Subject: File No. S7-08-09
From: Dave Dangler
Affiliation: Financial Consultant

May 5, 2009

I applaud the efforts to re-level the playing field with all investors regarding short-sales. This is an area that I believe has been exploited, especially with the removal of the uptick rule. Please consider some types of penalties, including loss of shorting ability for abusers of this practice. There needs to be something to deter naked shorting, if we have reg FD for public companies, why not regulation Full Disclosure for Hedge Funds and private equity? The double and triple volatility etf's should also be reviewed, as they are becoming very big, and are amplifying the market moves. The problem arises when these financial instruments are used to exploit market inefficiencies. With a majority of the individual investors parilyzed with fear when the market dropped in October, abusers were able to play with thinly traded companies and sectors. Please find the abusers, and prosecute them.
There are many good reasons to allow shorting of companies, sectors and industries, but we need rules in place to allow efficiency without exploitation.
Consider consulting with some convicted security manipulators to ask how they would abuse the current and proposed rules for their own benefit. See John Stewarts interview with Jim Cramer where he mentions how to manipulate.
Institutional investors have also fully embraced the short-securities to hedge their businesses, but without regulation we will be creating another bubble. There are some quite massive swings in the market many trading days between 3:00 and 4:00 due to the "re-loading" of the double and triple ETFs. The uptick rule was put in place to deter market manipulation in the 1930s. I am sure that we did not want to encourage manipulation by removing this rule, but one has to think, why not bring the rule up to the current sophistication level of today's trading systems.

Another idea for consideration: when deciding on new or proposed rules, DO NOT tell anyone when you are collecting sampling data during your investigation. Please just complete the study and then communicate the results. There will be much more meaningful information where abuses to the systems can be shown. When the short-sale ban was placed last year for a very short period of time, all abusers were on their best behavior. Everyone slows down when they drive past a cop. However, if a new camera radar is put up overnight, many more speeders would be caught. Then AFTER the study is complete, "we have observed xx transactions over the last 6 months and have concluded...."
If you are looking for previous sectors to review, a starting point may be to those who shorted the oil sector and stocks when it was in the $140s. Without this rule, we do not seem to be on a level playing field. --DD