September 29, 2009
Within the debate of rule adoption to combat abusive short selling, I would assume we all agree the first and foremost consideration must be the investor. Additionally, the impact on the corporate issuer, without whom most of this entire exercise becomes moot, as well as fundamental capital formation, must also be a part of the deliberation.
Short selling is a valid component of a vibrant and efficient capital markets and is an important component in balancing the marketplace for all participants. But, reform is clearly necessary to insure investor confidence and should be the impetus for smart regulation.
As you know, an SEC special study in the early 1960s concluded
a plus tick rule was simple and effective mechanism. Unrestricted
when a stock is rising, the tick test would serve to interrupt (slow down) an accelerating decline, absorbing potential market liquidity, potentially at the expense of public investor and skewing
true price discovery.
This leads me to conclude an uptick rule, modified to recognize todays market framework but nevertheless a passive market component, would be the best course of action.
I would also suggest the commission consider exemptions in
certain circumstances, to include market makers with affirmative obligations as well as traditional short exempt scenarios.
Thank you,
James Rutledge
40 year Market Professional