From: Mhat McCane
Sent: July 28, 2006
Subject: File No. S7-12-06

It didn't hit me till yesterday that Section 9 of the 1934 Act actually makes ALL naked shorting illegal.

It's very very easy to just fall in to traditional thinking and SEC rules think, when the 1934 Act says something else.

My position is that the provisions of the 1934 Act will always preempt a conflicting SEC rule. The SEC is making all sorts of exceptions with a rule book a mile high that seems to conflict with the 1934 Act.

Let's think this through again :

Naked short selling is not delivering shares, there for effecting a trade without any transfer of ownership. check

Section 9 makes it illegal to effect a trade or illusion of a trade without the transfer of ownership. check

I think that's it.

Also if Section 17A of the 1934 Act of linking all settlement and clearing facilities were adhered to, no failing would happen anyway. But the 1934 Act covers it from both angles, seems to me.

SEC rules are clearly in conflict with these provisions.