Subject: File No. S7-08-09
From: Eric Kottke
Affiliation: Investor

August 18, 2009

When stocks fall in price, it is a painful experience for investors whom paid higher prices. Certainly this is something that one would like to avoid. However, stocks cannot always rise and the balance of risk and return will and needs to be maintained. Short selling provides a balance for the trading marketplace.

It is from my study, operation, and observation in stocks that traded issues can be manipulated concerning a price advance and less so for price declines. This is certainly an unwelcome statement because we would all want to believe that "bear raids" are to be the reason that prices of stock issues would decline.

If a price declines enough in value, insiders whom know the true intrinsic value of a stock issue will eventually purchase the stock. Therefore, stocks inherently have a floor at some point. Stocks have no limit to the amount that they can increase in value and perhaps your agency should limit price advances rather than price declines.

If a stock price declines in value from a "bear raid" attempting to manipulate the stock price downward, the effect will be temporary. No matter how large a line a trading operation has, valid stock prices cannot be held down for the aforementioned reason.

Stocks are made for selling. At some point, most investors will sell their stock in exchange for capital. Selling cannot be manipulated, if selling evolves upon a stock issue, there is in 99 out of 100 cases a reason why.

In terms of general valuation, truly most anything which is easy to obtain, yet difficult to dispose of, will not increase in value. Such a circumstance no amount of regulation will change. Regulation of any kind or of any amount of complexity, in my opinion, is "manipulation". Regulation only hampers the price discovery process and increases the possibility of larger price disruptions in the future.

Reality always comes to the surface and attempts to regulate only disturb the natural order of things while masking the truth. Masking the truth in an effort to allow time to pass long enough so that the operation's failure will pass unrecognized. When business operational failure is masked for reasons of outside public and polity interest it only results in a weaker outcome. It also can result in greater risk taking behavior and a false sense of success, leading to a compounding of future unknown operational failures, which ultimately reveal themselves when expectations have been set much to high. Yet while your proposed regulation may be in place, the market will have adapted to even such regulation, and the regulation will only create greater destruction because all the regulation did was pent up the intensity of the future system collapse.

Just like when one focuses too much on making the money, they will obtain more likely even less. It is my opinion when a focus is concentrated too much upon short selling, the result will be less than desired.

Leave short selling ALONE. If one wants to reduce negative market impacts, perhaps concentrate on the buying process instead.

Again, buying can be manipulated, selling in most cases cannot.