April 16, 2009
Analyzing various methods of re-instating the UPTICK rule or other circuit breaker methods of controlling a spiraling attack by short sellers is just a beginning.
The ILLEGAL action of naked shorting by hedgefunds is the real problem however. These sophisticated funds can merely bid 100 shares one penny higher then sell 100000 shares lower, the uptick rule will have no effect. What would stop their illegal activity is PRE-BORROWING of shares.
The funds will certainly attempt to have you focus on uptick and circuit breaker style fixes, it keeps your eye off of the real problem which is the failure to deliver the shares that they shorted. - PRE-BORROWING IS THE KEY!
One security that I own E*Trade Financial Corp. has been systematically decimated by funds whom know the REG-SHO regulation has never been enforced and never will be prosecuted. If you simply require, I mean REQUIRE shares to actually be PRE-BORROWED before a short sale is made, this problem will fix itself.
PRE-BORROWING IS THE KEY!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!