Subject: File No. S7-08-09
From: Gregory C. Colin
Affiliation: Individual Investor

May 4, 2009

I write today as an individual investor concerned with the notion that the government may soon become the sole arbiter of what securities that I might buy or sell, and under what circumstances. Simply as a matter of principle, this idea seems facially objectionable. Additionally, it has yet to be shown that ordinary, legal short-selling has any adverse effects whatsoever on the market. Instead, ordinary short-sellers are erroneously conflated in the press with naked short-sellers, causing a great hue and cry.

A review of delivery failures beginning before the enactment of Regulation SHO until today shows no meaningful change in delivery fails - certainly no change at all that exceeds the noise threshold in the data (1). Since naked short-sales can be done without the restraint of having to borrow shares first, this activity is a financial weapon of mass destruction, limited only by the conscience of the practitioner. Since no stock is actually borrowed, no loss actually occurs should the trade fail to accomplish its goal(s). We ordinary citizens on the other hand are faced with margin requirements that we may not exceed, and the requirement that we return the borrowed stock makes us subject to the infamous "short squeeze". Such squeezes add liquidity to markets, and on a grand enough scale have to potential to ignite market rallies. Certainly a braking effect is placed on a security's fall, at a minimum.

The proposals at hand consist of "circuit-breakers" at certain levels, and the restoration of the "uptick rule". Addressing the circuit-breaker types first, I believe that a review of available data from late 2008 when all short-selling was banned against selected stocks would show that the temporary rule did little or nothing to stem the downward tide of prices. Quite the opposite happened. When the temporary rule was lifted, prices stabilized within 48 hours (2).

Given a set of actions in which it is unclear that any will have the desired benefit, a case exists where none should be taken if there is evidence that taking no action (which is indeed a form of action) is the best course (3).

Of the proposed actions, the restoration of the uptick rule would seem least objectionable, as Wall Street veterans know this rule well from the past. The major shortcoming of this approach is that any sufficiently-funded investor can manufacture an uptick. This would have the effect of limiting short sales to the well-funded which would seem to be one feature of the existing problem, at least in the eyes of the public, and therefore carries "headline risk" for the regulator of favoring the corporation over the individual.

The foregoing would seem to suggest that a more vigorous enforcement of Regulation SHO as-is should be attempted prior to additional rule-making. One key benefit of this strategy is that the regulatory framework is already in place. Another is that should this approach work as desired, bad actors are purged from the system without disturbance to other actors, as well as the generation of positive headlines as the regulated behavior is brought under control.

Thank you all for your consideration,
Gregory C. Colin

(1) SEC FOIA Office: "Frequently-requested FOIA Document: Fails-to-deliver-data"
(2) Ibid.
(3)The Challenge of Front-Line Management R. Sims, J, Veres, K. Jackson, page 230.