From: KEVANS7 [KEVANS7@satx.rr.com] Sent: Wednesday, January 21, 2004 9:34 AM To: rule-comments@sec.gov Subject: Re: File No. S7-23-03 - Proposed Regulation SHO Re: File No. S7-23-03 - Proposed Regulation SHO Since you are still taking comments on the new SHO proposal for change, I figure I would add my comments about my outrage in reading the comments submitted by the Market Makers themselves who are against you making any changes that would disallow them to steal from honest, hardworking investors. The below submission by Knight Trading Group, which was submitted late in the first place, shows the investors just how the MM's do not want any government agency to get in the way of them making their millions/billions/trillions off of the games they play on the markets: http://www.sec.gov/rules/proposed/s72303/knight010604.htm "We are concerned, though, that specific features of the proposal will impose unnecessary restrictions on over-the-counter ("OTC") market makers that will undermine their ability to provide critical liquidity, especially in less liquid stocks listed on the Nasdaq Stock Market ("Nasdaq"). " What critical liquidity? The MM's just sell stock which does not exist in an effort to line their own pockets. What market? I have watched OTCBB stocks trade billions of shares on a daily basis and not a single move in pps. How can you, our government, allow them to sell what does not exist in the first place? Would you allow me to sell your house even though I don't own it? After all, the housing industry could use a boost so why not. You wouldn't have a problem with this, would you? After all, it would be just stimulating the economy. Same principle applies - one should not be able to sell what they don't actually own. "23 The Commission's proposal would also create an opportunity for prospective sellers to "squeeze" the market maker, by offering the stock at artificially high prices that the market maker has little choice but to accept due to regulatory time constraints. Apart from this concern, forcing market makers to cover short positions is such a short timeframe will result in greater price volatility as they seek to acquire shares of stocks often characterized by thin markets. " What about the investor's whose money was spend on "naked short sales"? I guess I have the wrong concept of just what the markets are for. I thought it was for investors to invest money in companies which are traded on the different exchanges. Instead, the markets are just an avenue of one or two entities/groups to make money - the SEC who fines companies yet does not return the recouped monies to the injured shareholders and the Market Makers who create false, imaginary markets with imaginary shares in which the SEC does not force them to follow the rules of covering their positions. How about how the individual investor gets "squeezed" out of their savings by unlawful activity of the Market Makers who benefit from selling imaginary shares? Market Makers are worrying about getting squeezed at artificially high prices? What about how the Market Makers will drop the bids on stocks faster than you can blink and not fill investor's sell orders. If they do any filling, it will be a partial fill of a small quantity of stock and keep dropping the bid to get investors to change their orders and accept a lower bid price. Billions and billions of dollars are lost by the small investor due to the "games" (or orderly market making as the MMs call it). And let's not forget about what the Market Makers call "two-sided" quoting - how about all the companies on the OTCBB where there is no bid and only an ask and the Market Makers just have a jolly good day selling shares that do NOT exist by the millions/billions on a daily basis with, obviously, the sanction of the SEC. "III. Conclusion Proposed Regulation SHO, if adopted in its current form, will seriously undermine the ability of Nasdaq market makers to provide liquidity in their registered stocks by eliminating their flexibility to sell short to enable them to fulfill their market making responsibilities and by greatly increasing their costs. The risk is particularly grave for market makers in less liquid stocks, which put their capital at risk daily to provide continuous two-sided quotes in markets in which it is proving more and more difficult to turn a reasonable profit for the risks assumed. Knight urges the Commission to exempt bona fide market making from the various restrictions proposed in Regulation SHO, including the proposed bid test and delivery requirements. The definitions of "market maker" and "bona fide market making" that we propose will provide appropriate constraints on market maker short selling practices inherent in the standards a market maker must follow to fulfill its trading obligations, and avoid the "sledge hammer" approach embodied in Regulation SHO of restricting legitimate market making activity to target abusive practices committed by a small number of market makers. We also urge the Commission to adopt the other changes we recommend. " Again OUTRAGE, as NITE is one of the largest MM's that is seen on the OTCBB and has been selling shares like hotcakes from out of space while not even showing as quoting the stock. How do I know this? Well, NITE has sold me millions and millions of shares of stock as he is one of the Market Makers used by my broker and when the buy transactions gets submitted, it goes to NITE and when it is filled, again it is filled by NITE. The comments in the complete submission by Knight Trading Groups is acutally a conflict of interest if it is even considered. Knight Trading, and most likely other Market Maker Companies, do not want the government to change the rules because it would reduce the amount of money they make and they seek to get your sympathy on how any change in regulations would cause them to loose money. It was my understanding that the SHO was to correct the inappropriate behavior by Market Makers and make the appropriate change to protect the investors themselves and bring some sense of respect and confidence back into the markets. This can not be done if the ones making the rules or having the largest input into the SHO are the same offenders of past behavior. Many eyes are awaiting the outcome of this SHO. I believe it will tell us, the investors just where our government stands on the illegal activity that occurs here.