May 5, 2009
Americans work hard to create successful businesses that they can be proud of and employ many people while delivering quality products. The idea of supply and demand works just fine works when individuals hold or sell their shares and buyers choose to dismiss or bid for those shares. Allowing a third party to make up shares or to borrow your shares without your permission seems wrong. Naked short selling should be put to an end and if the shorts want to borrow shares to drive down the price of American companies in order to profit off the suffering of investors who own a business (one struggling in the current economic conditions) then those shorts should get permission directly from those investors to borrow their shares. Brokerages should not be able lend out the shares of suffering shareholders unless they have permission or unless they are paying a premium to borrow those shares. Most Americans are unaware that at any time a brokerage can lend their shares to someone who wants to place a bet against their company. Give us the right to block these types of loans against our property and we probably will. If you arent able to protect us from short sighted investors who want to help tear our investments down them please consider the following:
1) Please limit the shorts ability to borrow these shares for the purpose of creating downward pressure. Simply forcing the shorts to sell at tenths of a dollar (similar to some options) could significantly reduce a shorts ability to create artificial downward pressure.
2) Require all types of funds to report their short positions
3) Automatic circuit breakers for the entire day that an earnings announcement will be presented. Disallowing short selling for the entire day after an earnings announcement will let the owners of a security buy or sell shares and let potential buyers buy those shares.
4) Make sure whatever is done applies to options (puts are another form of short sale) and other securities that allow shorts to bypass normal shorting rules (For example: SDS)
5) Give investors the ability to decide for each and every security that they own whether or not their broker may lend that security out to short sellers. If a security is lent out then perhaps the borrower should pay some sort of interest on that security to the owner until that security is returned.