April 26, 2007
Dear Mr. Chairman, Ladies, and Gentlemen:
Thank you for tackling this critical issue. I would like to add my comments to the growing crisis in the so-called "naked shorting" of shares.
I believe that immediately exterminating all such shares will cause an unnecessary turbulence in the market. It is in everyone's interest that this problem is taken care of quietly without much disturbance to the global markets. By forcing all entities to send shares or cover, there could be a scramble that would send stocks in unpredictable and potentially disastrous directions.
To remove this problem, it should be handled gradually and proactively. I propose the following steps:
1) Existing Shares on the REG-SHO list:
These people have already broken the regulation, however forcing them to scramble immediately for finances or shares might destabilize the markets. Instead, enforce a 10% per week requirement - they must cover the trade or deliver this percent of shares every week until they are no longer on the list. I suggest giving a 2-4 week break for the first 10% so they can adjust to following the rules. This would gradually deflate the situation.
2) Any new shares not delivered within 3 trading days:
Simply make the rule such that any shares not delivered within 3 trading days must be covered, regardless of the stock price with no excuses. If a person buys a product which is not delivered, they should expect an immediate refund and this transaction should be treated the same.
3) Any continued defiance for new or existing shares:
I suggest a change in the penalty structure to reflect the gains and total investment rather than a fixed or tiered amount. It's my belief that people involved in this business are happy paying a $100,000 fine if they make $1M in profit. Instead, make the fine 100% of the profit plus percentage of investment, such that they'll be guaranteed a loss for trying this illegal scheme. I would define "profit" as the maximum profit possibly gained during this time, meaning if the investment is worth less now than a few days ago, take the profit penalty when it was at its highest.
It is my hope that my comments in addition to the dozens of other comments are helpful in making your decision. It is the goal of every law-abiding investor involved that markets are stable and companies investors do not suffer needlessly by a handful of thieves. We rely on your sound judgment in changing REG-SHO such that it solves the problem without creating unstable markets.
Max Rossin, concerned private investor