August 20, 1998

Jonathan G. Katz, Secretary

Securities and Exchange Commission

Mail Stop 6-9, 450 Fifth Street, N.W.

Washington, D.C. 20549


Comments regarding proposed amendments to the national market system plan - File No. 4-208

Dear Mr. Katz:

These comments are written in support of the proposed linkage of PCX Application of the OptiMark System to ITS. I am writing from the perspective of a serious student of economics, efficient capital markets, and as a trader/investor.

The U.S. economy is the largest and strongest economy in the world. It continues to prosper and grow in an unprecedented fashion with minimal inflation. It has become both the envy of and a haven for investors worldwide. Many factors have contributed to the success of our economic engines, including a lawful, democratic society; appropriate Federal Reserve policies and actions; and a thriving national entrepreneurial spirit. These are predominant macroeconomic factors. However, other critical factors have fostered the enviable record of the U.S. economy. One is the ability to attract capital through our equities’ markets. Two potent factors underpin this success. They are the belief in the integrity of our capital markets and the efficiency (liquidity) of our capital marketplace. Any damage to either of these two underpinning elements would damage our capital systems and undermine our economy. Any elements that would serve to strengthen these critical underpinnings would enhance the attractiveness to investors in our capital markets, thus strengthening our economic system.

From my review of the OptiMark Trading System, which has received national recognition and important coverage in many business oriented publications, I have concluded that the OptiMark System would strengthen both the efficiency and effectiveness of our capital markets. The OptiMark Trading System and its implementation through the linkage of the Pacific Exchange (PCX) application is especially important for two reasons. The first is the ability to provide anonymity to investors. It is a well established and known fact that when institutions, which account for roughly 70% of equities traded, attempt to move large blocks of stock in either

Jonathan G. Katz, Secretary

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August 20, 1998

direction, i.e., the buy side or the sell side, they move markets and alter prices in directions often unfavorable to the trade. It is a simple matter of logic to conclude that this fact reduces the liquidity of equities in the marketplace. Since the OptiMark System provides for anonymity and probes all potential buyers or sellers, including individual investors, it both broadens the scope of the trade and reduces, eliminates, or minimizes the impact of the trade on the direction of the market. This factor alone will enhance liquidity. The second reason is the ability to process the transaction(s) virtually instantaneously with high speed computing technology. The ability to match all parties (buy and sell sides) virtually instantly also should reduce costs and enhance liquidity.

In conclusion it seems that the evidence is compelling that the OptiMark System be integrated with the Intermarket Trading System without restrictions or encumbrances. Such a decision is consistent with the goals of the National Market System as mandated by Congress and will further strengthen our capital markets, our economy, and the creation of wealth. To do otherwise would have the appearance of a form of trade restraint. Thank you for considering my comments.


John E. Cave, Ph.D.