September 19, 2006
As an individual investor I am very uncomfortable with the current oversight of short positions. I work with accountants every day and if the SEC does not act we are going to have another market failure. Please establish controls, I am repeating Robert Shapiro comments on RegSHO below:
"I strongly urge the Commission to re-establish the basic principle that, just as one cannot sell long what ones does not own, one cannot sell short what one does not borrow. Under this principle, the Commission should require short sellers to actually borrow shares before selling them short, or at a minimum to affirmatively locate them before selling them short, in all instances and not merely those in which the stock already carries substantial, extended fails meriting threshold security status. The Commission also should eliminate the existing perverse economic incentives for short sellers to fail to deliver: In cases in which a seller receives payment for shares that have not been delivered, the short seller should be liable for a charge that at least equals the borrowing costs avoided by his failing to borrow and deliver the shares and in cases of large-scale, extended fails, the charge should reflect the profits earned by the naked short sale. These new requirements would not affect those who document that their delay in delivering shares arose from paperwork or other innocent administrative problems or from legitimate market making activities.
"Finally, I will urge the Commission to investigate the extent to which substantial and persistent fails to deliver may occur outside the DTCCs normal clearance and settlement system, through ex clearing arrangements between private financial institutions. The potential harm to the efficiency of the markets and to individual stocks of large-scale, extended fails should be the same, whether they are transacted through the normal DTCC clearance process or through ex clearing arrangements. The critical difference is that fails occurring through ex clearing may elude the requirements of Regulation SHO, both in its current form and under the proposed amendments. Should the Commissions investigation establish substantial activity in fails and naked short sales through ex clearing arrangements, I strongly recommend additional regulation to ensure that all transactions are subject to the same scrutiny and investor protections."