April 20, 2009
I am neither for or against additional regulations for short sales, What I am concerned about is the effects of naked short sales on asset valuations. Short sellers should not have a different set of rules than investors. Short sales should settle in 3 days and the securities should be delivered with no exceptions for any market participant. Market maker exceptions have distorted values and allowed some traders to commit fraud througt phantom share creation, while taking up to 13 days to deliver shares under Reg SHO. I know why they do it, they get to use the sales proceeds to generate revenue while failing to deliver the shares. This is theft in any other industry, and should be treated as such in this one. If most people did this it could be considered embezzelment. Settle the trade in 3 days, force delivery of short shares, and end market maker exceptions for short sales and you will go a long way to restoring market confidence. You should also look into OTC wash sales in thinly traded securities, but one issue at a time