From: mtresch [mtresch@efn.org]
Sent: Wednesday, February 12, 2003 12:52 PM
To: rule-comments@sec.gov
Subject: SR-BSE-202-15, Boston Stock Exchange Filing

To:     SEC (rule-comments@sec.gov)
Re:     SR-BSE-202-15, Boston Stock Exchange Filing.
 
Thank you for the opportunity to comment on the filing by the Boston 
Options Exchange (BOX).

Having read the filing and the added information regarding the Price 
Improvement Period (PIP), I have a number of questions.

Currently I am only able to enter orders in either nickel or dime increments. 
If I understand the filing, public customers will still only be able to enter 
orders in those discrete increments, but brokerage firms and professional 
market making firms will be allowed to enter orders in single penny increments.

If I am able to enter an order with my brokerage firm at a non-discrete price 
(penny increment) will I be allowed to participate in a PIP? Even if the BOX 
is not able to display my higher bid (lower offer), I feel that I should be 
allowed to participate in a trade that occurs at my limit. If my brokerage firm 
is willing to accept my order at a non-discrete price will the BOX reject it? 
Are the large brokerage firms allowed to offer a service to their bigger customers 
whereby they let them enter orders between discrete increments and then represent 
them in the PIPs? 

If I enter a market order, will it be eligible to trade in a PIP even if my 
brokerage firm does not "internalize"? Given that there is only a 3 second window 
for firms to better the market in a PIP, most of those improved prices must be 
automated in some way, yet they are not being displayed. This implies that only 
those customers that are with firms that internalize will receive better prices, 
even though those prices are available to all orders, since they are already "in 
the system". Two customers may receive different prices on identical orders based 
purely on the brokerage firm that routes in the order.

Currently there are many situations in the QQQ options where the market is one 
minimum discrete price increment wide, for example 3.10 bid, at 3.20, with public 
customers representing both sides of this market. Currently on all floors there 
are rules that protect those customers such that any trade that takes place needs 
to clear one of those two sides for the professionals to participate. Under this 
new PIP system trades will be able to take place in between the current bid and 
offer. How will these trades be represented in the "time and sales" lists? Will 
they print on the tape at 3.11 or will they split the trade up and print 9 for 
3.10 and 1 for 3.20. If they split the prices then, under the current rules, 
those public customers on the bid or offer will be due fills. If the trade takes 
place at 3.11 then it seems obvious to me that the current exchanges, to be 
competitive, will change the current rules to allow for negotiated transactions 
to take place in between the market and printed at that negotiated price. The 
losers are the public customers that are providing the best market but are 
excluded from trading by the professional penny jumping the market.

None of the changes represented seem to benefit the small customer.

Thank you.

Michael Resch
2821 Spring Blvd.
Eugene, OR. 97403
Mtresch@Efn.org