405 E. 82nd St. Apt# 5L
New York, NY 10028
22 December 2003
Mr. Jonathan G. Katz
Securities and Exchange Commission
450 Fifth Street, NW
Washington DC 20549-0609
Re: Regulation SHO. Pertaining to SEC Rules 3b-3, 10a-1, and 10a-2.
To Whom It May Concern:
I have been trading a proprietary account for over three years. Throughout my tenure I have been involved with many rule proposals, changes, and amendments. Recently the SEC has proposed Regulation SHO. If passed, it would replace current rules 3b-3, 10a-1, and 10a-2. I strongly believe changing these rules is illogical.
The proposal calls for a uniform bid test, which will affect both exchange traded and NASDAQ equities. The vast differences between trading regulations in the specialist run NYSE and the automated NASDAQ are such that a uniform rule cannot be put into place. The way in which NASDAQ stocks currently trade should remain in place. The new bid test would only allow short sales to be executed when an offer was put up and taken. It would not be possible to sell stock short by selling on the bid even if the last bid tick was higher than the previous tick. It is my understanding that when an ECN or Market Maker enters a high bid it is willing to buy stock. With that said, why would a trader not be able to sell stock short if a NASD member shows a willingness to buy? If these changes were passed the NASDAQ would lose transparency. Furthermore, market participants should be allowed to sell a stock short on any ECN that decides it does not want to follow either the bid test rule or the current high bid rule. ECN's are essentially created and used to match buy and sell orders. Anytime a buy and sell meet at a given price the order should be executed regardless of short sale rules. ECN's should have autonomy over their decisions dealing with participation in a short sale rule.
A specialist in an auction market governs the NYSE. Essentially exchange-listed stocks follow the current bid tick rule that is now being proposed. ECN's keeping books in exchange-listed stocks do not accept sell orders on a down tick as they do on the NASDAQ. As it currently stands you must short stock by selling on the offer. I believe the markets are being protected from going down by the above proposed rule changes and the way exchange-listed stocks are currently traded. High volume stocks on both exchanges should be able to be shorted at anytime without restrictions. This is the only way to insure market integrity and keep the "playing field" level between all market participants.
Brian J. Dershow