Mr. Jonathan Katz
RE: Regulation SHO
I am writing today to express my concern regarding the proposed Regulation SHO, to replace SEC Rules 3b-3, 10a-1, and 10a-2, that the SEC is considering adopting. As a registered representative for a large trading firm, I feel like I am qualified to express a difference in opinion on the proposal.
The proposed bid test rule, which would limit short selling to one cent above the consolidated best bid does not seem to be in favor of a fair and liquid market place. Based on the increase in liquidity provided by ECN in the market currently, bids are being entered at a level which traders are willing to buy stock. If the order entry in voluntary, bids should be able to be hit, regardless of if the contra-party is getting short or selling a long position. By limiting short selling to one cent above the consolidated best bid, not only are does it decrease the liquidity of the security, it also denies market participants a fair opportunity not only to get short, but also to buy on the bid. This seems to be especially unfair considering this rule does not apply to market makers. If the SEC truly wants to create a fair and equitable marketplace, they should reconsider the Bid Test aspect of Regulation SHO.
The pilot program of suspending the bid test rule in certain liquid stocks is a step in the right direction, but still not a large enough step. Testing new programs solely in highly liquid stocks does not give a true and accurate representation of the thousands of different stocks traded in the marketplace. Due to the massive orders on both sides of the market in highly liquid stocks, suspending the best bid rule does not truly show what effect it will have on less liquid securities. Currently market makers do not have to abide by these rules and I see no reason that the individual investor or career trader should be placed at a disadvantage in this regard.
Thank you for your time in reviewing my concerns. I hope that the SEC will reconsider the proposal and truly try to find a solution that is in the best interest of all traders.
Timothy K. Dolnier