May 5, 2009
Dear Sir or Madam,
Initially, I want to express appreciation for the prompt addressing of this critical issue at an early point in this Administration, when many of the appointive positions have not been filled. It reflects well on the priorities of this Administration.
By way of background, the confidence of the American investor in the integrity of the equity markets is essential to the prosperity of this country. Over the history of this country, the equity markets have served a vital role in raising capital which could not otherwise have been subject to a conventional commercial loans, venture capital or mezzanine loans. The restoration of confidence in the market place is critical to the capital formation process, and is also essential to investors, as the Social Security program will undoubtedly have to be modified in order to remain solvent, and the ability to invest in a transparent market place will be essential to supplement Social Security payments so that our retirees can live a relatively comfortable retirement.
That said,the decision by the Cox Commission in June of 2007 to repeal the "uptick rule" which had been implemented by the Kenedy Commission in 1938, ranks as one of the most serious mistakes by any Commission since its creation in 1933. The uptick rule should be reinstated in its traditional form, which has worked remarkably well, when vigorously enforced.
Second, require delivery of the shares and enforce the existing rules in these respects, and ban "naked shorts", which have only added to the volatility which has been created by the hedge funds. We should have learned from the Long Term Capital Management Fund fiasco in 1997, that un-regulated hedge funds would serve to create monumental problems. We did not, and now we see some of the results of that failure, coupled with the burgeoning bubble of the credit markets through derivative swaps, which former Senator Graham of Texas was able to effectively exempt from regulation in 2000. The results have been disastrous, albeit predictable.
Third, require daily reporting of short positions, just like you require daily reporting of long positions. This would increase transparency and create a more level playing field.
Perhaps with the Obama administration we will not see attempts to reduce staffing for enforcement at the SEC. The Securities Act of 1933 and the Securities and Exchange Act of 1934 require vigorous enforcement which has not been the case during the last eight years.
Finally, these changes will be met with stiff resistance by those having a vested interest in maintaining the current status quo. I do not think it is a coincidence, however, that the repeal of the uptick rule preceded the beginning of the Bear Market in October 2007 by some three months. Let's restore a sense of balance to the equity markets.
Thanks for your attention in these respects.