December 19, 2003
Mr. Jonathan G. Katz
RE: File No. S7-23-03
Dear Mr. Katz:
I am writing to voice my concerns about the merit of the proposed Regulation SHO. While I agree with the controls proposed for unrestricted short-selling, I believe that the proposed uniform bid test rule will hurt the market and its participants rather than help it.
As a professional trader for Trillium Trading LLC, I experience the internal maneuverings of the market every day. The value of every cent is most important to the small time traders and investors. It is these people who will be hurt by the proposed bid test rule. By requiring short sales to be effected only at a price of at least one cent above the bid will result in a lack of liquidity in the market and cause these small time investors and traders to often pay the spread even if both the buyer and the short seller were originally voluntarily willing to have a transaction at the bid price.
While small investors and traders will be hurt from this proposed bid test rule, large firms and market makers will benefit from them because of this money that is being taken from the small time investors. As bad as that already is, the proposed exemption of this rule for market makers is even more unfair. Market makers in many NASDAQ stocks are rarely forced to make trades nowadays purely to provide liquidity to the stock. For those market makers who engage in day trading as a major part of their routine, this exemption would make it even harder for small investors and traders to survive.
In conclusion, the proposed regulation SHO would end up being more detrimental than beneficial to the small investors and traders who make their livelihood participating in the market and providing liquidity to the market every day. I therefore strongly suggest that you reconsider the proposed Regulation SHO.