHLX will become a charter member of the proposed NASD/Amex family of companies

What precisely is a charter member, and will there be different categories of members of this illusory "family of companies"? The hyperbole of a family of companies, of a market of markets, and of a global network would seem to entail a prodigious expense, much of which will come from independent/regional members.  It seems that the NASD's traditional mission of representing members who dealt in the Over-The-Counter ("OTC") market is no longer fashionable.  NASD now seems bent upon creating a global market. To the extent that NASD has embarked upon an agenda hostile to the best interests of its independent/regional members, then the ultimate solution may not be in merger but in division. Quite possibly after 60 years of self-regulation the NASD can no longer serve two masters and needs to be split into two organizations: one, serving a small group of national NASDAQ market makers; and a second organization serving the majority of the present NASD members, i.e., the independent/regional members. 

·        The proposed transaction is subject to the approval of a definitive agreement by the Boards of Governors of each organization, the Amex and PHLX memberships and appropriate regulatory authorities, including the Securities and Exchange Commission.

Again, why do the memberships of both AMEX and PHLX, so-called charter members of this happy family, get to approve the definitive agreement, but NASD members do not?  Not only does this seem grossly improper, but also it violates the essence of self-regulation: the self is excluded and the NASD operates by fiat.

The Department of Justice/Antitrust Division Settlement: NASD not unscathed.

The PHLX Release quoted

·        Richard F. Syron, Chairman of Amex, said, "[F]ollowing CBOE's 1997 acquisition of the NYSE options business, we believe this further consolidation of the industry is an outstanding opportunity."

Which, of course, leads us to another pertinent question: Does there come a point in time (if that time has not already come) when securities markets consolidate to the degree that a monopoly develops and competition is squashed? With the loss of the independence of AMEX and PHLX, have we also lost the competitive pressure such markets exerted on listing fees and innovation?

Lest we so soon forget, approximately two years ago, on July 17, 1996, DOJ issued a press release entitled JUSTICE CHARGES 24 MAJOR NASDAQ SECURITIES FIRMS WITH FIXING TRANSACTION COSTS FOR INVESTORS.  The release commented on disclosures of price-fixing in the NASDAQ market and noted:

As a result of this conduct American investors had to pay more to buy and sell stocks than they would have if there had been true competition," said Attorney General Janet Reno. "We have found substantial evidence of coercion and other misconduct in this industry . . ." 

Concurrent with the issuance of the press release, the United States Department of Justice/Antitrust Division ("DOJ/AD") issued its historic United States of America v. Alex Brown & Sons, Inc. et al. Complaint ("NASDAQ Antitrust Complaint") against 24 of NASDAQ’s largest market makers. Most pertinent to the issues raised in this letter, the NASDAQ Antitrust Complaint alleged that:

Defendants and other market makers have used and continue to use peer pressure to ensure compliance with the common understanding by making it known throughout the industry that it is "unethical" or "unprofessional" for a market maker to "break the spread." Defendants and other market makers have taken actions to enforce compliance with the common understanding and to coerce non‑complying market makers to adhere to the common understanding. . . . Defendants and other market makers have threatened to refuse, and refused, to deal with traders and firms that have violated the quoting convention . . .

U.S. v. Alex Brown, at paragraph 41 of the Complaint.

As further noted by DOJ/AD in its Competitive Impact Statement ("NASDAQ CIS") issued in U.S. v. Alex Brown:

The Department's investigation has uncovered substantial evidence that Nasdaq market makers have enforced the quoting convention by reminding, pressuring, harassing, and intimidating each other into conformity . . . And the evidence indicates that market makers have attempted to punish economically those market makers who deviate from the agreed‑upon pricing norms . . . the trier of fact may draw an inference of an antitrust agreement, where coercion is proved in addition to unnatural uniformity of pricing.

Page 20 of the CIS

Indeed, a NASD employee responsible for interacting with the market making community recognized that telephone calls, which he described on one occasion as "price fixing calls," were frequently used to enforce compliance with the quoting convention. The effect of the quoting convention in maintaining wide spreads on Nasdaq was known even to employees and members of the industry's self‑regulatory organization, the NASD; moreover, the NASD recognized the causal connection between widening spreads on Nasdaq and "peer pressure" applied to keep spreads wide. 

Page 25 of the CIS.

Merely highlighting DOJ/AD's descriptive terms: coercion, pressuring, harassing, and intimidating is enough to explain why independent/regional firms fear the power of major NASDAQ market makers and were outraged by the NASD's apparent complicity. Consequently, AMEX Chairman Syron should understand that when he states that "this further consolidation of the industry is an outstanding opportunity," advocates for public investors, issuers, and independent/regional firms shudder at the antitrust implications presented, and are also chilled at the enhanced powers major NASDAQ market makers will enjoy if such consolidation does not include proper safeguards. 

AMEX Membership Release

According to the AMEX Membership Release:

·        Amex Membership has voted overwhelmingly to approve the addition of Amex into the NASD family of companies. The vote was 622 to 206.

The lop-sided vote may be more indicative of the one-sidedness of the deal, rather than the merits of the venture. However, we should keep in mind that according to the Merger Agreement Release 576 votes (2/3rds) were required for approval; so, regardless of any qualitative judgment, i.e., "overwhelmingly," the measure passed by a margin 46 votes or roughly 5% of the members.  It should be noted that only 828 votes were cast, resulting in 36 absentees. Regardless of the size of the vote, why isn't the same opportunity being offered to NASD members?  Assuming the merger makes so much sense and is so compellingly fair, why wouldn't two-thirds of NASD members support it?  What does the Board fear? Oddly, when IBDA President Alan Davidson visited the AMEX Floor and began to respond to queries from members about the pending merger, he was escorted from the premises, notwithstanding that he had been invited by a member and was wearing a visitor's pass. What is it about this proposed merger that sends the truth scurrying into darkened corners? 

PLAIN ENGLISH?

SEC Chairman Arthur Levitt, Jr. ("Chairman Levitt") has long championed the use of plain English in disclosure documents. In August 1998 the SEC issued A Plain English Handbook: How to Create Clear Disclosure Documents.  In the Introduction to that handbook, Chairman Levitt stated,

[W]e must question whether the documents we are used to writing highlight the important information investors need to make informed decisions.  The legalese and jargon of the past must give way to everyday words that communicate complex information clearly. 

. . .

[W]e want you to produce documents that fulfill the promise of our securities laws.  I urge you . . .[t]ell them plainly what they need to know to make intelligent investment decisions.

Judging by Chairman Levitt's guidelines:

·        highlight the important information,

·        communicate complex information clearly, and

·        state plainly what is needed to make an intelligent decision,

NASD's Revised Blue Ballot and NASD-NTM-98-64 are abject failures.  Even the most oblique reference to the actual merger with the AMEX is buried under proclamations concerning small firm initiatives and technical amendments to far flung provisions in the organization's By-Laws. Chairman Levitt would be hard pressed to find in plain English any disclosure that NASD members are being asked to approve a merger with the AMEX. 

Further, despite references in NASD-NTM-98-64 to the "Transaction Agreement" underlying the merger, no copy of that critical document has been provided to NASD members as part of NASD-NTM-98-64, the Revised Blue Ballot, or incorporated into SR-NASD-98-56. Even more shocking, there is no reference in the NTM or ballot to what, if any, financial undertakings have been agreed to between the parties, and ultimately to be imposed upon NASD members (it is absolutely unacceptable that members should be required to seek out press releases as their sole basis of information!).  IBDA members can only imagine the SEC's response if they engaged in a public underwriting without divulging any use of proceeds, sources of funding, or material conditions precedent. From within the confines of the four corners of NASD-NTM-98-64, the level of disclosure is abysmal.

Clearly, the NASD pursues a hypocritical course. Its Revised Blue Ballot does not call for a "yes" or "no" on an historic merger; rather, it sets out the following proposition: NASD Solicits Member Vote on Amendments to NASD By-Laws to Reconfigure NASD Board.  And adjacent to that language are two boxes: Approve or Disapprove.  Surely, Chairman Levitt does not believe that the plain English explanation for the historic merger is to "reconfigure NASD Board."  Further, NASD-NTM-98-64 states in its opening paragraph, under the Executive Summary, that the vote seeks approval of "amendments to the NASD By-Laws" and "other clarifying amendments."  Where is the simple, plain, English: do you approve the merger with the AMEX?

No reasonable human being could delve from the arcana of NASD-NTM-98-64 that this was an historic vote, one that will dramatically change the landscape of Wall Street and the NASD. In fact, NASD-NTM-98-64 cynically describes only "two purposes" of the proposed amendments:"to reserve a position on the Board for a person representing a firm with not more than 150 registered persons," and "to add the CEO and one Floor Governor of the "New Amex LLC to the Board, as required by the Transaction Agreement that will bring the Amex into the NASD family of companies." Plain English?

THE BUM'S RUSH

This entire undertaking has the unsavory trappings of a bum's rush.  Negotiate the deal sub rosa,prepare a vote to originally fall two days after the Labor Day holiday, don't disclose any material financial commitments in the NTM, cast the entire matter as ensuring a voice for small members, lull the members into a false sense of security by minimizing the proposal as involving "clarifying amendments," don't even allow adequate time for comment and discussion. How shameless has the NASD become that it doesn't wince at proclaiming in SR-NASD-98-56 that "written comments were neither solicited nor received"on a proposal to merge with the AMEX?

How can the NASD state that "the proposed rule change is consistent with the provisions of Section 15A(b)(4) of the Act, which requires, among other things, that the Association's rules must be designed to assure a fair representation of its members in the administration of its affairs," when it refused to solicit written comments concerning the proposed merger?  Fair representation is not achieved by populating an already overblown NASD bureaucracy with more meaningless, handpicked boards.  Fair representation must include a fair opportunity to be heard, a fair opportunity to participate, and a fair opportunity to disagree without being banished as a pariah. Not only is nothing fair about the proposed amendments or the ballot process, but the NASD seems to revel in the deception.

SMALL FIRM ADVISORY BOARD

IBDA members should not be hoodwinked by the references to the Small Firm Advisory Board ("SFAB"). Such commentary has absolutely no place within the context of the proposed merger.  First, SFAB does not represent independent/regional NASD members, but merely represents an artificial, quantitative group of NASD member firms with 150 or fewer registered representatives. There was far more artifice than art in creating SFAB. Second, the SFAB members were handpicked by NASD and not freely nominated or elected by the represented constituency. Third, with all due respect to the individuals involved, several SFAB members have enjoyed longstanding participation in the affairs of NASD (two former NASD Chairmen of the Board and numerous District-level Chairs).  And those same individuals, who stood silent during the years of abuse perpetrated on independent/regional members (as subsequently sanctioned by the SEC and described by DOJ/AD), now seek the role of champions of the very members whose plight they disregarded? Finally, and perhaps most relevant, NASD announced the creation of SFAB six months ago by press release dated February 17, 1998. What was the pressing need to once again reference this matter in a ballot seeking votes on a merger with AMEX? I submit the purpose was one of diversion.

IBDA seeks to have an Independent/Regional Member Advisory Board (IRMAB) created.  The IRMAB would be composed of representatives from independent/regional members, each representative nominated and elected by qualifying independent/regional firms. IRMAB would not be an anointed board, but, rather, would derive its authority from the free will of its constituency. Finally, any expectation that the independent/regional members of the NASD will be satisfied with one seat on the Board should be disabused;  IBDA will continue to pursue an activist role in liberalizing the NASD's unrepresentative voting systems, both at the nominating and voting levels, and will seek to ensure full representation for its constituents. 

THE BATTLE FOR LANGUAGE

The war is often lost over who controls the language, rather than what the language says. IBDA must henceforth reject the moniker of "small" or "smaller" as describing its membership. IBDA must challenge the NASD's continued perpetration of the falsehood that so-called small/smaller firms constitute a minority of NASD's membership. Accordingly, it is time for the independent/regional NASD member to demand full, fair, and meaningful representation at all levels of NASD.

WHY A GUARANTEED 2.9% OF THE VOTE IS UNFAIR

NASD's meaningless gesture of offering one Governor's seat out of 35 (2.9%) to member firms of 150 or less registered representatives is unfair and serves to further the needs of its minority major NASDAQ market makers. Typically, NASD handpicks so-called advisory panels; those advisors then convene in a sanitized vacuum free of critics and dissenters, create artificial guidelines and standards, and then impose these concoctions by fiat.

The Securities Industry Yearbook 1997-1998

The Securities Industry Yearbook 1997-1998, pages 6-33, discloses as of January 1, 1997 a membership roster of 479 firms with 12,695 offices and 120,169 total registered representatives.  By simple arithmetic, that’s an average of 27 offices per firm, 251 RRs per member, and 9.5 RRs per office.

The SIA is a formidable and respected trade group, perhaps the securities industry's most effective. However, industry insiders do not view the SIA as representing the breadth of the business; quite clearly it represents 479 securities firms, less than 10% of the NASD's membership. Further, its policies are heavily influenced by major NASDAQ market makers. Consequently, when the interests of major NASDAQ market makers and independent/regional firms collide, the SIA usually advocates on behalf of the former. Unfortunately, at times SIA's influence is detrimental to independent/regional firms. By SIA's own admission its "Office of General Counsel (OGC) leads the securities industry in shaping legal and regulatory policy. OGC attorneys, many of whom are former regulators, maximize the industry's participation during every stage of the rulemaking process . . .Several OGC attorneys have worked as committee counsel on Capitol Hill . . ." See, SIA website, http://www.sia.com/about_sia/index.html.

Statistics are malleable. When considering the supposed relevancy of a 150 RR threshold, it is important to keep in mind how easily numbers can be manipulated. Take a fairly simple example: according to The Securities Industry Yearbook 1997-1998, Edward Jones has the largest number of offices among SIA members with 3,400. More impressively, not only is Edward Jones the number-one ranked SIA member by number of offices, but it is also the 9th ranked SIA member by number of RRs with 3,580.  So these dual top-ten rankings give the impression of a dynamo.  But when we perform the simple arithmetic, we learn that this huge firm has only 1.05 RRs per office, approximately one-ninth the SIA average.  Consequently, depending upon the measuring stick, Edward Jones could be viewed as a larger or smaller firm. 

81% OF THE SIA'S MEMBERS HAVE FEWER THAN 150 RRS

Using The Securities Industry Yearbook 1997-1998's disclosure of 479 members, the mathematical median (the actual midpoint member rather than a hypothetical average/mean) would be the 240th member, which based upon capital is First Investors Corporation. First Investors Corporation employs 159 RRs, but this presents an anomaly because this firm is the 88th highest ranking SIA member if measured by its 159 RRs member (in contradistinction to its 240^th median by capital). The Securities Industry Yearbook 1997-1998 does not disclose the mathematical median member by total number of RRs, but it does disclose that its 92nd ranked member by capital has 145 RRs and its 91st ranked member has 154 RRs.   By deduction we can place the 150 RRs threshold between the 91st and 92nd SIA members. Consequently, only 91 out of 479 SIA members - -19% -- have in excess of 150 RRs. Put in a more IBDA-favorable posture: 81% of the SIA has less than 150 RRs.  As a result, a minority of SIA firms has more than 150 RRs. 

NASD STATISTICS QUESTION THE 150 RR STANDARD

The NASD discloses on its own website a five-year statistical review for 1994-1998, http://www.nasd.com/mr_section7.html. As of June 1998, the NASD discloses 5,576 member firms with 68,771 branches and 579,671 RRs. Again the simple mathematical averages: 12 branches per member (SIA: 27), 104 RRs per average firm (SIA: 251), and 8.4 RRs per branch (SIA: 9.5). 

So what has NASD-NTM-98-64 offered? One seat on a board of 35 is guaranteed to firms with no more than 150 RRs. However, the average NASD member has only 104 RRs. The implications are disturbing. 

Let us consider this example. First, the NASD determines that its typical/average member is 5' 8" in height (104 RRs). Second, the NASD then says it needs to ensure the fair representation members of average height and shorter, so it reserves one seat for individuals of no more than 8' 3" in height (150 RRs)! Mathematically, this is the actual foolishness the NASD has perpetrated. The NASD knows that its typical/average member has 104 RRs (69% of the 150 RR threshold).  Nonetheless, the NASD defines a small firm as having nearly 45% more RRs (150 RRs) than its typical/average member (104 RRs)! And if the SIA's data is indicative of reality, at least 81% of the NASD's members (in excess of 4,500 member firms) have fewer than 150 RRs, yet are only guaranteed 2.9% of the vote through one seat on the Board. 

More unsettling is why a majority of NASD's members must depend upon the benevolent intercession of their own organization to ensure at least a 2.9% vote. The answer seems clear: the powerful minority of major NASDAQ market makers has co-opted the organization. The even more cynical question is why did the NASD wait until a pending merger with the AMEX to even float this initiative? It is from this misguided path that IBDA must rescue NASD.

SEC CENSURES NASD

On August 8, 1996, Chairman Levitt held a press conference regarding the settlement of an enforcement action against the NASD. Chairman Levitt stated that during "an 18-month investigation, the Commission found serious shortcomings in the way this market [NASDAQ] has operated." Pointedly, Chairman Levitt commented:

I will state it simply and up front. We have found a widespread course of conduct among market makers to coordinate their quotes. Investors paid too much, and received too little, when they bought and sold stock on Nasdaq. . . In some instances, those who did not comply were harassed and penalized, even if they had acted in the best interest of investors.

This culture of collaboration subverted the price mechanism and curtailed competition. . .

Where was the NASD, the cop on the Nasdaq beat?

The NASD was not blind to these practices in the marketplace.  It simply looked the other way.

As the issue of the pricing convention was brought to the attention of the NASD, as the press and others raised it with increasing frequency, the NASD sounded no alarm; it conducted no investigation.

Nor was the pricing convention the only unacceptable practice.  The NASD failed to ensure the accuracy and fairness of quotation and transaction information -- the backbone of securities trading.  It failed to apply certain rules to its members, and selectively enforced rules against others. The NASD allowed the interests of large marketmaking firms to have undue influence over the conduct of its affairs and the regulation of its market.

August 1996 is a scant two years ago. Regardless of the success of the NASD's public relations machinery, IBDA members know that much of the ballyhooed change at the NASD has been cosmetic.  Within IBDA's segment of the industry is the pervasive feeling that its members are still harassed and penalized, both by major NASDAQ market makers and NASD staff. In a larger context, the culture of collaboration still exists.  Further, NASD fails to apply certain rules to its larger members with the same frequency and degree of sanctions as against its independent/regional members. Clearly, NASD allows the interests of large NASDAQ market making firms to have undue influence over the conduct of its affairs and the regulation of its market.  Further, the manner in which the negotiations with AMEX and PHILX were conducted, the terms agreed to, and the dismissive manner in which the voting is being conducted add fuel to the fire.

SMALLER, NEWER FIRMS AND THE "RIGHT SORT" OF MEMBERS

As noted in Blinder, Robinson & Co., Inc. v. S.E.C., 837 F2d 1099, 267 U.S. App. D.C., 56 USLW 2419, Fed. Sec. L. Rep. &93,588 (D.C.Cir. 1988):

[P]etitioners have mounted a non-frivolous claim that they have been singled out for disproportionately harsh treatment. Petitioners list a series of instances which, they contend, demonstrate that the SEC's hand comes down more heavily on smaller, newer firms than it does on old-line, or at least more established, houses with the "right sort" of exchange memberships. The allegation is thus not simply that penalties have differed from case to case. . . .

But it does not exceed our appropriate function to indicate that we have seen warning signs. What is alleged here are not mere disparities [citation omitted] but rather an asserted systemic pattern of disparate treatment resulting in predictably, disproportionately harsh sanctions being visited upon [such] firms. . . .

Id. At 1112.

What was true ten years ago pertaining to the SEC was similarly true concerning the NASD, and appears unabated today. The NASD has singled out smaller, newer brokerage firms for disproportionately harsh treatment. Clearly, it is by now beyond dispute that the NASD's hand comes down more heavily on smaller, newer firms than it does on old-line, or at least more established, houses with the "right sort" of NASD membership. 

The NASD has created a selection process wherein, the "right sort" of NASD membership is to be a major NASDAQ market maker.  The "wrong sort" of NASD membership is to be an independent/regional firm. This bias has manifested itself in a host of abuses, many of which were cited in the SEC's 21(a) Report. Among the more offensive examples are the NASD's continued refusal to address the delays encountered in approving new firms, the staff's dilatory handling of Restriction Agreement modification requests (additional registered representatives, branches, and markets), and the overall combative and exclusionary atmosphere that typifies many of the organization's deliberations.

REWRITING HISTORY: THANKING THE NASD

Similarly, the SEC's recent efforts to minimize and downplay the seriousness of the NASD's misconduct must be viewed with trepidation.  From Chairman Levitt's stinging rebuke, to the horrifying recitation contained in the SEC's 21(a) Report, to the chilling accounts by DOJ/AD in its antitrust investigation, we must now compare the rehabilitative language of senior SEC staff. On May 21, 1998, Richard R. Lindsey, Director of the SEC's Division of Market Regulation ("Director Lindsey") stated at the NASD Spring Conference:

I want to thank the NASD for helping make today's markets possible. As the last two years demonstrate, you continue to be one step ahead - ensuring that you remain one of the world's most innovative and strongest markets. But even the strongest markets stumble and several years ago the NASD did stumble. As a result, the Commission took action that resulted in the 21(a) Report. I am convinced that this action was necessary because the NASD had lost its focus and had allowed business interests to dominate the best interests of the public . . .

With all due respect to Director Lindsey, there seems to be an unwarranted re-writing of history. We who were in the trenches during the periods of time covered in the SEC's 21(a) Report are offended by any depiction of the NASD's gross misconduct as a "stumble." It is difficult to reconcile Chairman Levitt's stinging criticism of 1996 with the now sanitized version of a stumbling SRO. Stumbling connotes something resulting from chance, or from a silly blunder or error.  As Chairman Levitt so pointedly concluded: the NASD was not blind to these practices in the marketplace.  It simply looked the other way. It failed to apply certain rules to its members, and selectively enforced rules against others.  The NASD allowed the interests of large marketmaking firms to have undue influence over the conduct of its affairs and the regulation of its market.Chairman Levitt did not describe happenstance. IBDA believes that NASD pursued a knowing policy of wrongly favoring major NASDAQ market makers as against the overwhelming number of its members, and that such a policy was typified by willful misconduct at senior and staff levels of the SRO.  Further, IBDA does not believe that the roots of the corrupting culture have been weeded out from NASD and suspects that there remain deep-seeded antagonisms against the independent/regional members. Certainly, IBDA is at a loss to explain why the SEC would thank the NASD for helping make today's markets possible.

Director Lindsey concluded his remarks with his observations that:

As an SRO, the NASD must file all of its proposed rule changes with the Commission for approval. As you know, in a fast-moving marketplace, innovation does not wait for the regulator. Chances are that, if the NASD has an innovative proposal today, others will be ready to run with it tomorrow. If we hold up the NASD's proposal, then we are hampering its ability to compete with others. . .

To paraphrase Director Lindsey: in a fast-moving marketplace, innovation does not wait for the regulator. Chances are that, if an IBDA member has an innovative proposal today, others will be ready to run with it tomorrow. IBDA members, and other independent/regional firms, have long been on record complaining about the unfair delays encountered when applicants either seek to become NASD member firms or as existing members seek to timely expand their operations. IBDA knows that the NASD has sufficient revenues to allocate appropriate funding towards hiring sufficient numbers of staff to reduce the processing delays noted above. IBDA knows that the NASD has sufficient revenues to upgrade and enhance the technology associated with the consideration and processing of requests for new memberships or expanded operations. Unfortunately, NASD's agenda is not focused on satisfying the present needs of its membership but has now been altered to become a dominant, international, market of markets.  That may satisfy the needs of the major NASDAQ market makers, but that's not necessarily a pressing, bread-and-butter issue for an independent/regional brokerage firm. A $15 million sign at Times Square promoting NASDAQ is not a priority; allowing a regional issuer to timely raise capital in order to build a business is. 

BRIBERY AT THE NASD?

IBDA's members have regularly complained about the delays in the approval of their firms' ability to timely expand their numbers of branches, employees, and markets. We are daily confronted with a Byzantine NASD system of delay and non-responsiveness to our urgent needs. Our frustration is compounded when we read about the alleged bribery of NASD staff in Business Week: HOW BRIBES WORK--FROM ONE WHO'S BEEN THERE (December  15, 1997):

And in many cases, there were certain members of the regulatory authorities who were known to approve the PMIs in a relatively short period of time. So in many cases, those officials might have been short of cash, and intimations were made that the PMI process would be speeded up if certain things were done.

Q: Such as?

A: Some kind of cash gratuity, usually $10,000, $15,000, as high as $25,000. Remember, what you're talking about here, you're talking about the entrance of a hot broker-dealer into these markets. The quicker they can make it, the faster they make money.

Q: Do you know of specific instances where this has happened?

A: Yes, I do.

Q: Did you see it happen?

A: I was there.

We are further frustrated when we realize that the major NASDAQ market makers are rarely, if ever, subjected to the same process of Restriction Agreement review and modification. Given our dissatisfaction with the NASD's presently dilapidated membership process, we are worried at the prospect of incorporating two Exchanges into our already overburdened association.

NYSE IS NOT THE ENEMY

Unlike the present NASD management team, independent/regional members do not necessarily view our competitor as the New York Stock Exchange; further, many IBDA members actively recommend and sell shares of NYSE issuers.  We are not convinced that this holy war against NYSE is either necessary or healthy for the market. We recognize the historic dispute between the NASDAQ system and the exchange-based model, but our business concerns tend to deal with more mundane matters such as NASD fees, delays in NASD membership services, and abusive regulation. 

WHO'S IN CHARGE?

IBDA members are mystified that five months have transpired since the resignation of the District Director for District No. 10 (New York City Metropolitan area), and no permanent replacement has been designated.  Arguably the most important NASD District in the country with nearly 25% of the organization's members and 78% of its revenues, and no one is permanently in charge. Further, the job hunt, if any, appears to progress without the substantive input of IBDA, or the independent/regional members. IBDA wants an effective, professional, and competent Director for the NYC District. IBDA wants an individual untainted by that District's misconduct during the 21(a) Report; someone who will be fair and firm. IBDA is concerned that in dealing with the macroeconomics of building the so-called market of markets, that NASD has lost sight of the all important building blocks: the confidence of its members and the professionalism of its staff. 

MORE COMPETITION FROM LESS COMPETITORS?

Finally, one must ask how increased competition rises from the ashes of the PHILX and AMEX. If NASD management had been more forthcoming with information, if IBDA members had been integrated into the negotiation process, we might have information before us to change our views.  But it seems logical that the loss of the independence of the country's oldest stock exchange and of the second largest exchange will not increase competition. Further, the rigmarole of declaring these two exchanges as independent subsidiaries of NASD does not respond to the legitimate concerns as to anticompetitive practices. Resulting economies of scale should benefit all market participants, but what about the impact of reduced competition upon listing fees and on innovation. Will regional issuers encounter even more disinterest when seeking a NASDAQ listing, given the demise of the independence of the alternative AMEX and PHLX? Further, given the somewhat grandiose nature of the published plans for NASD, will local companies in Michigan or Florida or Colorado find that our domestic securities markets simply can't afford the low margins of such business? Into what garbage dump will small capitalization issuers now be thrown?

This law firm has previously submitted extensive comments to various congressional leaders, the SEC, and the United States Department of Justice/Antitrust Division concerning the proposed AMEX/NASD merger. The most substantive response received was by letter dated August 6, 1998, in which House Committee on Commerce Ranking Member John D. Dingell requested a response from SEC Chairman Levitt concerning the issues raised in a March 18, 1998 letter from this law firm.  Similarly, we have communicated with NASD concerning an apparently ongoing internal corruption investigation.  For details on those matters, readers are invited to download relevant materials at

·        http://singerfru.com/amexndq.html

·        http://singerfru.com/nasdrbribe.htm

·        http://www.singerfru.com/dingellsec.htm

Sincerely,

Bill Singer

For immediate release to the press

A copy of this report will be forwarded to:

·        the SEC as a formal comment to SR-NASD-98-56

·        Congressman John Dingell