December 21, 2003 Mr. Jonathan G. Katz
Ref. File No: S7-23-03 Dear Mr. Katz: As a registered principle at Trillium Trading LLC, I am writing to share my opinions on Regulation SHO. I have been an active trader and trading supervisor for the past eight years, and I have written to you on several other occasions in hopes of helping you shape the future of the NASDAQ market place. After carefully reading File No S7-23-03, I have come to the following conclusion. The short sale rule should either be completely eliminated or the pilot program for one third of the 1,000 highest volume stocks should be extended to a larger segment of stocks so that we can better evaluate the benefits of completely eliminating the short sale rule. My suggestion to the NASDAQ market is remove the current short selling rule which calls for selling only on a zero-plus tick. This rule appears only to impair rather than facilitate the market. Since all market makers and public orders should only be quoting on the box if they are actually interested in buying or selling stock at a particular price (regardless of weather there is an up or down arrow) the public should be allowed to sell the stock under all circumstances. Market markers would benefit because they can establish the positions they desire more easily, while the public would benefit from added market liquidity. If a market maker is not genuinely interested in buying stock, he should not be present on the box in the first place. Here is a specific example: Stock ABCD is trading at 10 x 20. If I am bidding a penny below the current bid at 9, I should be able to buy stock from anyone who is willing to sell it to me - regardless if the other person is long the stock or attempting to get short stock. Why should I be deprived of buying the stock by allowing only those who are long to sell to me? By doing so you are limiting the pool of liquidity that can access my order. With the introduction of decimalization several years ago, many stocks trade in a penny spread. The short sale rule is far less relevant now that stocks have such a tight spread. Furthermore we do not have to worry that stocks will be pushed down because of rapid short selling. In fact, since the ISLD and ARCA ECNs implemented liberal shorting policy (allowed to short on all bid ticks), the market has gone up significantly. I am confident that the public, the market makers, and all market participants will benefit from a more laissez faire attitude to the short sale rule. If we are not ready to eliminate the short sale rule in its entirety than we should extend the 300 stock pilot program to the top 1000 stocks, so that what is already obvious to me, will become obvious to the regulators - i.e. that the elimination of the short sale rule will create a more equitable, more stable market place without any downside. Thank you in advance for your time and consideration in the above matters.
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