From: David Amster [DAmster@crtllc.com] Sent: Tuesday, March 04, 2003 10:16 AM To: 'rule-comments@sec.gov' Cc: James Concannon; Ray Rivers Subject: File No. S7-50-02 Mr. Jonathan G. Katz Secretary Securities and Exchange Commission 450 Fifth Street, NW Washington, DC 20549-0609 Re: File No. S7-50-02 Dear Mr. Katz: I write on behalf of CRT Capital Group LLC ("CRT" or the "Firm") in response to the Commission's request for comments regarding proposed changes to SEC Rule 10b-18 (the "Rule"). CRT is an institutional broker-dealer and investment bank that focuses on targeted research and trading of high-yield, convertible and distressed debt and equity, capital structure arbitrage, mergers and acquisitions advisory services and special situations. CRT's clients include major financial asset managers, mutual funds, insurance companies, pension funds and investment companies. Due to the Firm's expertise in the distressed sector, representatives of certain thinly-traded small-cap issuers periodically contact CRT to seek the Firm's guidance in conducting open market equity repurchases. Accordingly, CRT is particularly concerned with the provisions of the proposal that would begin to include block purchases in applying the 25 percent purchase limitation. CRT urges the Commission to continue to exclude block transactions from the Rule's purchase limitation calculations. Eliminating the block exemption will shrink the market for thinly-traded small-cap equities in two grave ways. First, including block purchases will instantly prevent such issuers from conducting meaningful buyback programs. Under the current Rule, an issuer may effect daily purchases in an amount up to 25 percent of the average daily trading volume of its shares. With or without special treatment for block transactions, this limitation poses few, if any, problems to substantially capitalized concerns like those listed on the New York Stock Exchange or those that meet Nasdaq National Market requirements as daily trading volumes in such companies characteristically advance into the hundreds of thousands or millions of shares. Small-cap issuers, however, face harsh consequences without an exemption for block transactions as daily trading volumes in such companies typically remain below the 100,000-share level and often only reach a fraction thereof. Such thin trading trading volumes virtually preclude issuer repurchases for programs such as employee stock option plans and employee stock ownership plans. Second, as the issuer itself is removed from the potential demand pool, institutional investors are stripped of what is often their only source of liquidity for large quantities of such securities. Lacking sufficient large-scale flexibility, institutions will simply exit this marketplace. Ultimately, eliminating the block exemption will only serve to further shrivel the small-cap issuer market. CRT understands the Rule's overarching aim to be that of a safe harbor by which an issuer may demonstrate during the course of repurchasing its own equity that it has taken due care to avoid the appearance of manipulative behavior. With or without a block exclusion, though, block transactions under the proposed Rule will continue to be executed within the context of the then-current market subject to well-established independent bid limitations. As such, CRT believes that revoking the block exemption offers no benefit to large-cap issuers, little or no value to the investing public and likely will deal a paralyzing blow to small-cap issuer liquidity. CRT appreciates the opportunity offered by the Commission to comment on this important issue. Should you require any additional information, please feel free to contact me at (203) 569-6441. Sincerely yours, David J. Amster Director of Compliance CRT Capital Group LLC 262 Harbor Drive Stamford, CT 06902 ------------------------------------------------------------------------------------------------------------------------------ This correspondence is intended for the addressee only. The information in this correspondence has been obtained from sources which CRT Capital Group LLC ("CRT") believes to be reliable. However, CRT does not guarantee its accuracy, and such information may be incomplete or condensed. Opinions in this correspondence represent CRT’s position as of this date and are subject to change without notice. This correspondence is for informational purposes only and is not intended as an offer or solicitation in regard to the purchase or sale of any security. CRT and/or its officers and employees may from time to time acquire, hold, or sell a position in the securities mentioned herein. Upon request, CRT will furnish specific information in this regard. If CRT is involved in the purchase or sale of any security, CRT may act as principal for its own account or as agent for the buyer and/or the seller.