Subject: File No. S7-08-09
From: Nick Nguen
Affiliation: Retired Engineer

May 5, 2009

A question about short vs. borrowed:

Short sale with borrowed shares is not much different from naked short sale. Consider this: Investor B borrow from Investor A and sell the shares to Investor C. Then Investor D borrow from Investor C and sell the SAME shares to Investor E. Now you have three NET owners Investors A and C and E for the same shares (that is right, two additional phantom shares created here) from the two net short sellers B and D with the same borrowed shares and they are not considered 'NAKED'. Repeating this cycles many many times over and you can bring down any weak company with these additional fathom shares that dilute effective outstanding shares available. That is what happens now to many stocks.
IMO you cannot have short sales unless any shares can be borrowed and sold only once. They need to register the actual share (serial number to ensure any share loaned only once at any time) for these short sales, and I do not believe this is the case now.
Please comment if you think this is not how it works and how do we address this. Thanks.