From: Zachary Hepner Sent: Tuesday, October 23, 2001 8:50 AM To: rule-comments@sec.gov Subject: Alert #2001-158 and Alert #2001-157 Mr. Zachary Hepner 10/15/01 Mr. Jonathan G. Katz, Secretary Securities and Exchange Commission 450 5th St., NW Washington DC 20549-0609 Dear Mr. Katz, I am an experienced level II quote Nasdaq trader. I have a MS from the University of California at Los Angeles in engineering, and an MBA from the University of Arizona's Eller School of Business. I would like to address my concern and disapproval of the of the "Head Trader Alert #2001-158 - October 9, 2001 Super Soes Reserve Size Display Requirement and Refresh Increment Changes Effective November 1, 2001." I believe there should be no reserve size. I feel that this new rule will harm market transparency to investors, and create a less fair and orderly market, which was part of the intentions behind Super Soes. This new rule will allow Market Makers to show a share refresh size of 100 shares, while they might have a hidden reserve size of many thousands of shares. This rule will decrease their liability by allowing them to cancel orders they may be filling at 100 share increments. This decreases market transparency and only increases investors' risk of taking a position. For example, Market Maker AABB may currently show a liability order on the offer of 1000 shares, while having a hidden reserve size of 2000 shares. An investor interested in purchasing at least 1000 shares can soes AABB for 1000 shares and the order will be filled. If the rule #2001-158 is passed, then AABB, who may still have the 3000 share pool to fill, will be able to cancel the liability order when it is soesed for its first 100 shares and place itself at a more expensive offer price. This degree of freedom effectively eliminates liability orders from Market Makers, and is contrary to the SEC directive of transparency. Market Makers claim that this new rule will be beneficial to their retail business and increase customer orders. I completely disagree with this argument. It is simply a nonexistent conjecture. Imagine this: a broker gets a call from a customer to purchase 10,000 shares of MSFT as two soesable liability orders on the bid for 5000 shares each, with each liability order showing 1 with a reserve size of 4900 shares. Such a case is ludicrous, and it does not happen. In reality, retail customers call their brokers or investors and say, "buy me 10,000 shares of MSFT (at the market [ex.])." Market makers will use this rule to manipulate their liability orders in a fashion that resembled what I remember from trading on Select Net. Market Makers would often show a size of 100 shares, while only giving the investors who SelectNet preferenced them their preferences when the preference is unfavorable towards the investor. Market Makers may hide the transparency of the market by not allowing investors to know the directions of liability orders, and canceling the soeasable limit orders when they are immediately favorable to the investors trading the equity. I would also like to address the "Head Trader Alert #2001-157 - [October 5, 2001 Nasdaq Announces New Quoting and Trading Price Schedule]" I feel that it much too early in the transition of Super Soes to predict Market Makers costs that would justify an increased pricing schedule. Super Soes is new, and it took almost two years to create. Since the implementations of Super Soes, the market experienced the month of August, the lowest volume trading in the Nasdaq market in history, and the month of September, a historical month containing a record hiatus of trading days due to the World Trade Center tragedy. It is impossible to predict the true cost of making markets under the new Super Soes system, and such a new implementation is unfair to investors who will pay for these new fees. Market Makers are already receiving a fee for making markets in the new SOES rates. Furthermore, they may always choose to execute their order or forward it to an ECN for display as dictated under the Manning Rule. Mandating a subtle tax on Nasdaq solely due to two months of data is not fair to investors; and it seems that Market Makers are trying to unfairly increase their revenues. Thank you for your considerations. Please contact me if you have any questions. Sincerely, Zachary Hepner ===== -------- Zachary Hepner http://www.imohel.com ------------------ __________________________________________________ Do You Yahoo!? Make a great connection at Yahoo! Personals. http://personals.yahoo.com