November 25, 1998
Mr. Jonathan Katz
Securities and Exchange Commission
450 Fifth Street. N.W.
Washington, D.C. 20549
Dear Mr. Katz,
I am writing in opposition to the Commissions proposed rule that would require that institutional orders placed through alternative trading systems(ATSs) be publicly displayed. Longwood Asset Management is a registered investment advisor which manages about $130 million in retirement and hedge-fund accounts.
There are situations when it is in the best interest of both our customers and the market in general that we elect not to disclose large orders in the public quote. Not only would disclosure prevent us from obtaining the best possible execution for our accounts, but it would also unnecessarily add volatility to the market, increase spreads and give a false impression of increased liquidity in the market. Upstairs trading provides an effective means for us to execute large orders while causing little disruption in the market.
In fact, we could not continue to use ATSs after implementation of the public display requirement without being at a competitive disadvantage to other market participants, including broker-dealers, who will not be required to make similar disclosures. There is not a level playing field now in regards to who has to disclose what to the market and it will only become more tilted if this rule in implemented. I also believe that it is good for the market that certain secrets - in particular large trades that cannot be readily absorbed by the market - not be disclosed to all of the players. In particular, if SOES traders catch wind of large institutional orders, they will try to create short-term price swings to the detriment of other market participants.
Finally, I am confident that requiring public display of institutional orders placed through ATSs will not have the effect that the Commission apparently desires of increasing transparency of the market. Instead, it will probably have the affect of forcing more large trades offshore. For all of these reasons, I urge that the Commission not adopt the proposed order display rule.
John D. Robinson