April 28, 2009
Mary L Schapiro
SEC Chair
100 F Street, NE
Washington, DC 20549
Dear Mary Schapiro:
Please allow the Securities and Exchange Commission to complete the short sale rulemaking process without political interference. I understand that you have oversight authority regarding the SEC and that you are under an immense amount of political pressure to enact some form of short sale regulations immediately. However, I also hope you understand that rushed rulemaking and accelerated compliance requirements increase the likelihood of unintended consequences.
The equity markets have functioned extremely well during the recent financial meltdown. At times they have been the last frontier of liquidity. When an investor has wanted to trade stocks the equity market has been there with bids and offers to facilitate their transactions. This has not been the case in other markets, even those that were touted as being "as safe as cash." The U.S. equity markets have functioned well during this crisis because they possess the appropriate balance between competition and regulation. Competition among trading venues, market participants and technological solutions providers enables the markets to offer the investing public a complex array of execution solutions at a reasonable cost to the investing public. When one segment of the investing community begins to exert political influence to hastily change the rules, it upsets this complex competitive environment and could lead to a host of unintended consequences including a loss of investor confidence.
I support appropriate regulation and the unbiased enforcement of regulations. I am a proponent of a rulemaking environment where interested parties have the opportunity to air their opinions on issues, opinions that are then fully considered by regulators before final rules and regulations are promulgated. Rules and regulations are best vetted with the input of a diverse group of informed practitioners who openly express their viewpoints. This debate affords many different perspectives to be heard and often identifies potential unintended consequences of proposed regulation. Our financial markets cannot function efficiently when rules and regulations are changed in the heat of the moment or by political edict. In our current environment of exceedingly interconnected markets even seemingly very minor changes can have disastrous unintended consequences.
I believe the SEC is proceeding in the most appropriate fashion in this rulemaking. It is difficult to understand how any legislator could fault this process as it is exactly how successful public servants conduct their daily duties. Deliberate fact finding and informed debate are the building blocks of successful regulation and legislation.
I urge you to support the Securities and Exchange Commission's deliberate rulemaking process on the short sale issue. I believe that this process has delivered the U.S. Markets the appropriate balance between regulation and competition and made our markets the envy of the world.
As a constituent of yours, my opinion is:
I am an almost 30 year veteran of working as a trader on Wall Street and although I mostly agree with the sentiments above, I would just like to add a few things. I believe the SEC, in the last 12 years has totally dropped the ball. Some of the rules and laws that were enacted as a result of the Great Depression, were swept away over the next decade, with disasterous results. Glass-Steagall and the "plus-tick" rule were designed to give stability to the financial system and help reduce volatility. I think it's clear to everyone that eliminating Glass-Steagall has been a disaster. What is less obvious to everyone is how eliminating plus ticks has led to instability in the market. When plus ticks are needed to short stocks it is very easy to see when someone is trying to short a particular stock. This clarity often reduces traders fear of the unknown. Plus ticks also make it is also harder for sell programs to be initiated and the result is fewer swings in the market place. The NYSE and other exchanges are trying to limit the restsictions put on short sellers. DON"T LISTEN TO THEM! Another thing wrong with our financial sytem is that these exchanges are now "for-profit" institutions. These means they are in competition for commissions and will favor any activity that leads to increased trading volume; whether this activity destabilizes markets or not.
We had in this country a financial system that worked very well for almost 70 years. In the last 10 years we have dismantled it by eliminating Glass-Steagall, trading in penny increments, reducing regulation and oversight, and eliminating the need for plus-ticks. We can restore confidence and faith in a broken system if we start repairing some of which we've undone. I'm afraid the horse has left the barn as far as bringing in $.05 increments, but let's start by reinstituting a workable plus-tick rule and then moving on from there.
Sincerely,
Marc Kutzin