September 3, 2003 From: John Welker [quid26@hotmail.com] Sent: Thursday, September 04, 2003 12:22 AM To: rule-comments@sec.gov Subject: BOX - SR-BSE-2002-15 Mr. Jonathan G. Katz Secretary U.S. Securities and Exchange Commission 450 Fifth Street, N.W. Washington, D.C. 20549 Re: BOX - SR-BSE-2002-15 Mr. Katz, I would like to enter my comments at the plea of Thomas Peterffy Chairman, Interactive Brokers LLC. Mr. Peterffy through a mass public e-mail has requested favorable comments from the public concerning the pending creation of The Boston Options Exchange. Mr. Peterffy paints a rosy picture that public will soon be able to trade listed options at minimal transaction costs and even be eligible for potential price improvements at the demise of the evil empire of existing options exchanges. The issue of price improvements is extremely suspect at numerous levels. Mr. Pereffy, hints at the fact that the public will soon be able to enter orders in penny increments offering price improvements in order to narrow the spread crating many more customer to customer trades than currently exists. He recklessly neglects to mention that in order to be eligible for a price improvement an order has to be good for the entire size of the opposite order being crossed against or that BOX market makers during the price improvement period will see order flow and be able to offer price improvements ahead of retail price improvements in an attempt to internalize order flow. He makes no mention that The Boston Options Exchange was originally only going to offer these price improvements to registered market makers of The Boston Options Exchange in an attempt to internalize all "dumb" order flow. He makes no representation how brokerage firms other than his own will allow public orders to enter price improvement orders. The Boston Options Exchange was intended to be nothing more than a self serving exchange for Interactive Brokers and its market maker affiliates Timber Hill. Originally the design was to create a market where only market makers could enjoy these so called price improvements. Only through much criticism of other exchanges of their attempts to internalize order flow was this proposal changed. Now, Mr. Peterffy claims to offer these price improvements to everyone! However, he offers no solution how I am supposed to enter a price improved order through my Fidelity Brokerage account; he only offers a solution if I open an account at his firm and enter an order large enough to be good for the entire size of the contra order being price improved if one of his market makers doesn't step ahead of me first. If Mr. Peterffy really has the best interest of the public at heart why not just allow us to enter an order in penny increments eligible at any size? The answer is because he understands that very few retail traders have the sophistication or ability through their broker to enter price improvement orders. Again we are back to the simple question who do price improvements really benefit ? Market Makers of The Boston Options exchange who have the ability to see order flow during the "price improvement period" determine if it is dumb order flow subsequently price improving it. Mr. Peterffy claims that there will be more customer to customer trades; I take extreme exception with this comment. In the current auction environment of all exchanges two retail orders are regularly crossed with out giving any market maker a special period of time to determine if an order is a dumb market order and internalize it for himself while stepping ahead of other retail orders. Market Makers of the Boston Options Exchange will be given an opportunity to see all order flow including other price improvement orders from the public and be able to step ahead for their own accounts. Very few retail traders lack the ability or desire to auto price their orders based on underlying asset prices or have the ability to watch order flow as it comes in. Again, I ask if The Boston Options Exchange really wants to save the public money by narrowing spreads why not simply allow us to trade in penny increments at any size? This may not sound like a big deal but will quickly spiral its way to other listed exchanges as The Boston Options exchange will enjoy a significant competitive advantage being able to trade in penny increments. The other exchanges will quickly be forced to alter current rules to allow their market makers to trade in penny increments leaving the public to pay the ultimate cost. Chairman William H. Donaldson has recently launched an investigation into decimalization of equities markets and the potential harm it has caused. Decimalization was not good for institutional or retail investors in extremely liquid equities markets, there is no way it could possibly serve to benefit a fragmented illiquid options market. The manning rule did nothing but drive NASDAQ market making firms out of business. Market making firms are chief source of market liquidity driving them out of business will only serve to hurt the public in the long run. Please as a retail investor I ask you disapprove this attempt to cannibalize all listed options markets for the benefit of one brokerage firm and its partners. Sincerely, John Welker Draper, UT