From: Bryan Rule
Sent: July 12, 2005
To: rule-comments@sec.gov
Subject: File No. SR-ISE-2006-23


To the SEC:

This is a comment on the proposed ISE rule, SR-ISE-2006-23.

I am a "public" options investor. This rule will not benefit the public, especially not in the new penny-denominated options environment starting in January, 2007.

For example, an exchange-disseminated quote of 1.00 bid, 1.50 asked will be given for an option with a theoretical value of 1.25. It is a better trade in terms of an option's value, for a public buyer to put in a bid of 1.10, and wait, than it is to pay the ask of 1.50. In the new penny-denominated environment, market-maker algorithms will step a penny ahead, and bid 1.11. If I bid 1.12, an automated algorithm will instantaneously bid 1.13. This game can continue for additional rounds until the option's price nears the theoretical value of 1.25. The exchange floor algorithm will also drop it's bid all the way back down to 1.00, if I cancel all of my bids, because present-day algorithms seek only to improve prices by the minimum amount necessary. This is the current situation in stock trading.

Cancel fees directed at only one group - the public (as opposed to floor-based traders), clearly does not benefit the public, no matter what number of cancels is selected as a threshold for the fee. In a fast-moving, penny-denominated environment, the cancel fee will be very much worse.

In attempting transactions at favorable prices, the public will not be able to keep up with algorithms designed to instantaneously pay a penny better, and the choice will then be to either cancel and incur a fee, or pay above the options theoretical value. This is clearly detrimental the public. We should be able to cancel and leave the game when it becomes unfavorable, with no penalty. The SEC, which is charged with protecting the public, should definitely not be the originator of a fee which is designed to keep the public in the market when it becomes unfavorable.


Thank you,
Mr. B. Rule