June 17, 2009
Regarding proposed REG SHO, I beieve that the best for all concerned would be an open and transparent marketplace.
We have seen many examples, especially recently, of market manipulation by the government in attempts to "improve" upon the functioning of an open marketplace. Inevitably, those results have fallen far short of any "improvement" in fact. Investor confidence would best be served by an open market without artificial manipulations and distortions, including those distortions which REG SHO is proposing to impose. If existing other regulations were enforced in fact, there would be no need for the futile exercise of adding REG SHO on top of existing regulations.
Existing other regulations prohibit the manipulation of stock prices. Would this proposed new REG SHO result in more prosecution for manipulation than before? Clearly NOT Would the new REG SHO prevent manipulation? Clearly NOT This new regulation would simply be yet another artificial constraint that has not been shown to have any beneficial results. Current markets do not differ fundamentally from the markets of 2007 during which your own experts recommended the elimination of the up-tick rule. That which is different is that we are in a different phase of the market cycle, just as has been the case periodically throughout recorded market history.
If the pressure is too overwhelming to "just do something" and doing "the right thing" is not possible, then I would propose a return to the old up-tick rule that was in effect for decades, and which time has proven to be at least tolerable, though (in my opinion) of no value.
Of course, it is understood that you must exempt market makers from short sale or up-tick provisions of REG SHO, even if they are not making a market directly in the shorted security itself, and only in the course of their market making activities, of course. To not do so would be to profoundly affect their ability to hedge risk, which would adversely affect market liquidity for everyone, in ways too complex for regulation to begin to quantify.