September 15, 2001
Daniel J. Cosenza
41 Bunnell Court
Staten Island, NY 10312
Mr. Jonathan G. Katz
Securities and Exchange Commission
450 Fifth Street NW
Washington, DC 20549-0609
Dear Mr. Katz:
I have recently been informed of the proposed rule change # SRNASD-2001-66 entitled "Reserve Size Display Requirement and Refresh Increments." It seems to me that the market makers, who are already nicely compensated, are trying to pull a fast one on the small investor by trying to get this rule passed, so that they can once again control the market place like they had done before Super Soes was instituted. Upon hearing of the installation of Super Soes, I had become very encouraged that the SEC was taking the proper steps to create a fair market place for all investors, big and small. Although, should this rule be implemented, every step that the SEC has taken to ensure a fair and equitable market would be destroyed. And with the markets as they are right now, investor confidence should seriously be considered during times like these.
Market makers have certain obligations to the market place. In return, they are compensated with such benefits as being able to short on down ticks and collecting a fee for every soes execution they fill. One obligation that they must comply with though is that they must add liquidity to the market. If this proposed rule were passed, then the market makers will be able to avoid complying with this obligation.
Super Soes was installed to make the Nasdaq a better market place for all investors by allowing stocks to trade more freely. Previously, stocks were allowed to be stifled by a market maker that would kill the upward movement of a stock by sitting on the offer and selling 100 shares at a time to benefit his own pocket with limited exposure to himself. This harmful practice was to be abolished by the installation of Super Soes. And now, with this proposal they wish to restore the tools to be able to manipulate the markets once again. Only now, they are no longer obligated to preferences, and the only way to buy or sell stock, outside of ECN's, is to soes them. I mentioned before that the market makers are compensated monetarily for each soes. It sounds to me like they had this thing planned out from the start. They eliminated the obligation of preferences through Super Soes, not to mention all of their letters and fines they received from the numerous backing aways that they had piled up over the years, although by doing so, they had to abide by some new rules. These new rules allowed for the playing field to be leveled, and now they want to take back the equalizer to gain the overwhelming advantage again. Also, if this proposal is passed, then the move over to Super Soes would have been a complete farce. Any benefit that the small investor had, would be completely nullified. It's bad enough that a market maker can hide behind an ECN and continuously refresh for 100 or 200 shares, but at least they are paying some price by being charged a fee for doing business with the ECN. However, to give them the right to stay on the offer or bid for that matter and give out 100 share prints completely goes against the reasons to switch to Super Soes. Market makers exist to provide liquidity to the trading markets, not to smother the life of a stock.
As a registered representative, I have an obligation to my client. I'm obligated to make intelligent and prudent decisions when investing my client's capital. Super Soes allows me to be more confident of the direction a stock is going, thanks to the transparency that Super Soes allows. I can be sure that if a market maker is on the inside offer for 1000 shares, that there is a possibility that he has reserve size and might be a serious seller. Now if this proposal is passed, we will lose this transparency which I feel is crucial in today's market place for the small investor.
Another problem that I have with this proposal is the fact that the Super Soes concept was mulled over and tested for over two years. Ideas were exchanged, and data was compiled. A few months after its installment, people want to change it. This is absurd. We've hardly had anytime to see any supporting data that would even warrant a change. After going live in the middle of the summer, where we had some of the lowest volume days ever on the Nasdaq. The volume then began to pickup a little, until the tragic event on September 11th shut markets down for the longest period in decades. The bottom line is that these market makers have no reason to ask for these changes other than to tip the scales in their favor and give them every advantage over the small investor in the market place. As far as I'm concerned, they have no argument to change this rule other than to put more money in their pockets while doing so at the expense of the small investor.
With the installation of Super Soes, all investors benefited. It allowed for transparency in stocks, as well as giving stocks the ability to move freely without being stifled by a market maker making a bogus stand of 100 share prints. Ultimately killing the momentum of the stock. Currently, under Super Soes, market makers aren't able to play the games they once did. This, I feel, is definitely better for the market as a whole, as well as for all investors. I am confident that the SEC will continue to keep the interests of all investors, both big and small, equally important, and continue to strive for a fair and equitable market place.
Thank you for your consideration in matter,
Daniel J. Cosenza