Subject: File No. S7-40-04
From: John K. Romano
Affiliation: International Open Finance Association Inc.

March 8, 2005

March 7, 2005

Jonathan G. Katz
Securities and Exchange Commission
450 Fifth Street, N. W.
Washington, D.C. 20549

Ref: 17 CFR part 240/Concept Release concerning self Regulation S7-40-04

Dear Mr. Katz:

The economics of information delivery stands at the very core of this revolutionary verses evolutionary concept release. It seems the Commission is fundamentally under pressure to look at changing its old line investment banking and market making paradigm and governing approach from a command and control methodology to a more macro or goal oriented paradigm. Given the foreseeable federal budgetary constrains of the future, this maybe the only option that is relevant to effective regulation for the Commission. Rather than dictating the specific methods by which each and every stake holder can and must act in the capital markets an costly endeavor indeed, the SEC is more likely take on the role similar to a referee on the playing field standing or on the sidelines and in the field keeping an eye out for foul play. Furthermore, the spirit of any public policy debate with regards to the capital markets and SROs should be to stimulate economic development as well as promote greater investor protections and confidence.

Furthermore, the Commission should carefully study its impact on the Small and Medium Enterprises SMEs sector. Under the 1996 Congressional National Securities Market Improvement Act NSMIA certain provisions mandate that the Commission do a complete environmental scan when it relates to new regulation and public policy reform. This includes how a new regulatory regime might impact every tier of our society and social/economic system. While pondering revolutionary structural regulatory reform paradigms verses evolutionary reform paradigms, careful consideration should be given to encouraging innovation of new SRO structures in the future. If a successful new governance model is to be planned, coordinated, and implemented, it should be patently obvious we can no longer confine our thinking to the old outdated notion as to what an exchange marketplace should be, and how the Commission should play its role in that regulatory regime. A new governance model should be more inclusive to all social economic levels.

The traditional role of broker/Dealers and market maker model is being challenged as well. It is being hugely impacted by technology. Technology seems to be creating a more of a frictionless macro economic environment in corporate finance practices It appears ATSs are changing the old line Investment Banking approach by its innovations in technology. Furthermore, SROs cannot and should not remain the private domain of a few legacy SROs. If there is one lesson we have learned, it is that bigger is not always better, particularity when it has to do with trading venues and SROs. An effective regulatory regime should be able to right size itself to a model that is indigenous to its members and stakeholders. SROs models should allow for SMEs to participate and to be provided with a right sized trading venues of their own. It also should be patently obvious that ECNs and their associated technology have combined with the internet to broaden and redefined what an exchange or trading market place is today. This redefinition will continue to evolve in the future. SROs should be indigenous and relevant to its stakeholders for a proper and workable governance model to be implemented. By many accounts, there are some that still believe that the current regulatory regime seems to favor Fortune 1000 companies. It is precisely because of this dysfunctional regulatory divide more thought should be given to a pier level SRO structure under a new regulatory regime. This notion implies that there are two types of trading market systems, those that allow for specialists or market makers and those that do not.

The latter notion implies Dutch auction trading systems. Something that is not necessarily new. Some ATSs have no intermediary stepping in and furthering the cause for liquidity. Why? Generally the old method has proved to be largely an overkill and have proven to be specifically onerous for SMEs. A Dutch auction trading system that is Internet-based, can be totally transparent to its users. E-bay provides a good living example of a existing model and should be pointed out as a good analogy for a better understanding. Under the E-bay trading concept more stakeholders are allowed into the trading venue by virtue of the technology itself. From the beginning this technology eliminates the social and economic barriers of entry. From the beginning, the trading system is right-sized to an environment creating suitable platform of trading for SMEs. This sort of approach eliminates the notion of exchange admission standards on the basis of number of shareholders, net worth, or the idea of sponsorship by a broker/Dealer representing the issuer.

This has been a key consideration has been in the main stream thought of most of the OTCBB and pink sheets stakeholders for years. These markets or information delivery systems are totally dysfunctional from a trading and liquidity stand point. The chief concern was first brought to light at a special Congressional testimony in recent years by Congress woman Sue Kelly. Many SMEs have found the 15c-211 market rule to be totally arbitrary to their stage of capital formation. They have found that continued operation under the Legacy NASD trading model has imposed standards that are simply not relevant to their phase of development and business models. As a matter of fact, several recent Government-Business Forums on small business capital formation have been dedicated to this discussion alone. Currently before the Commission, there are several recommendations to create a new Broker/Dealer category for Finders of capital specifically geared to the needs of SMEs. These actions all represent a respect for indigenous regulatory policy in a movement to right-size the regulatory regime for SMEs. One of the key proponents of this movement have been Mr. Steve Boyko who claims there should be a recognized regulatory distinction made between what he refers to as Bought vs Sold stocks.

In an indigenous SRO regulatory environment, the Commission can encourage a favorable climate that allows more stakeholders the ability to enjoy and participate in the economies of scale that Information technology offers its users. In this environment there is no tolerance for manipulating market price and foul play. Unethical conduct is immediately penalized within this marketplace by timely and relevant feedback from its users. As soon as too many complaints mount up against one stakeholder, the ability of that user to continue to participate in that system of trading becomes more and more impaired, Why?...and by whom? not only its users but the E-bay corporate staff in coordination with its users. As a matter of fact users have a built in real time mechanism in place through technology that allows for a grading system on each other, based on each and every users experience in past trades. Who does this? It is the users that self-regulate or self-govern each other in this fully transparent marketplace. To further this analogy, it is the E-bay corporate staff that finally makes the real decisions about penalizing members/stakeholders with the final powers of expunction from the system of trading. The Commission can play a similar role as the E-bay staff vested with the final responsibility of overseeing all of the trading systems and components insuring that they are run smoothly as they should. Furthermore, it is the E-bay corporate staff guarantees that unethical conduct is penalized properly, and that sanctions are adjudicated fairly.

A one-size-fits-all regulatory regime is simply not constructive to SMEs today. The Commission can seize upon this opportunity to make these changes, or will this opportunity pass us all by?

Thank you very much for the opportunity to comment.


John K. Romano
Executive Director