May 5, 2009
Comments on Short Selling:
1. I believe that short selling is generally as legitimate a component of market activity as long trading.
2. The Commission has rather extensive rules governing the aspects of long trading, and it should have complementary rules governing short selling.
3. Having such rules is the reason to enforce them. The markets need a common platform for trading, and international commerce demands a long term stable platform for markets which can be relied upon by all participants. Recent dereliction of responsibility of the Commission in this area is unfortunate and should never be allowed to recur.
4. Just as disclosure filings are required of certain long trading, similar disclosures should be required of parallel short trading activity. For example, this would include a filing requirement for a short position which exceeds 4.9%.
5. The mechanism of short trading has historically required that the shares to be sold short must exist, and thus the mechanism prevents the sale of phantom shares, which could in theory exceed the number of shares outstanding. The commission has more recently allowed the practice of naked shorting, which introduces the opportunity to manipulate the markets. This practice should not be permitted, as it tends to compromise the stable platform which the Commision is attempting to provide to all market participants.
In this case there is not another safeguard method available to control the number of shares being traded, to insure that the number of legally issued shares is maintained and can be relied upon.
6. One of the missions of the Commision is to maintain orderly markets, setting governance for the exchanges in this country, and providing for the free flow of commerce and maintenance of transparency and necessary trust required for markets to function.
7. Exchange Specialists formerly served to maintain orderly markets, but this function has become an impediment to the free flow and speed of commerce due to its additional process time required.
8. In view of its mission, the Commission has no choice but to control the mechanics of short sales. This means that the broad form of market regulation must be enforced, and should be enforced evenly for all markets under its jurisdiction. A short sale is a special case for regulatory purposes, and can be permitted only under the control mechanism which maintains the integrity, order, and transparency of the markets. In this way, all participants in the markets will compete on a fair platform, and the free flow of commerce will be served.