Subject: File No. S7-13-04
From: David Patch

May 18, 2004

Mr Chairman, Commissioners,

If going to a certificateless system is the next step, what steps are the SEC and SROs willing to take to correct the present Book-Entry process of the Electronic System today.

Most recently, a lawsuit was filed in Nevada against the DTCC and NSCC for the manifestation of millions of illegal shares in the Electronic Stock loan program. The lawsuit claims that counterfeit Shares were created electronically in order to settle trades. The situation involves an intent on massive cover-up of the settlement of stock trades by re-loaning the same Electronic Share over and over again to settle trades for financial transfer of funds. The result of this activity is the equivalent to the illegal registration and sale of securities by the Industry itself. This ultimately results in a significant imbalance between the supply and demand of a security and has a tremendous depressed value on the securities affected. A loss to the investor. This lawsuit being the first of what will be many more to come.

How will the new Certificateless system correct this issue? Many Issuers are moving out of the DTC system to force the delivery and settlement of the trades and are capturing an industry Systemic problem that highlights the failure of shares to settle. Getting rid of paper will only hide the ability to check the accuracy of the DTCC system.

The SEC and NASD have highlighted in recent reforms that Settlement Failures exceed the entire float of companies. This happens while we are presently trading within the proposed electronic book entry system but operating under T+3 guidelines. The SEC, in this concept release, is identifying that there could be significant liabilities as we continue to increase trade volumes with the delays in settlement. If these liabilities are significant, shouldnt the SEC be focused on securing an efficient and legal means to settle T+3 before they venture into a T+1 or T+0 process.

It is clear by this concept, married with SEC and NASD proposals out for comment, that the SEC is shooting in the dark while missing the big picture. There is a clear systemic flaw with present process taking place on Wall Street with regards to Trade settlements. This proposed concept will only mask that issue and not correct it. It almost appears that that is the plan of the agency.

Transparency is needed and it starts with clear definitions of settlement. IOUs are not settlement but the issuance of a certificate stock share electronically. Address that issue first and the rest comes into play. Investors should have full disclosure of how their trade is settled and whether it was settled via a borrowed share on a long side trade or a certified trade. They should also know when that Borrow status is closed. A Timeline that should be well defined and limited.

In closing, the DTCC and NSCC will be under attack soon as an operation conflicted with greed. To move into a concept that would rely heavily on their integrity at a time where their integrity is in question is a bad move for the industry.