From: Brent Starck []
Sent: Friday, June 11, 2004 11:29 AM


Yesterday, I called 'market reg' to voice my concern about a recent rule change, and was asked to put my comments in this mail. First thing I would like to say is that I felt my call was well received and my comments were welcome, and for your own feedback, that is a great feeling. Thank you.

I received an e-mail from INET yesterday stating that as of Monday June 14, they will no longer be able to display prices that lock or cross NBBO in the QQQ, SPY, and DIA ETFs. I have heard rumor that this will apply to the Archipelago ECN as well. I disagree with this policy on several levels. However, while there is a larger discussion to be had about the pro's and con's of regulating behavior in order to create a fair and orderly price discovery process versus allowing natural market forces to create an efficient market and accomplish the same fair and orderly price discovery process, this IS NOT my intention today.

Today, I want to make it very clear that it is my strong opinion that this rule change is going to inhibit the price discovery process simply because the primary exchanges with their inferior technology cannot or will not compete with the likes of INET and Archipelago. I am an active trader in QQQ's, DIA's and SPY's, and I can tell you with absolute certainty that the majority of the time I try to trade the prices displayed by either the AMEX or the NYSE, I do not get filled. Whether it is in fact inferior technology, or the specialist system proving itself obsolete in these types of markets, or both, the FACT is that a large portion of the time the prices displayed by either of these exchanges are meaningless. This is so much so the case, that I and many others like me choose to ignore their prices when valuing derivative products like options, or valuing a spread of any type derived in some part from these ETF's. A point to drive home is the fact that the irrelevancy of the NYSE and AMEX markets is in direct proportion with the level of activity in the market. As the markets get busier, the AMEX and NYSE prices become more meaningless. I'm sure most every market participant would agree, that it is in the busy times that market liquidity and true price discovery is the most meaningful. Now, on the contrary, INET and Archipelago prices are real and always tradable no matter how active the market becomes. That is the only way anyone can trade with confidence.

I could go on and on, but hopefully this one issue is enough in and of itself to get the point across that the change slated for this coming Monday is detrimental to the market. In sum: Trading is evolving. Technology is evolving. The marriage of these two evolutions, is a revolution. With computers we can read market prices faster than the human eye can see. With computers, we can react to those prices faster than the human body can react. This type of speed slices a trading day into many many more time frames and allows for a level of market efficiency never before attainable. To make the change suggested, in which the ECN's cannot display prices that lock or cross NBBO, is to artificially set technology back in time. This behavior as I point out above is bad for the market and it destroys any incentive for the inferior players to improve their technology. I think it is time we stop creating a level playing field by bringing everyone down to the lowest common denominator. I ask you to reconsider this rule change, and I also ask when you look forward to new rule changes that you look at them with the mind set of rewarding technology that improves market efficiency. You will hear a lot of whining from the status quo but trust me, if they have to, they will change and everyone else (the vast majority) will benefit. Natural Selection.

Thank you for your time.

Brent Starck