August 7, 2006
Thank you for permitting me to express my opinion concerning Reg SHO. The Securities Act of 1934 states the purpose is to protect investors and maintain market integrity. The Securities Act of 1934 states that all trades are to be settled in a timely manner. I can not find any thing in the Securities Act of 1934 giving the Securities and Exchange Commission the authority to permit either FTRs (Failure to Receive) or FTDs (Failure to Deliver). Further, I can not find the terms "IOU" or "Entitlement" in the Act. My broker requires me to settle my trades by making payment in 3 days (T+3). Since I must settle my trade in T+3, then in order to maintain market integrity I feel strongly that the SEC should require all trades to settle in the same time frame. In my brokerage account, my broker takes my funds as soon as the trade occurs.
In this time of computerization, information travels in nanoseconds not days. All brokers can tell whether legally borrowed shares are available before allowing the trade to proceed or that a seller has the ability to settle a trade within T+3. As an individual investor, I do not want to purchase an entitlement, when I deliver my payment for a share I expect and should receive the actual share in T+3.
Please institute the solutions for FTRs and FTDs.:
1. Eliminate Reg. SHO. (The action that it governs is illegle ,i.e. FTD)
2. Require that all trades, regardless who makes them, be settled within T+3. If it can be done in the bond market it can be done with stocks.
3. Eliminate all Market Maker exemptions (there should be no exceptions or exemptions).
4. Force all fails out of ex-clearing, so that brokers cannot pass them back and forth.
5. Eliminate the use of IOUs or entitlements.
6. Electronically mark a borrowed share as borrowed, so that it cannot be used again for another short sale. There currently is nothing to prevent the same borrowed share from being sold over and over again, thus creating more IOUs or entitlements.
7. FTRs and FTDs are actually FRAUD and as such should not be handled in an administrative proceeding, but should be passed to the Department of Justice for criminal prosecution. Through the criminal proceeding the DOJ should go after the total amount of ill gotten gains, in addition to penalties.
8. In all administrative proceedings in the SEC should ascertain the amount of ill gotten gains and assess that amount in addition to any penalties.
Also, in order to aid in the protection of investors and maintain market integrity the SEC should consider the following:
1. Require the more timely posting (daily or weekly) of the volume of shares short in any company.
2. Undertake a review of all oversight procedures so that there can never be Phantom shares in any company weather traded outside the US or not.
Thank you for your review and implamentation.