October 24, 2008
The laws of supply and demand dictate that the higher the supply, the more corresponding downward pressure on price. Short selling securities is a way to artificially increase their supply, putting artificial downward pressure on their price. If an investor owns a security that may be subject to artificial downward price movements, then it would be more unfair and more disorderly if there was no reasonable way for the investor to discover the extent of artificial downward pressure. It is the job of the SEC to protect investors from unfair and disorderly markets. Therefore, at the very least, the SEC must require ALL short positions or transactions to be reported in such a way to be easily accessible by the public. Technology exists to easily report any short sale or position, or extinguishment of that short position, to an entity, for example a SRO that automatically collects information on transactions properly disclosed as being short, that could allow the public investor awareness of the artificial downward pressure from the short position/transaction. Any rule change that could possibly reduce awareness of the public about artificial downward pressure on securities will lead to a more unfair and more disorderly market.
Any objection to the disclosure and regulation of short positions or transactions is unlikely to just be lazy, the objection is likely to originate from either a desire to have an unfair and disorderly advantage over the investing public, or a desire to cater for profit to the ones benefiting from the unfair and disorderly advantage. Any member of an exchange or institution that stands to profit from increased volume from short transactions, disclosed or not, should recues themselves from advising the SEC in any way that short selling doesnt require public transparency or have other safeguards. If the SEC is accepting advice from members of institutions that stand to potentially profit from the increased volume from short sales, like for example the head of a stock exchange, then the SEC should review with an appropriate agency such as the GAO or DA if the advice received from that member was impartial and arms length.
The mission of the SEC is to protect the public from unfair and disorderly practices, such as short selling that is secret from the public, as well as it is the SEC's mission to protect reasonable rules like the uptick rule or encourage public real-time reporting of net short interest. It is inconsistent with the SEC's mission to cater to the needs and desires of players, bigger and smaller, who want to gain, create, or maintain an unfair advantage over the investing public.
Reinstate the uptick rule. Require real-time public reporting of short positions or transactions.