July 22, 2008
The International Association of Small Broker Dealers and Advisors
1620 Eye Street, NW, Suite 210 Washington, DC 20006
www.iasbda.com
The Commission's order is a late but important and courageous step in the direction of limiting opportunistic abusive naked short selling. We submit the following thoughts on the extension of the order and other possible Commission action:
* The order should be extended for 30 days to gain market experience as to its impact. So far it seems to have stabilized the financial sector without a great impact on liquidity.
* A gradual expansion of the stocks covered over the next 20 days would provide further experience in the marketplace.
* Most importantly the Commission should act quickly on a permanent rule and its outstanding rule proposals in this area.
* The Commission should set a date certain for at least a temporary completion of these rules as early as October 15th and the staff should be available to meet with all interested parties in an open forum during this interim time period. The staff should not accept comments beyond a 30 day time period ending on or about September 15th nor should it meet privately with interested parties.
* During this period the Commission should seek a voluntary program requiring pre-borrowing in certain securities.
* The Commission should seek more updated transparency in the fails currently provided so that its actions might be better understood and appreciated.
* The Commission should hold a press conference to better explain the need to curtail opportunistic abusive short selling and especially to explain the selection of certain stocks.
* FINRA and NASSA should assist the Commission in these efforts especially in listening to concerned investors perhaps at its regional and state offices.
* The Commission should better explain the history of pre-borrowing to show that its not a novel concept and was once actively sought by the securities industry to among other things engage in dividend roll transactions.
* The Commission should explain the perverse nature of the locate requirement in that it does not require a continuing effort to locate but only a one time glance at an easy to borrow list. The Commission should further explain that a failed locate is a profitable locate as it avoids borrowing costs.
* The Commission should if it does not question hedge funds, seeking its help to start issuer investigations, as to their short fail positions.
* The Commission staff should make clear that no matter how problematical an issuer is, illegal short selling is never justified.
* The Commission should seriously consider what limits there are on abusive short selling in a crisis where the profit motive far outweighs the punishment expected based on past regulatory actions and the ensuing harm imposed on issuers. Whether its terrorism or the housing market or the U.S. financial system, unlimited abusive short selling may well be a national security issue.
* The Commission should solve this problem now and not leave it for the next administration or Congress.
Peter J.Chepucavage
General Counsel
Plexus Consulting LLC