March 26, 2008
Recommend that the rule be amended to include: "brokers/dealers can not borrow stock shares from Margin accounts to cover short sales".
This would go along way in eliminating abusive "naked" short selling. Owners of these stocks in their margin account certainly would not want to aid in having the stock they OWN aid in driving down their share price by short selling. Administrative cost should be minimal. T+3 would flag failure to comply on a short sale. No stock delivered would cause a reversal. Stock would be bought back at the higher of the stocks current or sold price within the failed to comply account.
Also, no where did I find failure to comply would penalize the failed to comply account (such as, limited to "in-hand" transactions for x number of days nor that the owner would be charged substantial punitive charges for repeat non-compliance activities.