December 19, 2003
Mr. Jonathan G. Katz
RE: File No. S7-23-03
Dear Mr. Katz:
I am writing to you to express my concerns over the proposed Regulation SHO. I am a professional trader employed by Trillium Trading, LLC. I feel that a new uniform bid test allowing short sales to be effected at a price one cent above the consolidated best bid would be wrong for several reasons.
Regulation SHO would have an immediate negative impact on market liquidity. This lack of liquidity would come about as a result of less short covering during market declines, and would actually be more harmful to other market participants as they would be exposed to more exaggerated down moves in a stock.
The proposed regulation would not only be detrimental to short sellers, it would hurt buyers as well. Buyers will be forced in many situations to pay the spread in order to get long the stock because short sellers will not be able to hit their bids. Therefore, the buyer does not get the true best price.
The exemption of market makers from the bid test is truly unjust. The daily activities of market makers also entails a large amount of positional trading on an intraday basis. This in fact is where the majority of market makers make most of their profits. To allow an exemption to just the market makers for this proposed regulation would in effect give them an unfair advantage over all other market participants.
Most of all the small investor would be negatively affected as they would not get the best price for a stock as they would now.
In conclusion, the proposed regulation SHO would have an adverse effect on most market participants, especially the small investor.