From: Keith Fishe [kfishe@DRWTradingGroup.com]
Sent: Friday, February 14, 2003 1:09 PM
To: rule-comments@sec.gov
Cc: roeserj@sec.gov
Subject: FW: SR-BSE-2002-15



Mr. Jonathan G. Katz
Securities and Exchange Commission
450 5th St., NW
Washington, DC 20549-0609
 
Dear Mr. Katz:
 
Re: SR-BSE-2002-15, Boston Stock Exchange, Inc. Filing to Establish 
 Trading Rules for the Boston Options Exchange Facility 
 
 	The BOX represents a long-awaited evolutionary step toward accessible 
electronic markets for equity options.  While not the first electronic options 
exchange, the BOX addresses key competitive issues providing added benefits to 
retail option customers and a majority of liquidity providers.  The BOX 
shareholders have articulated many of the benefits of the BOX, but there are 
some key structural features that should be heralded.

 	Most importantly, in the interests of all market participants, the BOX 
has NOT embedded technology limitations or membership constraints to limit the 
number of liquidity providers.  By allowing more participants, the BOX promotes 
a more competitive price making environment, greater stability and market depth. 
 
 	Another key structural issue involves the order prioritization method and 
its effect on competition.  Public exchanges stand in between the customer and 
the liquidity provider and hence capital and credit are not an issue in 
exchange-traded derivatives.  However, the playing field in equity derivatives 
has become increasing skewed.  The current market structure has not allowed the 
greatest number of qualified firms to participate as liquidity providers on some 
equity option exchanges.  Some of these exchanges that have based order priority 
on quantity/price have re-introduced the credit/capital issue into market making 
competition leading to a reduction in the number of qualified liquidity providers.  
Since the average number of contracts per trade in US equity options is somewhere 
around 20 contracts, a liquidity provider competing for a pro-rata share of an 
option order where market-makers are 1000 up, essentially means that competition 
is unnecessarily based on one's balance sheet and not on the best price.  A few 
firms with deep pockets can be tempted to penalize smaller market makers who make 
tighter prices. In contrast, the BOX's price/time priority method encourages a 
greater number of qualified firms to provide liquidity and thus allows the 
mechanics of a public exchange to work as intended.  
 
 
 
Regards,
Keith Fishe
DRW Holdings, LLC 
Chicago, IL