March 15, 2004
Securities and Exchange Commission
Via Email: Rulefirstname.lastname@example.org
Re: File # S7-02-04 Comments regarding proposed Penny Stock Rule
I have been a registered broker since 1985 and president of a broker dealer since 1992. With almost 20 years in the retail business the following are some of my thoughts to your proposal regarding amending the Penny Stock Rules.
With today's access to the internet most investors have the ability to check out the broker, broker dealer and the "penny stock"/issuer that the broker/dealer might recommend. When the rule was first enacted in 1990 the SEC and others where trying to curb the solicitation by brokers cold calling with high markups/commissions in penny stocks where the firm made a market. In today's market I believe that there are a big percentage of investors that want to take risk, as we all know the bigger the risk the more reward the investor could expect to make, realizing that most penny stocks never really make it.
To have the client wait 2 business days before the broker can execute the trade is TOTALLY ridiculous. As a full service broker/dealer we have to compete with the internet discount broker dealers, which most investors have. If I recommend something to my client, then get an order and have to wait 2 days, it is not feasible as it first of all is not giving the client a best execution. I can see it now, you call a client to buy something that is defined as a penny stock and get an order for $5000.00 and then tell the client he has to wait 2 business days before you can buy it for him, and the stock goes up to where his $5000.00 would be worth $7,000.00 to $10,000.00 and now the client is upset and never does business with you again, or he goes to his internet account and uses your idea to buy the stock as an unsolicited order and gets immediate execution. This takes away a full service broker dealer right to recommend and find small companies that could prove very lucrative as an investment. In addition the client could even start a lawsuit/arbitration against the broker/dealer. This doesn't make any sense, because we all know that timing is the main component with the stock market and if you take timing away from brokers then you take the ability to trade and this doesn't serve the investment community.
Why is it that a person over 21 years of age can go into any casino with cash in there hand and gamble, without the casino getting any information from them, but a person that wants to speculate has to jump through a series of hoops to buy a "penny stock"? I believe that broker dealers that don't make markets and don't mark up any "penny stock" position should have some type of relief to some of these rules. Keeping in mind that the penny stock rule was enacted as a result of broker dealers making markets and having brokers cold call and get "new" clients to buy now, and the broker/dealer making ridiculous spreads/commissions.
Is it wrong to want to speculate? Is it wrong to buy puts or calls? Why is it that a client can fill out an option agreement and buy options right away, even before having read the option disclosure book, but a client that wants to buy a penny stock has to sign that he read the disclosure statement? Why can't a client fill out and sign a Penny Stock form similar to the Option Account form and receive the same type of booklet and be done with all of this paperwork, forms and time consuming compliance stuff?
Isn't it our job as broker/dealers to give the client what they want with full understanding and disclosure? Why does the SEC seem to always make this extremely difficult for brokers not to mention the client? The SEC seems to always want to act as big brother but yet cannot even police the listed issuers, including Enron, MCI and Global Crossing just to name a few. Let's not even talk about the Mutual Fund scandal or Analyst recommendations from the big firms. The one thing I am sure ALL investors know, is that when they buy a stock that is trading under $5.00 a share and is not listed on NASDAQ of better, they are buying a PENNY STOCK. There is no secret here. They know what they are doing and they know they want to risk some of their capital for a potential big reward or even want the chance to win big if the find the next Microsoft, Cisco, IBM. Why does the SEC want to take that away from consenting adults? If an investor has bought penny stocks before at another firm and wants to do business with me in penny stocks, he still has to fill out the existing forms, why make him wait 2 days and jump through all those hoops? I believe that the SEC could be discriminating against issuers who are fully reporting on the bulletin board, but their stock price is under $5.00 a share and they don't meet the asset requirements. How can venture capital and new ideas with small public companies exist and grow with more restrictions? Doesn't putting more government into what is already here, which by the way seems to be working fine, significantly curbed growth in our economy?
I am tired and frustrated with all the new rules and regulations that seem to serve no one. If anyone would like to discuss further please don't hesitate to contact me. I have been trading in penny stocks with my clients for almost 20 years and have NEVER had a customer complaint or lawsuit. I must be doing something right.