September 19, 2007
Strengthening SHO is a good start. BUT:-
It says "If you fail to deliver in the 3-day settlement period, then 13 days will do". That is institutionalizing a 13-day settlement period and is wrong. Buy-ins should occur the morning after settlement fails at the seller's cost.
It also allows company directors receiving restricted shares to sell them short in advance and fail to deliver for 35 days. This is legalizing NAKED SHORTING by insiders, a diabolical affront to their shareholders The purpose of restriction is to prevent that quantity of shares from being sold during the restriction period, so this rule is wrong.
I hope the SEC will work towards regulation more in line with the original intent of the Securities Acts, and aim for this goal in a short period of time:-
-No broker should be permitted to execute a sale unless the (unrestricted) shares are in his physical or electronic possession. That means, for short sales, a firm contract to borrow is in place, not just a locate. We know that there are facilitators who will use the same shares over and over to offer "locates" to multiple short sellers. That would be stopped. This is undoubtedly where some FTDs have arisen.
-With the above, same day settlement is possible and should be the goal. With dematerialization, this could reduce to seconds.
Paul W Dent 19 sept 2007