April 16, 2009
Dear SEC Commissioner,
I am writing to express my strong opposition to implementing a circuit-breaker for the short-sale rule amendment being considered. Whether the new rule be a restriction on the price for short-selling or that a short-sale must occur after an uptick, the new rule must be in effect at all times and not only after a rapid downward move in stock price. As an individual who has actively invested in the stock market for the past 10 years, I have personally witnessed many instances of anomalous price movements for certain stocks, and most of these have occurred in the past year. Many of these can only be described as the result of a deliberate short-selling campaign designed to create downward pressure on a stock price. The reason I believe so is because all too often such moves occur without any underlying fundamental reason other than unconfirmed rumors that are sometimes propagated by the media. I have often observed these moves occurring in two phases. The initial large downward move occurs with no warning and is very rapid. Such moves are often recognizable as the result of a large sell order because of the spike in volume and subsequent and very rapid succession of "take-downs" of a large number of bids on the order book. Once a big enough move is generated this way, then a wave of secondary sells often occur in response to this initial large move, i.e., so-called panic selling. I have seen this type of behavior occur multiple times in a day, or sometimes repeated over a period of days to weeks. If a circuit-breaker type rule is implemented, it would only prevent the secondary panic selling that occurs after the initial downward move. Moreover, with only a circuit-breaker type rule, a determined individual or institution could simply repeat this short-selling behavior over a period of several days or weeks rather than aiming to make a large move in a single day.
It is quite obvious that the circuit-breaker rule defeats the whole purpose of the rule. If the rule is meant to prevent manipulation, then why have it take effect only after the manipulation has occurred? And if any investment professional or institution insists on implementing only the circuit-breaker rule, you might ask why, if they are not manipulating the market, would they be so inconvenienced to simply adhere to the rule at all times? I appreciate very much your continued work in implementing and enforcing rules that ensures a stable and fair marketplace for all participants.
Sincerely
S. Roy Kimura, Ph.D.