December 24, 2003

Michael W. Vaughn
69 Leonard St, Apt 3A
New York, NY 10013

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

Mr. Katz,

I am writing to you concerning the SEC's proposed regulation SHO that has recently been brought to the attention of the investment community. I would like to argue that the proposed revisions to the bid test rule are not very conducive to a fair an equal trading environment, that they actually favor the larger trading institutions and place the smaller trader at a significant disadvantage. In my opinion, this will result in market manipulation and less liquidity.

As a trader in Nasdaq securities, I see every day that the vast majority of quotes in equities, particuarly when trading at high volumes, are displayed on ECNs. If best bids are not shortable, then upwards manipulation of stocks is more likely to occur. Market orders could also trigger sudden price spikes since a rising bid could not be executed against for short-term traders. In effect, the new rule requiring short sales to occur one cent above the best bid lessens the liquidity of the markets, particuarly on the bid.

Furthermore, if market makers are allowed an exclusion from this rule for market making activities, then the individual is at a huge disadvantage. ECNs provide the vast majority of the inside market in most stocks, so the market makers themselves are not providing this liquidity through their own SOES quotes. The new proposed bid test rule would only take liquidity away from individuals and place it in the hands of large institutions.


Michael W. Vaughn