December 24, 2003
Mr. Jonathan G. Katz
RE: File No. S7-23-03
Dear Mr. Katz:
I am writing to you to express my concerns over the proposed Regulation SHO. I am a professional trader and have been trading for four years. I feel that a new uniform bid test allowing short sales to be effected at a price one cent above the consolidated best bid would be detrimental to the market, my firm, and myself as a professional trader, for several reasons.
Regulation SHO would have an immediate negative impact on market liquidity. With the bid test today, you have both sellers and short sellers on the offer or hitting bids to execute their orders. You have both buyers and short covering on the bid and paying offers as well. By removing one of these areas you would create less liquidity in the marketplace.
After reading the proposed Regulation SHO, one aspect really stood out to me. It benefits the market maker, and hinders the professional trader. The fact that market makers are exempt from this rule is ludicrous. They have the ability to make short sales without an uptick as it stands today. This already puts the professional trader at a disadvantage. By initiating the proposed Regulation SHO, it will make it even more difficult for us to trade profitably.
The proposed regulation would not only be detrimental to short sellers, it would hurt buyers as well. Buyers will be forced in many situations to pay the spread in order to get long the stock because short sellers will not be able to hit their bids. Therefore, the buyer does not get the true best price. On the flip side, sellers will be able to manipulate the market by bringing up the bids, knowing that short sellers will not be able to hit them, in order to get better prices on their sales.
In closing, the proposed regulation SHO would definitely have detrimental impact on trading, the market, and on the profitability of many professional traders. As professional traders we bring capital, volume, and liquidity to the market. By initiating the proposed Regulation SHO, you will lose much of these factors in the market. I strongly urge you to reconsider the proposed Regulation SHO.
Shane D. Ness