August 13, 2008
I must express my frustration regarding the SEC's apparent ineffectiveness to intervene market manipulation.
It is blatantly apparent that the deck of cards is stacked against the retail investor. The market manipulators and institutional traders have too many tools and tactics available to defeat the retail investor. If a security has a high short interest, they simply use naked shorts to force the retails into forfeiting their shares at huge discounts. If they are unable to force the hand of the retail investor, they simply do not settle their position until they ultimately succeed, and hence the need for REG-SHO. There are more ways to sell a security or continue downward pressure on pps than there are to lift it up. After they have shorted, naked shorted they still have options at their disposal. Securities that remain on the REG-SHO list, continue to have excessive short interest while put options are systematically used to push the price down or stop a run-up in pps.
The deliberate manipulation is blatant as it is most prominent at price points that would be support levels. The option activity increases and is followed by steady stream of 100 share sells. Such activity continues until the support ultimately gives way. When the market manipulators want to buy they buy in large blocks that seemingly have less affect on price movement than the steady 100 share lot sells. Perhaps some regulation that would force them to buy back in lot sizes equivalent to their sell lot size would reduce their ability to manipulate. The manipulations I have witnessed occur frequently on REG-SHO securities, and this is only scratching the surface. There is a multitude of manipulative tactics employed against REG-SHO securities. I have screen captures of level 2 activity displaying bid/ask quotes flipped, out of sequence and volume discrepancies. I have contacted SEC enforcement, I have attempted to send them the screen captures, but the files are blocked. I have notified SEC enforcement about the screen captures, but no one has followed-up.
The following questions are intended to generate ideas to help stem-off manipulative tactics.
Why is option trading allowed for any security on the REG-SHO list? (clearly the SEC has the power to halt trading on a security)
Why is any short-selling allowed for a security on the REG-SHO list? (clearly the SEC has the power to halt trading on a security)
Why not mandate price points for settlement of naked shorts based upon the price at the time settlement should have occurred?
Should minimum share lots be increased for institutional traders?
Why should option plays have a direct impact on pps of stock? I understand why the options work they way they do, I am questioning why an options player, which is considerably more speculative than investing and is a NON-invested position, should impact my investments. In other words why should a speculator who is NOT invested impact the pps of a security OWNED or "INVESTED" by those who hold the security?
The regulation proposals listed below are intended for those corporations, executives and officers of those corporations and those individuals who are found in violation of REG-SHO.
1) All assets should be seized, just like penalties imposed upon drug dealers for ill-gotten gains. This must penetrate beyond the protection offered by incorporation.
2) Tried for treason (The abuse of naked shorting is damaging to the nations financial markets and the economy)
3) Removal of any protections offered by incorporation to expose those employees and corporate officials who have profited by their naked shorting abuses, to the penalties of law and financial consequences of these proposed regulations in addition to current legal remedies.
Sadly, I understand that the balance of the economy and the financial markets would be impacted if the general public became aware of how pervasive the abuse of naked shorts continues, and financially impacting those institutions has an adverse impact on the economy. Quite the conundrum. The same institutions that have abused their power and profited, are now threatened if they are held accountable for their actions. I believe the legislative proposals above would mitigate the risk to the financial markets. Many who have profited from abusing the markets are protected behind the incorporated shield. Remove the shielding and hold the individuals accountable and suddenly there are enough resources to recover a large portion of the damages.
I also believe that until the current situtation is well under control, that there should be an elimination on ALL shorting. This market has been severely oversold by the abuses of naked shorting. By eliminating ALL shorting, there would be an increase of pressure for them to close out their open positions, provide buyancy to the market and avert a broad-based crash.
Sadly many of the retail investors will never recover from their losses. The apparent inability or unwillingness of the SEC to do more than they are, is why retail investors are loosing faith in their elected officials, the SEC and the financial markets.