October 15, 2001
Mr. Richard Cammarata
11 Judy Court
Old Bridge, New Jersey 08857
Mr. Jonathan G. Katz, Secretary
Securities and Exchange Commission
450 Fifth Street, NW
Washington, DC 20549-0609
Dear Mr. Katz,
I am writing in regard to the proposed Super Soes Reserve Size, Display Requirement and Refresh Increment Changes. Although I have been happy with the work the Securities and Exchange Commission has done in maintaining a "fair and equitable" marketplace, I am a little disturbed with the new rule that is being proposed. The most important reason being that this rule seems to benefit Market Makers, and hurt the public, and the small investors. This sounds to me like the exact opposite of the goal of the SEC. There are a number of other factors that have contributed to my taking the time to write this letter, which will be explained in detail in the following.
The most obvious argument against this rule change is that it will drastically reduce the amount of liquidity on the inside market. It seems as though a lot of work has gone into rolling out the whole idea of Super Soes. Since July 30th, when Super Soes went "live" on all Nasdaq stocks, the market really has not given Super Soes the ability to show its true potential. By implementing this rule change, it seems as though the SEC is giving up on Super Soes, and that it has not been given a fair chance to prove that it really has been, and will continue to be, a success. To further support this argument I will bring up a couple of very important facts. The first of these being that August was the lowest trading volume month on Nasdaq in a very long time. Then came September, and an increase in volume on Nasdaq gave many people hope that the economy was doing better and that Super Soes would be given a chance to prove itself. The tragedy of September 11, closed the market for 4 days, and left people very unsure of what was to happen next. Now, just as everything is getting somewhat back to normal, this rule change will go into effect and again cause uncertainty in the minds of public and small investors.
Another argument against this rule change is that it will cause a lack of transparency in the market. Without this transparency, many people can, and probably will be, hurt by the Market Makers. What makes this point obvious is the fact that Market Makers are very good at making a stock look one way and then "helping" it move in the opposite direction. What I mean by this is that a Market Maker will display 1,000 shares of stock on the bid, and 100 shares on the offer. To me, and anybody else taking a quick look at this stock, it seems as though this particular Market Maker is bullish, and is willing to buy more than he is offering to sell. However, the 1,000 shares is the true amount of stock the Market Maker is displaying, while the 100 shares is just a mirage of what the Market Maker is really trying to sell, thus really making him bearish and not bullish as previously thought. It then becomes apparent that this is just another one of the Market Makers ways of being dishonest. As more and more people pay the Market Makers offering price, the number of people unsure of whether the Market Maker will ever lift his offer increases, thus causing uncertainty in that particular stock. This causes me to wonder if my idea of the job of Market Maker is correct. I thought the job of Market Makers was to provide liquidity, and a display a fair two-sided quote in a particular stock. It seems to me that in this example, the Market Makers' main objective is to trick the investor, not to provide liquidity, or display an honest quote. Basically, he is holding the momentum of the stock with minimum risk and exposure.
In looking back on the points brought forward earlier, it is quite obvious that Super Soes needs to remain the way it is now, with the Market Makers displaying 1,000 shares. By allowing them to display 100 shares at a time will totally defeat the whole idea of Super Soes and the liquidity that it is supposed to provide. Just think that if it takes one second to purchase 1,000 shares of stock now, it will take ten seconds to purchase the same 1,000 shares if Market Makers are only obligated to give prints of 100 shares at a time. What will this do to the market? Will it cause people to trade less? Will it cause the economy to suffer? Will people use ECN's instead of Soes? These are just some of the many questions that I, and I'm sure many others have, in regard to this rule change.
General Securities Principal