Frank J. Kropf Jr.
551 Observer Hwy
Hoboken, NJ 07030
Jonathan G. Katz
Securities and Exchange Commission
450 W 5th Street NW
Washington, DC 20549-0609
I am self-employed as a professional day trader and utilize the SuperSoes system to provide my livelihood. The reason that I am writing to you is to express my concerns that the proposal put forth by the NASD to change the SuperSoes Reserve Display Requirement and Refresh Increment is inherently discriminatory, especially to any market participant that is not a market maker. Additionally, I feel that these changes were proposed solely to increase trading revenues for market makers and would actually hinder the efficient operation of the NASDAQ stock market.
Firstly, the recent price changes made to the SuperSoes system for executions and order entry are completely discriminatory. Under the new schedule, in just two months time the SuperSoes related costs that I will incur while trading will effectively quadruple, from $.50 per thousand shares to $2.00 per thousand shares traded. I would not have an issue with a price increase if there were some value added to the marketplace, but this is not the case here. The NASD is effectively bilking the individual investor to fill the pockets of others. These price increases benefit only two groups, the NASD and the liquidity providing full contribution NASD members1. Under this system, market makers will be included in a revenue sharing scheme that is intended to compensate them for the "risks" they assume by making a market on the SuperSoes system. My question is why should the individual investor be price gouged solely for the benefit of large institutions that already benefit from an unfair playing field, which includes their exemption from the archaic Short-sale Rule. The only just remedies for this discrimination is to either: 1) repeal the new pricing system or 2) provide "Liquidity provider rebates"2 to all full contribution NASD members so that order entry firms will be able to pass the savings on to their customers.
As for the proposal that would allow market makers to display only 100 shares, with a refresh size of only 100 shares, while having the ability for an infinite reserve size is completely preposterous. When SuperSoes was first proposed it was touted as being the first step in a fully transparent and efficient market. This change goes completely against this philosophy. If these changes are allowed to got through then it is reasonable to assume that many orders will take up to ten times as long to fill as is currently the case.
Consider a hypothetical order to buy 1000 shares of stock ABCD at $30. Say Goldman Sachs is displaying an offer quote for 100 shares at $30 but has a reserve size of 500 shares. Under the proposed rules the person entering the order would get filled on 100 shares and then Goldman would be allowed to refresh five more times for 100 shares each. This effectively splits a single order into 6 separate orders, each subject to fees and, even more importantly, time delays. Given the fact that SuperSoes is intended to be an immediate and automatic system to join buyers and sellers how does this possibly benefit the investing public at large? In fact the only things that these changes will result in will be allowing for potential abuses and stock price manipulations in the NASDAQ market, both of which are extremely detrimental to the equity markets. If the market makers want to quote 100 shares then they should be allowed to do so, but with no allowed reserve size at the same price. Anything else would be blatantly contrary to the SEC's directives on transparency.
As outlined above I feel that if the SEC approves the proposed changes to SuperSoes Reserve Display Requirement and Refresh Increment Changes they would be doing a complete disservice to the individual investors of the world that look to the NASDAQ stock market as a place to invest for the futures of their families and the country.
Frank J. Kropf Jr.
|1||NASDAQ Head Trader alert #2001-157|
|2||NASDAQ Head Trader alert #2001-157|