250 W. 100th St. Apt PH3
New York, NY 10025
October 16, 2001
Mr. Jonathan G. Katz, Secretary
Securities and Exchange Commission
450 Fifth St, NW
Washington D.C. 20549-0509
Dear Mr. Katz,
I am writing you today to express my extreme disappointment regarding two new proposed rule changes. The first is the NASD's proposal to eliminate the 1000 share display requirement when using SuperSoes reserve size.
As a student at the University of Maryland, I remembered taking numerous finance and economic classes where we discussed the SEC's role as the governing body of the NASD. We learned its mission was to protect investors and maintain the integrity of the securities markets. By allowing this rule change to pass, the SEC would violate its key concept of market integrity. If this rule were to come into effect Market Makers will have the opportunity, in the inside market, to delay trading further by extending ten executions of one hundred shares. For example, suppose a market participant entered a 1000 share order on SuperSoes. A Market Maker with a quote of 100 shares and a reserve size of 1000 could give 10 executions of 100 shares, with each execution 2 seconds after the previous taking a total of 20 seconds to execute the entire order, instead of 1 execution of 1000 shares which would be executed immediately. My understanding of the creation of SuperSoes was to prevent Market Makers from slowing the liquidity and flow of the stock. Thus, this proposal would allow the above delays to return to the Nasdaq market place and cause an inefficient market place for all investors.
It has been proven throughout the years that the NASD does not have the resources to police Market Makers. Thus there have been many situations where Market Makers have participated in collusion, backing away, and other violations. Why must one believe that with this new rule Market Makers will be anything but manipulative, cheating market participants from a fair and orderly market?
I have understood and supported previous rule changes because of the need to make the market place more transparent. But the audacity of the NASD to attempt to implement a quick change that will result in a more illiquid market place is highly questionable. I am appalled at the notion that the NASD would attempt to pass an unfair rule change in this time of war, hoping the rule change would go unnoticed.
The second NASD rule is the proposal for a new Quoting and Trading Price Schedule. Increasing the pricing for SOES execution is a direct violation of Section 15A(b)(6) of the 1934 Exchange Act. It would create a pricing structure that is discriminatory to NASD members who are not market makers. This proposal contradicts section 19B(3)(ii) since these fees are a violation of 15 (A)(b)(6), outlined above and rule 15A (b)(5) which requires that the fees due be equitable among its members. These members who also create liquidity would not be able to participate and would be cheated from payments that are rightly deserved. One solution to this problem could be to rebate participating members who do add liquidity to the market.
In addition, there has been insufficient time, notice and data to implement this new rule on November 1, 2001. Super Soes is in its infancy, only having been in use for two months. It is necessary to conduct further research over the next year or two to decide if such a rule change is necessary for the benefit of the market place.
Mr. Katz, I kindly urge you and your colleagues at the SEC to turn down this new rule for the arguments listed above and for the mission for which the SEC stands.