Subject: File No. S7-12-06
From: Thyra Mangan

August 2, 2007

Dear Sirs:

It must have been with great embarrassment that you received notice from the Disciplinary Panel of the American Stock Exchange that the theft of securities by Mr. Arenstein, garnered though the loophole created with Regulation SHO, has occurred.

The link for this notice of violation of SEC rules is:

On page 15 you will see details of how he managed to complete the theft. Below is the section, which does seem to indicate that you have failed to enforce your rules, or you have made rules that allow theft.

Now you have made alterations to that rule, and failed to implement them, thus allowing further deterioration of our securities market.

From the decision against Mr. Arenstein:
15.In an example of one type of such a transaction, Respondents executed a buy-write using a one-day FLEX option that had the effect of temporarily resetting the buy-in date. In the transaction, Respondents bought stock from another Exchange market maker (buy-write contra party) and simultaneously sold (wrote) one-day, deep in-the-money FLEX call options for a corresponding number of shares to the same market maker. Respondents' clearing firm reflected the transaction in Respondents' account on the clearing firm's books and records.

Respondents utilized a variety of different types of transactions to circumvent their delivery obligations under Reg SHO. Examples of other types of transactions utilized by Respondents include, without limitation, married puts and two-day FLEX options.
A FLEX option is an exchange traded equity or index option, that enables an investor to specify within certain limits the terms of the options, such as exercise price, expiration date, exercise type, and settlement calculation.
Respondents generally bought stock from other market makers that were also selling short hard to borrow Reg SHO threshold securities and utilizing the market maker exemption from the Reg SHO locate requirements.
A deep-in-the-money call option is where the market price of a security is well above the strike price of the option.
Because the payment received by the other market maker is generally less than the interest payment that such market maker could have received by lending the same number of shares, Respondents should have been reasonably able to infer that such market maker selling stock within the buy-write transaction was also short stock.

16: The following day, the one-day FLEX call options expired in-the-money and Respondents, who wrote the FLEX call options, were assigned an exercise notice to deliver the stock. Respondents then used the purported long stock they had purchased in the buy-write the previous day, to satisfy this exercise notice. Respondents, however, had not received delivery of long stock from the buy-write contra party. Accordingly, shares were not delivered to close out the short position that was established during the initial reversal transaction. Based on the execution of the FLEX call option transactions, Respondents' clearing firm reset Respondents' Reg SHO close-our obligation to Day 1.
by setting the FLEX option to a one day option, it meant the option would expire the next day.
While Respondents appeared to have purchased stock on the books and records of Respondents' clearing firm, the counterparty to the buy-write did not deliver stock to Respondents.

17. Respondents repeatedly engage in these or other types of transactions after receiving a Reg SHO Buy-In Notification from their clearing firm and these transactions caused the buy-in date to be reset. These transactions were executed approximately every 13 settlement days until the options positions either expired or were closed out. This course of conduct enabled Respondents to maintain impermissible short positions in a number of Reg SHO threshold securities for extended periods of time.

I'm all for protecting the investor, not the manipulator.

Thyra Mangan