From: Papowitz Aaron [aaronpapowitz@hotmail.com] Sent: Tuesday, December 30, 2003 2:44 PM To: rule-comments@sec.gov Dear Jonathan Katz, I am writing to you today in regards to Regulation SHO and short selling in general. I believe that short selling on the bid, in the same way as type 2 selling and buying, should be allowed at any time and price based on the rules of supply and demand. Further, compromising the rules of supply and demand could have drastic negative repercussions for individual traders, trading firms and the markets as a whole. Philosophically, I feel that the equity markets function best when the rules of supply and demand dictate price. Perhaps the primary reason the U. S. markets have been so successful is that they are free markets in which buyers and sellers meet without unnecessary intervention. In the same way that a buyer cannot buy stock from a seller unless a seller is willing to sell, a short seller can not sell short unless a buyer is willing to buy. If a stock has legitimate value, a buyer will step in at a cheap enough price, and if a stock does not have value, it should not be illegitimately inflated. The moment short selling on the bid is stopped is the same moment that a free market dictated by the rules of supply and demand is destroyed. While my philosophical beliefs in regard to short selling may have little importance, I feel I need to be forthright in regards to them. Practically, Regulation SHO may destroy much of what the U. S. markets have built since the depression. It is important to note that short selling on the bid needs to be allowed in ALL equities, not just liquid ones. Many traders only trade low volume stocks. Being taken on the offer by definition means there is an active buyer which exactly when one wouldn’t want to sell short. Day traders won’t want to sell short in this situation so liquidity and volume will decline. Also, these stocks need short selling on the bid as much, if not more than thick stocks because one person can peg the market with a 100 share bid. This practice is supposed to be illegal but happens every single day because there often isn’t a type 2 seller in these stocks. Allowing short selling on the bid in these stocks, and thick stocks as well, will help eliminate pegging. I feel that disallowing short selling on the bid will cause the vast majority of short term traders to lose their livelihood. Simply stated, traders will no longer make enough money to survive. In turn, most “Day-trading” firms will go bankrupt, not only ending short term trading but causing massive unemployment in the security industry. Thousands of customer services, secretaries, information technology, janitors, and more will lose their jobs. Daily volume will decline dramatically and long term investors will seek other opportunities. Liquidity is a fundamental component to a productive market. If the U. S. markets can’t provide a free market, it is likely that traders will trade solely on foreign exchanges. I do believe that this is a reasonable extrapolation of what could happen if short selling on the bid in ALL, not just liquid, stocks is stopped. It is fascinating that a group of people who provide liquidity to the markets and helped the markets become what they are have so many obstacles placed in front of them *1. It took me over a year to learn my craft, and now that I finally have my future is at a crossroads. I feel incredibly unappreciated. We are a group that generally doesn’t have health coverage, retirement plans or any other benefits that many other workers take for granted. We receive no salary and the only way to make a living is by earning it in a boisterous market each day. The SEC doubled it’s taxes this year, which may have hurt some long term investors but dramatically lowered the bottom line of day-traders because of our large volume. I am not writing to complain about our taxes being doubled because I am happy to contribute to ensure a fair and orderly marketplace. However, to have our taxes doubled by a governing body that is supposed to help us but is threatening to put us out of business is too much to bear. I beg you to take this letter to heart because it is a microcosm of the feelings that every trader I know has expressed to me. I would be happy to talk to you about short selling in ALL stocks. I would not only welcome that chance but am requesting it as well. Your and the SEC’s decision on short selling is the single most influential decision in the current trading universe, and I would gratefully accept an invitation to discuss the matter further. I and we need help soon or we will become extinct. Sincerely and hopefully, Aaron Papowitz aaronpapowitz@hotmail.com 917 971 7999. *1 “according To J. William Lauderback A Spokesperson For The Electronic Traders Association, The Top Nine Trading Firms Control 93 Percent Of Onsite Trading Business And About 15 Percent Of Nasdaq Daily Dollar Volume—over 350,000 Transactions And Over 120 Million Shares.” _________________________________________________________________ Check your PC for viruses with the FREE McAfee online computer scan. http://clinic.mcafee.com/clinic/ibuy/campaign.asp?cid=3963