January 5, 2004

Sent via email

Jonathan G. Katz, Secretary
Securities and Exchange Commission
450 5th Street, N.W.
Washington, DC 20549

RE: File No. S7-23-03 - Comments to Regulation SHO

Dear Sir:

Based upon our preliminary review of the Proposed Regulation SHO and experience with the OTC:BB, we believe the proposed regulation, particularly the extension of the rule to all equity securities wherever they are traded, is a tremendous improvement that will enhance protection to young publicly traded companies and their investors.

In response to your request for comments, the following are some additional suggestions for your consideration:

1. What harms result from naked short selling?

Among other things, naked short selling has the effect of artificially increasing the outstanding shares and public float of a company. More shares in play means more supply and general downward price pressure, which is unrelated to the fundamentals of a company.

2. You requested comment on the appropriate manner by which short sellers can comply with the requirement to have reasonable grounds to believe that securities sold short can be borrowed.

In our view, you should make clear that short sellers cannot rely on a blanket assurance that stock is available for borrowing, particularly in the OTC:BB market. We suggest a straightforward, simple approach that a short seller be required to borrow the securities or have entered into an arrangement for the borrowing of the security.

3. You requested comment whether the proposed additional delivery requirement threshold be higher or lower or should additional criteria be used.

We believe the threshold for the "delivery requirement" should be based on an issuer's public float, not its total shares outstanding. For a variety of reasons, there are frequently significant differences between these two categories of a company's shares. The key criteria should be an issuer's registered shares or shares otherwise eligible for public trading, not its total outstanding shares.

4. You requested whether broker dealers buying on behalf of customers be obligated to effect a buy-in for aged fails.

The answer to this question should be in the affirmative. This obligation would impose a discipline that aligns the incentives and the risks of a short sale transaction.

5. You requested comment as to whether the 90 day restriction is appropriate and should (a) apply to all short sales by the broker dealer in the particular security and (b) apply to all further short sales by the person whose account the failure to deliver occurred affected by any broker dealer.

We suggest that if there is a failure of delivery, the broker dealer, including market makers, should be prohibited not only from executing future short sales in such security for the person on whose account the failure to deliver occurred but for all other persons. As you note, a market maker's failure to deliver, in the absence of bona fide borrowing arrangements, indicates manipulative intent. Therefore, the broker dealer that facilitates such a transaction should itself be precluded from circumventing the rule for its own account or through other persons. Similarly, the person owning the account should not be allowed to conduct a short sale during the penalty period through any other broker dealer. We also suggest that the penalty period be extended to 180 days.

6. You requested comment as to whether short sales affected by a market maker or in connection with bona fide market making be exempted from proposed delivery requirements targeted at securities in which there are significant failures to deliver.

We suggest that there be no such exemption.

7. You generally asked whether the failed to deliver on short sale should be longer than two days past the settlement date for bona fide market making.

In our view, the two additional days is a more than sufficient period to deliver the securities that have been sold short. An extended imbalance between securities sold short and the coverage of that position results in an artificial public float, i.e., artificial increase in their supply, that in itself tends to depress the market price of those securities.

Thank you for your attention to this important issue.

Very truly yours,


By:/s/ Joseph J. Selinger, Esq.
Joseph J. Selinger, Esq.