American Society of Corporate Secretaries

January 5, 2004


Mr. Jonathan G. Katz
U.S. Securities and Exchange Commission
450 Fifth Street, NW
Washington, DC 20549-0609

Re: File No. S7-23-03

Dear Mr. Katz:

The following comments on the Securities and Exchange Commission's Release 34-48709 (October 29, 2003) are submitted on behalf of the American Society of Corporate Secretaries. We appreciate the opportunity to express our views regarding proposed Regulation SHO relating to short sales of securities.

The American Society of Corporate Secretaries has nearly 4,000 members with a significant amount of collective practical experience in the area of corporate governance. Our comments to this proposal are brief, focusing your attention on a practical issue that exists in the proxy voting of securities loaned to short sellers to facilitate short sales.

In short, accurate proxy voting relies heavily on accurate recordkeeping of stock ownership by individual investors, custodians, investment advisors and transfer agents. When the recordkeeping is made more complicated by stock lending activities, the proxy voting chain is weakened, making it more likely that investors' voting intentions will not be followed.

Institutions are effectively selling their votes through their stock lending activities. Large individual investors as well as investment advisors are required to disclose significant stock purchases and holdings. They are not required to disclose short sales and short positions. When a security is "on loan," title is transferred to the borrower and the lender loses its right to vote that share. As a result, the borrower is entitled to vote the proxy for the number of on-loan shares the borrower holds on a record date. But since the lender is not required to disclose the loan, clients of the lender will not realize that their advisor has given up the right to vote on their behalf. While most large institutional investors have the ability to terminate a loan and recall the shares to reestablish voting rights, the process generally takes five business days and, we believe, is seldom used.

Institutional investors legitimately rely on stock lending activities to help offset costs of maintaining their stock portfolios. It is theoretically possible, however, for parties to engage in borrowing stock to suppress proxy voting or to gain voting rights themselves. We would expect this activity to show up as a surge in demand to borrow shares of a company in advance of a voting record date.

We respectfully recommend that the Commission take the opportunity to review the proxy voting implications from stock lending activities in connection with considering proposed Regulation SHO.

We would be happy to discuss our comments further with the Commission. Any questions about this letter may be directed to Andrea L. Dulberg (203) 541-8396.



Securities Law Committee

By: Andrea L. Dulberg
Member, Securities Law Committee

cc: Margaret Foran, Chairman, American Society of Corporate Secretaries
David Smith, President, American Society of Corporate Secretaries
Susan Wolf, Chairman, Securities Law Committee