Subject: File No. S7-08-09
From: David F Engelhardt
Affiliation: Retired, investor former educator

May 14, 2009

I believe that the U.S. stock exchanges should protect the individual investor from practices that professional firms normally employ. This encourages participation in our markets world-wide, and at modest cost to small investors. The integrity of our stock and bond markets has a high bar for you to aspire, as compared to fledgling markets or the likes of the Vancouver exchange in British Columbia. For this reason, I wish you would be conservative and reinstate the up-tick rule for short selling, a rule that served us well for 70 years before it was rescinded.

To prevent runs on a stock borrowed from "option accounts" it used to be recommended to hold stock in certificate form, but this is impractical and less secure a way for share owners to control short sellers from driving a stock price down. I do believe a short seller should either own the stock or borrow it from a long account, not borrow or own a derivative that might be far removed from the actual ownership of the stock. However, many conservative investors might not wish to participate in options, except to sell puts or covered calls. To do only these actions, rules mandate that the conservative investor's account (in street name) must allow the broker to loan long stock holdings to short sellers. Perhaps even changing rules to not allow such borrowing could be made for conservative investors.

The moral value of short selling is far from clear, whereas the moral value of owning stock supports our capitalistic system. If folks were not allowed to sell their holdings or buy in a secondary market, few would buy initial offerings. This supports the creation of corporations and helps investors, including insurance companies to make profits and keep abreast of inflation. Short selling on the other hand (except insuring a long stock in selling against the box) is purely a way of making money by betting against a rise in the stock price or covering the opposite stance in a complex hedge. As recently seen, this catering to greed and creating a mechanism to make profits by derivative betting can lead to the conservative investor or his holdings in mutual funds, retirement plans, etc.

Except for the adaptation of rules for the computer age of markets, I would urge you not to allow exceptions to your rule for ETFs, foreign trades, etc. A return to less esoteric creations in the market may decrease the high salaries and bonuses of investment professionals, but you are an agency entrusted with the responsibility to protect less affluent stakeholders, public agency retirement systems, and individual retirement plans that are participating in our capitalistic society.

Please reinstate the old, conservative rules that prevented abusive short selling. Continue to monitor and govern the system that has made or nation great, guarding against crafty ways to assuage greed or runaway capitalists.