From: Eric.A.Walania.98@Alum.Dartmouth.ORG
Sent: Wednesday, December 31, 2003 10:45 AM
To: rule-comments@sec.gov
Subject: File #S7-23-03 (Regulation SHO)

December 31st, 2003

Mr. Eric Walania
401 East 34th Street; Apt #N4K
New York, NY 10016


Mr. Jonathan G. Katz
Securities and Exchange Commission
450 Fifth Street, NW
Washington, DC  20549-0609


Dear Mr. Katz:

For the past two years, I have worked as a registered representative at a large 
order-entry/trading firm in Manhattan, where I trade approximately four million 
shares a month.  As a result, I would like to comment on the SEC's recent proposal 
of File #S7-23-03 (Regulation SHO). 

First, I would state that I am against the proposed bid test rule, which would 
restrict all short sales to one penny above the inside bid.  I am very concerned 
about the ramifications of any rule change that limits the ability of smaller 
market participants, like myself, to execute a short sale, while permitting 
larger market participants (the big brokerage houses such as Merrill Lynch, 
Goldman Sachs, etc.) to execute short sales at anytime, all in the name of supposed 
"market making" activities.  My experience is that the larger brokerage firms do 
not provide significant liquidity in times of increased market volitility but rather 
insert 100-share bids and offers to act as "feelers".  This strategy engaged by the 
"market makers" is no different from strategies typically employed by the majority 
of market participants such as hedge funds, asset managers, day-traders, etc.  In 
my opinion, it would be a travesty if the SEC permitted the large brokerage house 
to execute short sales on down arrows behind the guise of "market making" activity, 
while forcing all other market participants to insert offers one penny above the 
best bid.  In my opinion, this type of arrangement would significantly slant the 
playing field in favor of the minority (large brokerage firms) to the deteriment 
of the majority (smaller market participants).  I believe any rule that restricts 
the ability of all participants to execute short orders would artificially increase 
price volatility, thereby decreasing the ability of the market to efficiently 
determinte true asset values.

The SEC has exempted exchange-traded funds (ETFs) from the short sale rule for 
some time.  Given that ETFs are nothing more than portfolios of individual stocks, 
one would think that if unrestricted short selling was detrimental to the market 
and the individual stocks that make up the ETFs, there would be evidence to support 
this argument.  However, I have never heard of anyone (even ETF market makers at 
Merrill, Goldman, etc.) ever lament the fact that unrestricted short selling 
exists for ETFs.

Secondly, I would add that I believe there should be no restrictions on short 
selling regardless of the time of day: pre-market hours, during market-hours or 
after-hours.  A free market should be a free market all the time, regardless of 
liquidity, the number of buyers and sellers, or in response to a severe market 
decline.  Why does the SEC only aim to "protect" the market from severe declines?   
On December 22nd, Research in Motion (RIMM) gained roughly 50% in one day.  Using 
the same logic, shouldn't have the authorities limited buying to only on downticks, 
in an effort to "protect" those who were short the stock?  In my opinion, I believe 
"less is more" when it comes to permitting the market to find an equilibrium in 
regards to asset prices.  Any rule that prevents the free movement of capital 
imposes hidden costs on all market participants, both large and small.


Sincerely,


Eric Walania