Mr. Jonathan G. Katz
Securities and Exchange Commission
450 Fifth Street, NW
Washington, D.C. 20549-0609
December 22, 2003
File No. S7-23-03
Dear Mr. Katz,
I have been a proprietary trader (primarily Nasdaq market securities) for over three years and have witnessed and participated in one of the most dramatic downturns in the history of the market. It has come to my attention that the SEC has proposed Regulation SHO, under the Securities and Exchange Act of 1934. The change that concerns me the most about Regulation SHO is the institution of a new uniform bid test rule allowing short sales to be affected at a price one cent above the consolidated best bid. This differs from the current Nasdaq market rule, which prohibits short sales at or below the best bid when the best bid displayed is below the preceding best bid. In addition to this, market makers will still be able to short whenever they please.
I believe this new change to the bid test will have a negative impact on the market's fluidity and liquidity and undermine everything the SEC has been trying to accomplish the last few years. While I do believe there should be orderliness in the market, I do not believe that this rule will in any way help traders, other than market makers. How can the SEC justify allowing market makers to short at any time while not allowing average investors and professional traders, not involved in market making, to do the same? This would be a gross injustice in the part of the SEC and would turn back many of the gains the "average" investor has gained throughout the years. Especially given the current environment in the American economy, where banks that run market-making activity are committing many indiscretions. This will allow for many more indiscretions when market makers are given carte blanche while the rest of society is left to their will.
The market has come off quite a bit from it's highs of almost 4 years ago, but the implementation of rules that restrict liquidity of stocks and restrict them from moving to where the market dictates is just plain wrong. The marketplace should decide where stocks should be moving and at what price they should be at. That decision should not be left to a certain few individuals whose firms usually have some sort of business with the stock itself. I would like to thank you for your time and please consider not allowing Regulation SHO to pass, at least without some major revisions.