Subject: File No. S7-08-09
From: Vaughn Call, Ph.D.

June 18, 2009

Chairman Schapiro:

Short sellers and stock manipulators have caused huge financial losses for average Americans who invest real money in the stock market. This has to stop. Wall Street may not count most Americans as sophisticated investors but remember that it was those so called sophisticated investors that got us in this mess.

On June 13, 2007, the SEC declared the up-tick rule ineffective and abolished it. I am disgusted when I hear the SEC experts say that there is no evidence that the up-tick rule works in todays fast-paced electronic trading. Evidence? Look at the stock charts since June 13, 2007. Look at our financial markets now The baby-boom generation is approaching retirement and their retirement funds have been wiped out. Look at the comments youve received from a host of retail investors demanding the return of the up-tick rule and even banning short sales. Compare average unsophisticated Americans comments against those of the profession traders associations who want current short sale rules unchanged. Why would a thief want the rules changed that allow them to steal?

The SECs five proposals, as written, will do nothing to stop the massive fraud that has occurred. Market makers and hedge funds will quickly find a way around each of the rules - like they have for years. Remember that Bernard Madoff was former chairman of the Nasdaq. If you leave any loopholes - these dishonest professional manipulators will find it and continue to destroy companies and our economy.

It is time to think outside the box of Wall Street tradition and adjust the rules to electronic trading.

1. Ban the practice of street name stocks. I have no confidence in brokerage firms anymore and no way to ascertain their honesty. There is no way for an average investor to tell that they really own what their brokerage firms are telling tell them that they own. We used to get certified share certificates. Now we receive a statement that may or may not be true. Are our statement shares really phantom accounting shares? This has to be stopped Require electronic certificates with named owners for all shares purchased (cash and margin account purchases). Margin account purchases are putting up capital to buy the stock (borrowed capital). The margin investor has ownership - not the brokerage firm. Require brokerage houses to register stock owners with the company so that the company knows who their actual investors are. Likewise, it will allow regulators to quickly track down fraud. Critics will say that this will be costly for brokerage houses and slow down trading. Is this the computer age or not? If my vitamin supplement company can uniquely track every $5 bottle of vitamins they sell, the DTC should be smart enough to track stock ownership. Eliminating ownership ambiguity is critical to stock market integrity and to the removal of one large source of fraud.

2. Start leveling the trading playing field for average retail investors. For example: Make stop-loss orders invisible to all traders (including MMs). When I started trading many years ago my stop-loss order was held by my personal broker. No one else knew were my loss threshold was. With electronic orders, the sophisticated short investors can see posted stop-loss orders and manipulate the price downward to take out the stop-loss orders. This manipulation can create a cascade of stop-loss sales, driving down the price even further.

3. Another simple playing field change would be to stop all trading in tenths or hundredths of a penny. Ive seen MM s hold the trading in a fixed range by going to hundredths of a penny, forcing the retail investor whose brokerage firm doesnt permit such sales to bid lower (never filled) or pay more to buy. Standardize all trades in one penny increments.

4. Put an enhanced up-tick rule back in place. It doesnt take much to manipulate a few pennies in price. Change the up-tick threshold to a $0.25 increase. If the up-tick rule was ineffective in the electronic era, the option should have been to make it stronger - not wipe it out. Over the last year and a half, we have seen what the short sellers can do without the up-tick rule. It has been devastating to our economy and the market.

5. Open an automatic investigation of every FTD on a daily basis. This is the computer age Levy substantial fines on the brokerage firm that processed the FTD sell order and require them to purchase replacement shares immediately. Let them go after their customer for the fine. If brokerage firms are held accountable for mistakes that affect market trading, you will find that brokerage firms will not look the other way when a customer tries to manipulate the market. Moreover, justifying FTDs by citing accounting mistakes is a joke in the modern computer age. FTDs are the major tool of stock manipulation. Make the brokerage firms accountable immediately.

6. Ban short sales on all stocks trading under $10 (a simple, clean rule). Thinly traded stocks can be easily manipulated by short sellers who take advantage of low volume to crush the stock of a new company.

It is time for the status quo on Wall Street to end. Weve allowed a house of cards to be built on the transition to electronic markets. The wind blew and the house tumbled. It is time for big changes in trading ethics, procedures and verification.