June 19, 2009
I would like to take the opportunity the Commission has afforded me to comment on the short sale proposals. First considering the price increments in which equity securities are traded today I don't think that either a bid test or a tick test will do much to discourage determined short sellers. However, many people believe that such a test can be effective. Therefore as a concession to political reality I would not oppose any such test the Commission would prefer to implement. The only downside is the regulatory burden imposed on brokers and dealers within the Commission's jurisdiction.
I would recommend that more restrictive leverage ratios be placed on equity market participants. The margin rules that have always applied to the US markets have been totally eviscerated whether on the long side or the short side. And they do not and never have applied outside the US. The capital rules whether SEC, FSA or Basel have also been ineffective in curtailing excessive leverage. It is the pressure customer redemptions versus highly leveraged positions that exacerbates periods of market stress.