March 28, 2007
I am dismayed at the reckless disregard and conscious indifference you have exhibited toward your duty and to the rights of the retail investor. The retail investor has never been given any consideration, equal rights or any protection whatsoever under Reg SHO.
Reg SHO is the weapon of mass destruction that enables hedge funds and market makers/prime brokers to destroy companies and deplete the accounts of the retail investors with unbridled naked short selling and failure to deliver. As you have testified before the Senate Banking committee, Reg SHO is inadequate and does not stop illegal trading.
Reg SHO directly conflicts with the provisions of the Securities Exchange Act of 1934. Legal precedent makes it quite clear that Reg SHO cannot overrule the act. Yet, Reg SHO continues to make a farce and mockery out of the act under your watch.
The SEC claimed volatility and liquidity concerns as reason for rewarding the financial terrorist who abuse the system and rob and abuse the retail investor on a daily basis. These claims are absurd. The naked short selling attacks create far more volatility than anything else and you have done little or nothing to stop it. The retail investor is made illiquid by these abusive attacks, which removes the money from the markets directly out of the accounts of the retail investors .
As you are aware, Bloomberg financial network just broadcasted a special on this matter. When TV networks are showing specials on a subject, the matter is already way out of control. The amounts are staggering, $6 billion a day equates to $30 billion a week or $1.56 trillion a year. Retail investors are being stuck with the tab. Its unconscionable that you have failed to stop this. The retail investor has been severely wounded and the bleeding must stop here and now.
Naked short selling failure to deliver clearly needs to be permanently laid to rest. You have admitted that the SEC and Reg SHO have been inadequate and have failed to stop illegal trading. Thus unless and until illegal trading can be controlled, naked short selling must be prohibited. Further, there is no compelling reason to allow it to continue under any circumstance and it will never outweigh the rights of the retail investor that need to be protected from it.
From what I understand, you also agree that grandfather clause has to go. Make it so.
Finally, I have serious problems with the locate rule. If someone wants to put their securities into a pool for shorting then they can opt to do so. Otherwise the SEC, DTCC, prime brokers or anyone else have no authority to grant themselves power of attorney over the accounts and stocks of unwitting retail investors. We again are being ripped off by the good old boy system. No stock can be borrowed without the owners knowledge and consent. Further that should be informed consent. That is, the stockowner must have a full understanding of what will happen to the value of his/her stock before it can be borrowed for shorting.