May 14, 2009
I am a 23 year old student attending business and law schools in Nashville, Tennessee. I wish first to express my disappointment with the SEC's recent decision to eliminate financial transparency and instead increase the distributive inequity felt by small investors who have access to less complete data and are less able to complexly model asset prices. The previous policy of market recognition of value served as a frequent update on external valuation, while allowing companies to justify holding onto "distressed" assets. Dishonesty will get us nowhere.
With regards to the current proposals to abrogate the free and fair markets, I stand steadfastly opposed. Both buyers and sellers, naked or covered, provide information to the marketplace. The marketplace aggregates the opinions of the market participants and pivots on price to fulfill the demands of the most number of people (as compared to any comparable allocation system). Skewing the market-based return prospects for sell-side traders by reimposing the up-tick rule will necessarily reduce the expected payout from a short sale and thus may lead to market anomalies.
Market anomalies are of great concern in the current environment where the "too connected to fail" argument has been extended. Should the proposed changes be accepted for a particular company, the misalignment of returns from the sell-side traders will allow the companies secondary asset prices (stock, options, and bonds) to rise at a rate that exceeds what would have occurred were sell-siders allowed to trade. This poses the potential of a valuation bubble, where the overextention is first met by long holders closing their position and later by the lack of any buy-side traders from accepting the risk-return that remains. Succinctly, the proposed rule will skew values and risk hold-out scenarios where trading becomes impracticable.
Noting of course that in the past the uptick rule has been in place, I must contend that the complexity and depth of current financial products (ETFs, ETNs, levered funds, hedge funds, Paris trade securities, CDS, and others)mandates that American markets continue to provide the most consistent and deep volume of all the world markets. Rules that restrict the free exchange of goods between two parties necessarily reduces the actual volume traded as some "short sellers" will be barred from their transaction due to esoteric and short-lived tick measurements.
I urge you to take great caution in moving forward on either of the two proposals. I believe the proposals are unneccessary and ultimately damaging to the stability of the Western economic order and the status of American finance in the macroeconomic perspective. As a young man who has already grown weary of our government's unconstitutional whims and domineering behavior, I urge you to have more faith in the goodness and ability of your citizenry. We need not security devices, but empowerment. That is our crisis and only through trust and conciliation will we mend our shattered economic order.
In Public Service,
Ryan David Arndt
83 Greenwood Circle
Wormleysburg, PA 17043