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December 9, 2003
To Whom It May Concern: I am the Registered Representative for Trillium Trading LLC with 4.5 years of trading experience. After reading the proposal for Regulation SHO, if these new rules are passed, it will seriously harm the efficiency with which the markets are trading. The recent changes that the Nasdaq Market has undergone - SuperMontage and Decimalization have made giant strides towards making the market more efficient. They have tightened the spread to one cent between bid and offer, offering investors and traders easier access to buy and sell securities for both investments and trading volume. I have traded hundreds of millions of shares in my career and the level of liquidity that currently exists is phenomenal. If Regulation SHO is passed using the newly proposed BID TEST rule, this new level of liquidity will be dramatically hindered. The proposed pilot program for 1/3 of the highest volume stocks as shortable at all times is a step in the right direction though. Proposed Bid Test Rule - since liquidity is so high in this market to buy and sell securities at any one moment at relatively the same price, there has become little difference between the bid and the offer. Recently I have watched 10,000 share market sell orders on the offer of a stock sell that stock down much further than it should have gone rather than simply hitting the bid prices. Attempting to get adjusted at the offering price causes less liquidity in the market. On the same note, if a proposed investor/trader is looking to short sell stock, hitting the bid should do less damage to the price of a stock than if they were to offer it. As ECN's have grown in volume, the Market Maker quote is virtually non existent but for 100 shares at random intervals. ECN's represent customer orders, and as more and more ECN's join the offer to either sell and get short, they influence investors/traders to liquidate their long positions in advance of all of the offer selling; rather than the offering of stock simply hit the bids and let the stock absorb their shares causing less needless volatility. Proposed Pilot Program - The SEC's proposed pilot program for 1/3rd of the highest 1000 volume equities to be shortable at all times I feel truly maximizes the current high level of liquidity which the market has. The highest volume stocks currently have a natural spread of less than a penny with sub penny trading. This offers gigantic liquidity within the same price of the equities. There is truly no difference between bid and offer prices. Being able to execute a short trade in these equities will have little or no affect on the price of the stock. Thank you for you time. Sincerely, Todd Sherman
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