From: DayTrader4ISLD@aol.com
Sent: Monday, November 19, 2001 9:12 AM
To: rule-comments@sec.gov
Subject: Ref:File No.: S7-14-01 

November 16, 2001 

Re: Effects of Decimal Trading in Subpennies
Ref :File No.:  S7-14-01    
    
Dear Sirs,

I would like to comment on a number of issues surrounding the effects of 
subpenny trading, specifically in the NASDAQ marketplace.  I believe ECNs 
should continue accepting and displaying orders in subpennies, however it 
would be a grave mistake to allow Market Makers (MMs) to quote prices in 
these small increments.

In regard to MMs, subpenny price quotations will encourage these participants 
to step ahead of customer limit orders.  It has been seen time and time again 
that many Market Makers frequently continue to violate this rule.  As 
referenced in the SEC report on May 4, 2000- Special Study: Report Concerning 
Display of Customer Limit Orders, "These and other findings described in this 
report indicate that specialists and OTC market makers need to take steps to 
improve their compliance with display rules and should increase supervisory 
efforts to ensure compliance."  Enabling these flagrant violations of the 
law, many Self Regulating Organizations do not adequately monitor these 
offenses (as also referenced in the May 4th report):    
          
     Some SROs do not conduct any automated surveillance for compliance with 
the Display Rule or SRO rules or policies requiring the display of limit 
orders. Other SROs conduct random surveillance that, while partially 
automated, remains manually intensive and inadequate to detect all limit 
order display violations. Some SROs surveil only for egregious patterns of 
violations. This surveillance often covers only a small sample of potential 
violations and is extremely manually-intensive. For example, one exchange, 
during a seven day period, sampled only 129 of 28,408 (0.45%) 
manually-excluded customer limit orders 

Any rule change that would enable/encourage Market Makers to "Step Ahead" of 
customer orders would greatly harm the operation of fair markets.

On the other hand, ECNs do not have the same responsibilities as MMs-- being 
order books for bids and offers, not having the obligation to maintain fair 
and orderly markets.  The pilot use of subpenny pricing on ECNs has been 
successful.  I do not see any harm in an investor bidding $.001 above a 
prevailing inside bid on an ECN to obtain a slightly better price.  
Considering only 4-6% of trades on NASDAQ occur in subpenny increments on 
ECNs, and the "trail" program has been a success, changing the current system 
does not appear necessary.

In regard to some of the other issues addressed in the inquiry S7-14-01:

Price Clarity:
Allowing Market Makers to quote prices in subpennies would visibly obscure 
the true price of a stock in the eyes of the investing public.  Quotations in 
the media would be confusing.  In addition the level 2 screen would become 
unbearably cluttered.  
However in respect to the ECNs the level 2 quotes are currently rounded, and 
only the "top of book" quotes show the subpenny price.

Depth of Market:
Also relating to the visible nature of the level 2 screen, allowing MMs to 
quote in subpennies would cloud the true nature of the depth of the market.  
Since ECNs only show top of book on the screen (and the prices are rounded), 
subpenny pricing on these networks would not be obstructive.

Rule 3350:
While I do not agree with the NASD Short Sale Rule, if the Commission feels 
the rule is beneficial, reducing the 0+ tick rule to below a penny would be 
ridiculous- creating "flickering" up and down ticks.

I hope these points will be taken into consideration when evaluating these 
matters.

Cordially,

Carl Z. Giannone

General Securities Representative
Limited Representative Equity Trader
General Securities Principal