Subject: File No. S7-5-99 - amendments to Rule 15c2-11

Date:    4/6/99 11:42 PM
     
     
Jonathan G. Katz
Secretary, Securities and Exchange Commission 
Mail Stop 6-9
450 Fifth Street, N.W.
Washington, D.C. 20549
     
Dear Mr. Katz:
     
While I certainly feel that more needs to be done to reduce penny stock 
fraud, I believe the proposed changes to rule 15c2-11 could do more harm 
than good. If the amended Rule causes some broker-dealers to stop making 
markets in OTC stocks, whether it's because of potential liabilities or the 
additional time and paperwork involved, investors are going to suffer. 
Liquidity may decrease and spreads could widen, which would make it more 
expensive for investors to trade OTC stocks. Plus, with the legitimate 
market makers out of the way, the sleazy market makers will have an easier 
time manipulating stocks.
     
The role of market makers should be to provide liquidity, not to look for 
stock fraud. Rather than forcing market makers to act like regulators, I 
believe that existing regulators, such as the Securities and Exchange 
Commission, should look for other ways to reduce scams and fraud.
     
For example, maybe there's a way to prevent some unqualified investors from 
trading non-reporting OTC stocks. Perhaps, as with options trading, 
investors who want to trade non-reporting OTC stocks should be required to 
fill out a special application to trade OTC stocks. The investor's 
brokerage could then decide if the person is qualified - in terms of their 
financial ability to absorb losses as well as their knowledge of OTC 
investing. Along with the application to trade non-reporting OTC stocks, 
the person should be sent a booklet which discusses the risks of investing 
in OTC stocks, as well as tips on how to invest wisely in OTC stocks. Some 
examples of OTC stock scams where investors lost all of their money would 
also be good to include in the booklet.
     
I believe that attempting to keep unqualified investors away from 
non-reporting OTC stocks would certainly help improve the OTC markets. (And 
it would help the unqualified investors, too.) With less suckers 
(inexperienced investors) in the market, the effectiveness of stock scams 
and Pump and Dumps would be reduced, and that would be a step in the right 
direction. And as the SEC continues to educate investors about the dangers 
of penny stock investing, and continues to crack down on firms that break 
the law, the OTC markets should continue to improve.
     
     
Sincerely,
     
Jeffrey A. Grossman
Editor, SmallCapInvestor.com
FinancialWeb.com, Inc.
e-mail: jeff@financialweb.com