September 19, 2008
Like many traders and investors, I have read with great alarm recent news that the SEC may be considering comprehensive bans on short-selling. We understand the spirit of such efforts, but the unintended consequences of such market manipulation could be large. We will likely see INCREASES in volatility as liquidity dries up as market makers and others are prevented from properly hedging their risks.
Such a ban also smacks of market manipulation on the grandest of scales. It could undermine confidence in the workings of our "free market" capitalism. In essence, the government will be seen as moving in to prop up the market artificially and to coax prices in a direction more favorable to the investments the Treasury and the Federal Reserve have been making in bailing out financial institutions.
Please reconsider any comprehensive ban on short-selling, and instead make it clear that the SEC will never manipulate the markets to generate the favorable outcomes it seeks.