Subject: File No. S7-19-07
From: jason leminster

September 30, 2007

I've read 'em all now. Letter after letter from the industry side, basically arguing that to eliminate the market maker exemption would bring the world as we know it to its knees, threatening the all powerful Wall Street buzz word - liquidity.

Imagine, they argue, that you had to pay to hedge options in SHO stocks - why, that would reflect the cost of hedging a hard or impossible to borrow stock, and would dampen the liquidity that comes from what is essentially a free pass to counterfeit at will Can't have that, can we. Imagine if liquidity dried up in put option speculation for SHO stocks - why, I'm not sure you or I would be the same ever again. I mean, all that liquidity must be helping us in some way we are missing, so removing it would somehow change our lives for the worse, right?

What's amusing is that liquidity in these stocks' derivatives markets are really only important to stock manipulators, and to those deriving their income by lots of trades in stocks that really don't have shares with which to trade (meaning no real sellers, thus sale of non-existent shares must replace the legitimate market system).

You wanna know what you don't see? You don't see one letter discussing that the SEC is precluded, via Section 36 of the 1934 Securities Exchange Act, from issuing exemptions, unless the exemptions are in the public interest, AND are necessary for the protection of investors. You won't see any comment letters from the industry trying to tackle why being allowed to naked short sell already badly brutalized companies protects investors, or why investors require being saddled with the expense and risk that is really that of the options speculator - nobody wants to try to claim that is necessary for investor protection.

Nope. Nobody wants to talk about that on the industry side, preferring to discuss how their trading will be dampened by the elimination of an exemption that should never have been enacted in the first place.

And I don't blame them. Because there is no comeback to that. There is no facile or glib discussion wherein investors require that exemption for their protection. Wall Street won't mount that argument. Because then they have to admit that investors don't require the exemption to be protected, thus the SEC should never have allowed it at all. Instead, they prefer to mewl about red herrings, and statistics, and how they might suffer should their windfall loophole subsidy end.

We are treated to letter after letter whining about how profits will be hurt by eliminating the windfall exemption, however not a peep about why the SEC shouldn't be adhering to Section 36's simple litmus test: Is this exemption necessary for investor protection and is it in the public interest?

Because the obvious, and only answer, is, "Of course not."

written by Bob Obrien. My point exactly