November 24, 1998
Mr. Jonathan G. Katz
U.S. Securities and Exchange Commission
450 5th Street, N.W.
Washington, D.C. 20549
Re: SEC Release No. 34-39,884 (File No. S7-12-98)
Dear Mr. Katz:
Bowman Capital Management is submitting this letter to comment on the SEC’s proposed Regulation ATS, and in particular, to express our opposition to any rule that would require electronic brokers to display institutional orders to the public quote. Bowman Capital is an investment advisor registered with the State of California, which manages United State’s equity portfolios on behalf of four investment funds.
In our opinion, adoption of a mandatory display rule of electronic brokers would significantly impede our ability – and the ability of most larger institutions – to obtain best execution for our clients. To avoid impacting the market for a security, money managers need to maintain anonymity and control over their orders. Once an institution’s interest or the size of its interest in a particular security becomes known, the price immediately becomes prone to manipulation.
Electronic brokers of the type targeted by Regulation ATS are a particularly important means for maintaining anonymity and control over orders, since they enable institutions to deal directly with each other, instead of revealing their identity and trading interest to dealers or to the market. Eliminating our option to use these brokers the way we now will ultimately result in worse and greater execution costs.
We understand that the SEC is concerned about transparency for retail investors, but this rule could in fact result in even less transparency (if order flow moves toward other "upstairs" dealers or offshore) and also greater volatility (when institutional orders start moving the market). We therefore do not believe the SEC should adopt this rule, at least without taking the time to weigh its potential negative consequences.
Very truly yours,
William J. Haggerty
Managing Director of Operations