December 3, 2001
Mr. Jonathan G. Katz
Office of the Secretary
Mail Stop 6-9, Room 6507
United States Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D. C. 20549-0609
Re: File No. SR-NASD-2001-66
Dear Mr. Katz:
Morgan Keegan & Company, Inc. appreciates the opportunity to comment in support of the amendments to NASD rule 4710 proposed by the Nasdaq Stock Market, Inc. Morgan Keegan is one of the South's largest investment firms and a subsidiary of Regions Financial Corporation, one of the nation's 25 largest bank holding companies. As a regional brokerage firm dealing with both institutional and retail customers and making a market in both large and small-cap stocks, we believe we are representative of the market making firms affected by this rule change.
Currently, the rules of Nasdaq's SuperSOES system allow the use of a reserve size functionality when a market maker is displaying at least 1000 shares in its public quote. The purpose of this reserve size feature is to provide market makers with a tool to limit the negative market impact associated with public knowledge of large pending securities transactions, and thus to obtain the best price when executing customer orders.
Electronic Communications Networks ("ECNs") also offer their subscribers reserve size functionalities but are not required to display a minimum 1000 shares as they do not participate in SuperSOES as NNMS Market Makers. Reserve size orders placed in ECNs are less likely to impact the quoted prices for a particular security since market participants cannot easily infer the existence of a reserve size. The continuation of the current rule places market makers at a distinct competitive disadvantage to ECNs.
In conclusion, Morgan Keegan fully supports Nasdaq's efforts to create a fairer trading environment for all market participants. Adopting the proposed amendments would level the playing field while continuing to encourage the display of trading interest through NNMS' "displayed size first" execution algorithm.
Please do not hesitate to contact me if you would like to discuss these issued in further detail.
Hedi H. Reynolds
Managing Director, Nasdaq Trading
Cc: Hardwick Simmons, Chairman and CEO, The Nasdaq Stock Market, Inc.
Richard G. Ketchum,. President, The Nasdaq Stock Market, Inc.
Dean Furbish, EVP, The Nasdaq Stock Market, Inc.
Bruce Turner, EVP, The Nasdaq Stock Market, Inc.