November 19, RE: CESR MiFID Level 3 Expert Group Public Consultation on the Draft Workplan for Q4/ ; Ref.

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1 Bloomberg L.P. 731 Lexington Avenue Tel New York, NY Fax bloomberg.com By electronic mail: The Committee of European Securities Regulators (CESR) Avenue de Friedland Paris, France RE: CESR MiFID Level 3 Expert Group Public Consultation on the Draft Workplan for Q4/ ; Ref. CESR/ Ladies and Gentlemen: Bloomberg L.P. ( Bloomberg ) welcomes and appreciates the opportunity to comment on CESR s Public Consultation on the Draft Workplan for Q4/ , dated October 22, 2007, regarding its work programme (the Programme ) under MiFID (Q ). Bloomberg applauds the range of topics CESR will review in connection with the Programme, and we appreciate that CESR has requested guidance from market participants on the Programme. We would like to proffer views in relation to the following two items: (i) data consolidation and common procedures and (ii) regulating the investment fiduciary s use of dealing commission to purchase research. We hope our comments will be helpful. I. Data Consolidation And Common Procedures We appreciate the breadth of issues included in the Programme for consideration by CESR. We also recognize that CESR retains some flexibility in the Programme to cater for issues arising from MiFID interpretation and implementation that will inevitably arise and which could lead to confusion in the market place and market distortions. In this respect, we would like to bring to your attention one particular issue that has surfaced in the area of data consolidation. In particular, we would like to comment on data consolidation and common procedures, standards and protocols for consolidation. Directive 2004/39/EC of the European Parliament and of the Council of 21 April 2004 on markets in financial instruments ( MiFID ) expands the range of trading venues in Europe to include multilateral trading facilities ( MTFs ), eliminates the concentration rule and authorizes off-exchange trading, facilitates cross-border remote access to regulated markets and MTFs and introduces a regime of pre- and post-trade reporting. All of those initiatives are aimed at making Europe s markets more robust and competitive. We are concerned, however, that the concentration of market power currently being proposed through exchange mergers or other sole-source data publication consortia, as well as the monopoly control the individual exchanges and these consortia have over this market data

2 Page 2 may well impede efforts to encourage greater competition. In particular, the new best execution duties imposed by MiFID will naturally force investment firms to buy data. Constrained to purchase from sole-source providers, investment firms may well have to do so at unfairly high prices. MiFID and the implementing regulations adopted by the Commission require investment firms that effect trades in equity securities away from the regulated markets (exchanges and MTFs) to publish information concerning their trades. Investment firms can meet this requirement in a number of ways, but MiFID prescribes the key features required of the publication arrangement used. In that regard, MiFID Article 28 obliges Member States to require investment firms to make public the volume and price of those transactions and the time at which they were concluded. Article 28 further requires that the information that is made public comply with the requirements adopted pursuant to MiFID Article 45. The Article 45 requirements are set forth in Article 32 of the MiFID implementing regulation adopted by the Commission. Article 32 provides that any arrangement to make information public shall satisfy inter alia the following conditions: (a) it must facilitate the consolidation of the data with similar data from other sources; and (b) it must make the information available to the public on a non-discriminatory commercial basis at a reasonable cost. (Emphasis added). Article 30 of the implementing regulations provides that information shall be considered to be made public if inter alia it is made available generally through the facilities of a third party to investors located in the European Union. If an investment firm publishes its post-trade information through a third party, it satisfies its MiFID publication obligation only if the third party publishes the information in a way that complies with MiFID. A third-party publisher that does not make the information available: a. On a non-discriminatory commercial basis; b. At a reasonable cost; and c. In a manner which facilitates the consolidation of the data with similar data from other sources; does not satisfy the publication requirements that MiFID imposes, and an investment firm relying exclusively on such a third party will not satisfy its own MiFID publication obligations. 1 1 The FSA has recognized the risk of abusive conduct. In its Trade Data Monitor regime, it has emphasized the need to cleave to these key principles of MiFID as follows: Firms intending to use trade publication

3 Page 3 These tests should be construed in light of the purposes of MiFID, applying the principles of interpretation laid down by the European Court of Justice ( ECJ ). The ECJ principles of interpretation stress a broader view of what the orderly development of the Community requires and every provision of Community law must be placed in its context and interpreted in the light of the provisions of Community law as a whole, regard being had to the objectives thereof... ; while MiFID s purposes stress transparency of transactions, and the effective integration of Member State equity markets, to promote the efficiency of the overall price formation process and to assist the effective operation of best execution obligations. The principles of construction of European law, applied in the context of the purpose of post-trade transparency as envisaged by Article 28, gives rise to the following conclusions in relation to the meanings of the phrases non-discriminatory commercial basis, at reasonable cost, and which facilitates the consolidation of the data with similar data from other sources. MiFID establishes new pre and post-trade transparency regimes for transactions in shares, the objective, as stated in Recital 44 being: With the two-fold aim of protecting investors and ensuing the smooth operation of securities markets, it is necessary to ensure that transparency of transactions is achieved. In order to enable investors or market participants to assess at any time the terms of a transaction in shares that they are considering and to verify afterwards the conditions in which it was carried out, common rules should be established for the publication of details of completed transactions. These rules are needed to ensure the effective integration of Member State equity markets, to promote the efficiency of the overall price formation process and to assist the effective operation of best execution obligations. As indicated by the Recital, transaction information is critical to investors and to efficient markets. The information available must be accurate and the means of collecting and distributing must ensure that transactions concluded outside regulated markets are not doublecounted. As a result, some EU Member State regulators such as the FSA have stated (MAR A (2)) that each trade should be published through only one primary publication channel (i.e., a data collector). The data collectors then supply the data to data distributors such as Bloomberg, which can then be satisfied that, when the data are properly consolidated with other data, they will not be misleading. arrangements for post-trade reporting are under an obligation to verify that the systems: (i) ensure that information to be published is reliable, monitored continuously for errors, and corrected as soon as errors are detected; (ii) facilitate the consolidation of data with similar data from other sources; and (iii) make the information available to the public on a non-discriminatory commercial basis at a reasonable cost. FSA, Guidelines for Investment Firms Using TDMs Trade Data Monitors (November 14, 2007)

4 Page 4 The FSA s guidance serves important purposes. Since there is not a common consolidator, and since each investment firm s trading data is unique and distinct from each other s, entities that pool data from several major data providers, if unchecked, could extract monopoly rents, discriminate among purchasers with a view to crushing competition and take other action that would impede rather than support MiFID s goals. The same could be said even more forcefully with regard to the potentially anticompetitive effects of the trade data monopolies of the regulated markets and other entities entering the marketplace as data publishers. 2 Comprehensive implementation of MiFID requires thorough consideration of this issue. We respectfully recommend that CESR take the initiative in addressing the proper role of regulated markets and other entities as sole-source data providers within the MiFID framework and in curbing their ability to use their monopoly positions to frustrate consolidation, drive up costs, deny non-discriminatory access to data and thwart efforts to promote best execution. Acting after the regulated markets or other entities have exercised their market power will be more costly for the markets and investors as well as for regulators. Article 32 facilitates the consolidation of the data with similar data from other sources The data consolidation test set forth in Article 32 of the implementing regulation is unique to MiFID. A restrictive interpretation of the phrase facilitates the consolidation of the data so that it requires a firm only to enable the publication of raw data but permits the firm to prohibit the consolidation of the data with data from other relevant sources, whether illustrated by display, analytics or other means, would not be a construction that would give proper effect to the MiFID transparency requirements. The purpose of the publication requirements is to ensure that trade information from different sources is brought together in a way that allows for comparison and to provide investment firms with an efficient means of monitoring and analysing both the means of best execution and the state of the market. Changes in market dynamics by entry of new trade data publishers already provide examples of industry consortia exercising their market power in ways which are detrimental to the objectives of MiFID. For example, Delayed Data Certain trade data publishers currently provide data to non-subscribers on a two hour delay; this will likely set a precedent that would be followed by other sources of similar data (including the exchanges) which would reverse the recent trend towards shorter delay times (and greater overall transparency). 2 The United Kingdom Office of Fair Trading ( OFT ) and the Competition Commission ( CC ) have observed that an exchange is a monopolist of its proprietary information, (such as real-time market data, including prices and trading volumes of securities listed on the exchange), therefore, of necessity the available market data sets will vary as between exchanges. As such, information from other exchanges is complementary and cannot substitute for exchange-specific information. See the OFT decision dated March 29, 2005 relating to the anticipated acquisition by Deutsche Börse AG of the London Stock Exchange plc, at 93, available at

5 Page 5 Restriction on use of Data Certain trade data publishers have sought to place restrictions on the applications in which the data can be used, e.g., again this could set a dangerous precedent that would likely be followed by other sources of similar data (including the exchanges). If each source of similar data has a different set of restrictions attached to use of its data it will effectively become impossible to consolidate the data into anything apart from the LEAST useful type of display resulting in reduced transparency. MiFID Data The minimum data fields required under Article 27, Annex I, Table I of the MiFID implementing regulations for purposes of post-trade reporting include, i.e., trading day and time, instrument, instrument identification, unit price, price notation, quantity and venue identification. Article 27 does not include, for example, identification of the investment firms reporting individual trades. Today, however, a number of trade data publishers, including many exchanges, provide this information on a non-discriminatory basis to all subscribers as part of their respective data feeds. Under MiFID, if trade data publishers decide to make this (or any other non-mifid data that is currently made available on a non-discriminatory basis) available on an exclusive basis for an additional license or other fee, doing so sets a dangerous market precedent and could allow data publishers and vendors to charge supracompetitive prices for this non-mifid data. The net effect of this scenario would create data fragmentation of this data with other value added information resulting in reduced transparency. Several exchanges currently publish the identification of the brokers associated with trades (on a non-discriminatory basis) so that users can identify market share and determine which brokers to direct business towards for specific securities in order to minimize market impact (and thereby receive better execution). We might expect these exchanges to retire these data sets in the future and make them available instead on an exclusive basis, resulting in the ability to charge additional fees or costs for the right to receive this data. A core objective of MiFID is to promote greater transparency through the supply of pre- and post-trade data. We believe that information such as the identification of the brokers associated with trades (while not included in Article 27 of the implementing regulations) is required by a full reading of MiFID. We respectfully request that CESR require a broad reading of these provisions, particularly in view of the underlying MiFID goals, which are, inter alia, to promote market transparency on a non-discriminatory and commercial basis so that investment firms can have the tools they need to fulfill their best execution duties. Article 32 at a reasonable cost Bloomberg understands that there are many arrangements already in existence under which data are provided to distributors, such as the arrangements in place with stock exchanges. A material deviation from the general range of prices available in this context would indicate that the reasonable cost criteria are not met. An arrangement under which different distributors are made to pay the same price but are given materially different licences, for example, one license permitting certain analytics and data consolidation but the other prohibiting such activities, would likely fail the reasonable-cost test. The warning of Charlie McCreevy, European Commissioner for Internal Markets and Services, is on target: It is important that market positions in respect of the supply of this data are not abused and that real time data

6 Page 6 needed to fulfil the requirements of MiFID is made available at reasonable cost to data customers and vendors, given that one of the main purposes of the MiFID is to bring down overall transaction costs. 3 For illustrative purposes, we will use the following example of the pre- and posttrade analysis of an OTC trade on a London security, e.g., pre-mifid, the trade would have been reported to the LSE and included in the LSE s Level 1 data feed (priced at $80 per month). For a non real-time provider the data would have been made available on a delayed basis after 20 minutes. From a vendor s perspective the LSE charges a license fee, the data is standardized and there is no restriction on the analytics or applications in which vendors can use the LSE data. Post-MiFID the trade could be reported to a number of venues requiring additional real-time subscriptions, e.g., the most punitive by far of which is priced at $170 per month. If the trade is reported by this particular trade data publisher, the data will now be available on a delayed basis of 2 hours. From a vendor s perspective, this publisher charges a license fee and an additional set of license fees for the ability to use the data in different applications. This significantly raises the cost to the vendor (and in the end the user) in being able to help the end-user understand and apply the data in achieving best execution. In addition, this particular data feed is not standardized (for example trades in the same security are sent in GBP and GBp requiring the vendor to standardize these trades into one or the other format in order to present a consistent data set to the end user). The post-trade transparency regime is one of the key tools for pursuing the objectives of protecting investors, ensuring the smooth operation of securities markets, promoting the efficiency of the overall price formation process and assisting the effective operation of best execution obligations and its requirements must be interpreted with these objectives in mind. High quality execution, controlled execution costs and increased transparency lie at the heart of MiFID. We respectfully recommend that CESR take the initiative in addressing the proper role of regulated markets and other entities as sole-source data providers within the MiFID framework and in ensuring their ability to make information available on a non-discriminatory commercial basis, at a reasonable cost and in a manner which facilitates the consolidation of the data with similar data from other sources. Acting after the regulated markets or other entities have exercised their market power will be more costly for the markets and investors as well as for regulators. 3 Moving Forward on Capital Market Integration, speech by Charlie McCreevy, European Commissioner for Internal Market and Services before the Federation of European Stock Exchanges Convention. June 26, 2007.

7 Page 7 II. Use of Dealing Commissions / Soft Commission Arrangements We strongly recommend that CESR, in considering regulatory approaches in respect of use of dealing commissions and soft dollar arrangements, look to the U.K. Financial Services Authority ( FSA ) and the U.S. Securities and Exchange Commission ( SEC ) models, both of which resulted from extensive public comment and are well thought out. As both of these regimes are relatively young, we encourage CESR to await the results of how these regimes are operating before CESR proposes changes to this area. We also believe that it is important to allow sufficient time to pass for the MiFID inducements regime and other rules to evolve in practice as part of CESR s fact finding in this area. We have provided comments to and consulted with the FSA on several occasions during its development of principles-based mandates for the use of dealing commissions, and would like to share with CESR some of Bloomberg s thoughts and recommendations in that regard. We think the regulatory frameworks other regulators, such as the FSA and the SEC, have put into place concerning use of dealing commissions and soft dollar arrangements are relevant to CESR s consideration of these matters. Both the FSA and the SEC have embedded core principles in their regulatory systems which focus on what is the content of the product or service and does it indeed assist investment fiduciaries in making investment decisions. While there are some, essentially minor, distinctions between FSA and SEC regulation with respect to dealing commission, the two agencies consciously worked to minimize differences. That has helped multinational investment firms in developing a comprehensive and coherent approach to compliance. Third-party research and in-house research delivered through bundled brokerage should be treated alike. It is a decided misnomer to label only one as soft commission. Both involve softing in the sense that investment fiduciaries obtain extra mileage in the form of research from the commissions and other transaction-based compensation they cause their accounts under management to pay to brokerages. We will continue in this letter to refer to research brokers purchase from independent producers as third-party research. Whatever the taxonomy, it matters not at all whether the research provided to the fiduciary client is produced in-house by the brokerage firm or is instead purchased from outside. The key question is whether a given product or service claimed to be research is in fact used to guide the investment decision-making process or is instead used for other things such as reports to clients, calculation of net asset value or other administrative and bookkeeping functions that the fiduciary should pay for out of its own resources. Some bundled and third-party research is of the turn key variety, that is to say, it is delivered as a fully developed report or analysis, typically including recommendations for asset allocations or the purchase or sale of specific securities. Other research, mostly third-party research such as the BLOOMBERG PROFESSIONAL service, consists of the delivery of unique data sets and analytical tools that enable the sophisticated buy side analyst/trader to identify, evaluate and compare research ideas and investment opportunities, and to determine the

8 Page 8 availability of prices and liquidity. Both kinds of research are valuable to the investment fiduciary in managing his clients money. Disparate treatment of either in-house research or third-party research would be anti-competitive and would aggravate, rather than ameliorate, conflicts of interest that a commissions regime should seek to minimize. Investment firms that underwrite securities and make markets or carry securities inventories have the potential for abusing conflicts of interest that a think tank research house or a provider of research tools not affiliated with an investment firm would not have. Also, encouraging or at least not discouraging the growth of such independent research producers will likely encourage an increase in the diversity of research ideas. Brokers that provide research in competition with the bundled research other firms provide will quite naturally put some pressure on commission rates and spreads, which will redound to the benefit of account beneficiaries. Another important point about defining research is that the method of delivery whether oral, on paper, or by electronic means should not be considered relevant to regulatory issues. Regulation in this area should instead focus on what is the content of the product or service and does it indeed assist investment fiduciaries in making investment decisions. ******* We appreciate the opportunity to make our views known to CESR. Respectfully submitted, Alexander Clode by R.D.B