January 7, 2005


I am writing to address the proposal listed above , in particular, the C.L.O.B aspect . Liquidity is the determining factor in the success of ALL securities markets. When the U.S. markets went to decimals, one of the unintended consequences was the decrease in the access to that liquidity by the small 100 share orders bid for or offered at .01 cent price points. They tended to obscure where the real size bids and offers were located. In response to this, Open Book was created . The theory was that investors could see up and down in a stock to see where the real size was located. Nice theory. The reality was that nobody wanted to put their orders for size on the book where everyone could see them.........the result .......even LESS liquidity. This proposal re; the C.L.O.B. , if implemented , will take that one step further.......the result......less liquidity. As a former floor broker and owner of a NYSE member firm , I have seen these results first hand and they are simply the result of implementing bad ideas. The C.L.O.B. is a bad idea. Of particular concern to me would be the impact on thinly traded issues. Forcing investors to show their whole order in such a stock could create unacceptable volatility. Who will bid for a thinly traded stock when everyone knows the exact size of a huge seller? Everyone will wait for it to trade down sharply; those who miss it will bid it sharply higher......the result.....big volatility and unhappy investors.

Another scenario is when a fund will go to a broker and ask them to bid on a block of stock. Assume the fund wants to sell 300,000 shares of an issue. The market needs 150,000 and the broker buys the other 150,000 shares for his own account to accommodate the fund, with an eye to trading out of it over the day. The C.L.O.B scenario forces the broker to advertise that whole 150,000 if he wants to sell it. The whole world now knows he is long a big block of stock. The result........the stock goes down. The unintended consequences of this? Brokers will be loathe to accommodate clients by providing liquidity.....the result.....even less liquidity. Does this NOT seem logical to you? By applying logic to this situation ,I am confident that you will come to the right decision.


John S. French, President
JSF Securities Corp.
Members NYSE