From: Alistair Brown [abrown@limegroup.com]
Sent: Friday, March 26, 2004 2:42 PM
To: rule-comments@sec.gov
Subject: Summary of Intended Testimony -- Regulation NMS File No.
S7-10-04

Summary of Intended Testimony -- Alistair Brown, Managing Director, Lime
Brokerage LLC

I would like to address the issue of the trade through rule with respect to how
it functions currently in the listed market, and how this would similarly affect
trading in Nasdaq securities if the proposal to extend the rule to those
securities were implemented. The rule, as it currently stands, has many problems
and in fact hurts the investing public, professional traders and broker-dealers
alike. The problem is exacerbated in fast moving markets when trading literally
comes to a standstill while the slow markets update their quotes in an attempt
to catch up, resulting in trading in a particular stock moving at the “slowest
man’s pace”.

If a move happens in the market, the fast markets will attempt to move almost
instantaneously to reflect the new price as professional traders and market
makers adjust their bids and offers. The slower markets, which have not yet
moved, then effectively halt the market since new bids and offers coming in on
fast markets get rejected due to the fact they will lock/cross the slow markets,
and orders routed to the slow market obeying the trade through rule do not get
executed at the stale prices quoted. The resulting reduced trading volume in
these situations is very bad for broker-dealers, market makers and other members
of the financial community due to lost revenue, reduced liquidity and less
accurate prices, and the institutional and professional traders lose out due to
the lost opportunities to trade. Also, the investing public looking at the stale
quotes on the slow markets may unwittingly send marketable limit orders that end
up not getting executed, or worse still send market orders that end up getting
filled at a price significantly away from the quote they were presented with
when sending the order.

Adding an “opt out” clause with a “de minimus” rule along with identifying fast
markets versus slow markets will increase the complexity of the rule. Broker-
dealers and other members of the financial community will likely find it
difficult to explain these details to investors and traders. Furthermore, the
requirement to report the NBBO to customers for every execution of an “opt out”
order will likely bog down the financial community in more reporting paperwork.
The best solution is not to extend the trade-through rule to NASDAQ securities,
but to abolish it entirely.