Subject: File No. S7-08-09
From: mark nichols

May 9, 2009

There are those who argue for the inherent fairness to shorts of no uptick rule, because there is no "downtick rule" to slow the longs during a short squeeze. Symmetry would therefore argue that it is equally fair not to have an "uptick rule" to slow shorts and hinder a long squeeze.

If we were talking about a board game, I could possibly agree. Unfortunately that is not a correct way to look at the stock market, its component businesses and the net resulting economic "quality of life" for everyone worldwide.

1. Buyers of stock require capital and immediately add to net market cap shorts get handed money, much easier and more incentivized to abuse (I realize that shorts need capital, acct to short, WHEN done legally. I intend these arguments in the most general sense I realize there are subtleties in particular details.)

2. Look at the natural extensions of both practices. Longs could run a stock price to unrealistic high levels where the next buyer should/could not sensibly buy, a misallocation of capital, and usually the price falls back to a more realistic level. If shorts run a price down, it can actually kill the company and remove its products and existence no price recovery possible to equilibrium. (Again I realize assets will be resorbed but not always, as perception of value is also a component, especially with ideas).

3. Perhaps more key is to compare "naked shorting" vs "naked longing". Maybe previous SEC leaders think naked shorting was not a significant concern, but again being handed money is easier to abuse than having to produce the cash, as longs do. Naked shorting has clearly happened in the stock market and should be most actively scanned/eliminated. Simply force buy-ins on failures to deliver at day 3, or even sooner in this electronic age. Stock traders are not waiting for paper stock certificates to arrive. The recent SEC oversaw and published a Fail-to-Deliver RegSHO list that was ridiculously long in time (years), number of stocks, and inaction. On the other side, naked longing probably only happens when folks can't figure out what went wrong with their evening dinner date.

Some companies/ stocks were shorted well beyond the total number of shares. (Is that possible if someone borrows shares to short, then that new buyer from the short lends the shares to another short, etc. One lot of shares could be multiply shorted??) It is most logical that it is harder to create a company and a new product than it is to shrink/dissolve one out of existence. That is why shorts and longs are not equivalent as in a board game. Some argue that many innovative small companies have been plundered by exactly this process. Who knows what is the real cost of that loss of innovation?

Look at the SP500 chart from before and after the removal of the uptick rule in July 2007. I know there are many complex reasons for market price movements, but note the intensity of the directional move (down) and I believe, the secondarily resultant explosion of volatility VIX. The key issue is not a matter of "just learn to trade in a higher VIX world" as I heard one trader argue on CNBC, it is instead the issue of destruction of companies, risk-taking and net forward progress on improving the quality of life, planet-wide. That net forward progress in quality of life is the true strength, benefit and value of capitalism.

Shorts are not unreasonably prevented from performing their valuable market role to help correct bloated prices (price discovery) by having a mollifying uptick rule. There does not have to be equivalence for shorts and longs on the "tick" issue because overextention of each has such different consequences.