May 5, 2009
The biggest issue with short sales has been not enforcing the rule to borrow shares before shorting them. "Failure to deliver" has been the root of many problems. This is often referred to as naked shorting.
There were more shares of Lehman Brothers and Bear Stearns sold short than there were shares that had been issued. This allows market manipulation. A ban on 'naked' shorting needs to be enforced. Selling short in itself is acceptable, provided shares have been 'borrowed' from other customer accounts in order to do so.
Additionally, an uptick rule needs to be re-established. We had no problems while the prior rule existed, so it is best to err on the side of caution and restart the rule. Circuit breakers are probably not the answer.