May 5, 2009
It is time to stop the naked short selling This practice is rapidly causing the demise of our stock market. Individual investors who only have their faith in the U.S. government,and the SEC to protect their rights are losing their hard earned money to deceitful practices. ON April 28th,Dendreon corp. a stock that I own was a victims of short attacks, plummeting 25 to 7.50 in 90 seconds, with no negative news which would prompt such a quick and precipitous drop. The shorts blew through stops and then aquired the stock at a low level only to bounce back to 24 in after hours trading. A poster on Yahoo that day stated that the raid was coming within the hour and it did There is a massive short position in this company using phantom shares. The shorts would have been burned when the news came out that their prostate tx extends life.
Hedge funds and short sellers can signal to each other when they are planning a short attack through various means, often through the publishing of a convenient, negative (most likely contracted for) sell-side, analyst report, that is immediately followed by a day or two of massive short selling, or a non-fact based, negative-inference type of opinion article on the internet, again, non-fact based or with a very negative interpretation of the facts, and once again immediately followed by one or two days of massive short-selling. THESE ARE NOT COINCIDENCES.
Short selling is needed in the market, BUT SHORT SELLING ABUSES AND NAKED SHORT-SELLING MUST BE BANNED AND PROSECUTED.
HERE ARE MY RECOMMENDATIONS TO LEVEL THE PLAYING FIELD FOR ALL INVESTORS, LONG AND SHORT, AND RETAIL OR INSTITUTIONAL:
1.) Reiterate the illegality of, enforce the ban on, and prosecute NAKED SHORT SELLING.
2.) Force Hedge funds, especially those that are SHORT SELLING oriented, to have to comply with the same trading rules that LONG BUYERS need to, as in:
a.) regularly reporting on current short positions
b.) having to settle all completed trades in three days
3.) Install an upbid rule for any short selling.
4.) Complement this upbid rule on short selling with a 10%, daily drop, circuit breaker on any individual stock.
Again, these changes are long overdue. It is not coincidence that the current decimation of the stock market began in the summer of 2007, at approximately the same time the previous uptick rule was removed. There may not be exact empirical evidence to pinpoint this cause and effect relationship, but there is an overwheliming amount of real world anecdotal evidence.
In conclusion, please:
1. Restate and enforce the BAN on NAKED SHORT SELLLING.
2. Put an upbid rule in place and complement it with a 10%, daily drop, circuit breaker.
3. Require that Hedge Funds and short sellers have to play by the same rules as long buyers in regards to reporting their holdings and in settling trades on a timely and legal basis.
I have forwarded this letter to President Obama and my state congressman and news agencies.