February 4, 2009
I am making one last futile attempt to influence decision making at the SEC. This is probably my 6th or 7th letter commenting on various rule changes proposed by the Options Exchanges. There is so much to consider here, it becomes very difficult to reduce it all to writing. Therefore, among other thing, I recommend the SEC actually interview some customers who may be affected by the rule change. It should also be noted that most customers who are affected by these rule changes have no advocate; in fact, no knowledge of the proposed rule change until after it is implemented. We, the public basically rely on the SEC to protect our interest; something I think the SEC has again and again failed to do. My assessment is the SEC takes a proposed rule change, solicits comments, allows the Exchange to respond to the comments, seeks no rebuttal from those impacted by the rule change, adopts the Exchange reasoning, and approves the rule change. Worse, no one at the SEC seems to be aware of the composite discrimination these rules produce when taken in the aggregate.
Let me give you an example of the sloppy application of the referenced rule change. In footnote 14 page 4 the SEC seems to go to great length to explain that this rule while admittedly discriminatory is not unfairly discriminatory because " 390 orders is equal to the total number of orders that a person would place in a day if that person entered one order every minute from market open to market close". That's how the 390 is derived (per person), but then in the body of the decision you apply that criteria to entities or to beneficial account(s): Potentially a much broader and more discriminatory application.... and so this slippery slope of SEC permitted discrimination continues. Isn't it better just NOT to allow any discrimination, particularly when the public is depending on You.
Additionally, I really can't believe that the SEC is delusional enough to endorse the ISE argument that small retail customers are harmed or squeezed out because more active retail customers enter too many orders. Take a practical look at the market place: not only do these so called professional orders improve the liquidity and depth of the market, they also improve price discovery and improve the spread in the market, ultimately to the benefit of every participant. Also, these larger retail customers are a check on the possible abuses by the specialists in the market. I refer you back to your findings against the AMEX and the NYSE for the abuse of retail orders. When one enters numerous orders one is much more aware of potential patterns of abuse... than someone entering two or three orders a week . When the SEC frays the fabric of the market they erode the checks and balances the unencumbered market place naturally imposes.
I apologize for the frustrated tone of these comments. I hope the SEC will either reconsider the rule in its entirety or limit further its application....bear in mind many entities consist of numerous individuals which as a group could enter more than 390 orders per day, but as individuals would enter far fewer.
Thank you, Charles Cox