August 26, 2009
I think the proposed alternative is the best of the 3 options put forth.
I would like to see the mandatory spread between the best bid and the short sale price be sufficient to allow someone with a share position to enter a sell order above the bid and still be below the short sale allowed price. This is much more important for the smaller, lower volume equities than it is for the larger, high trading volume stocks. On the lower volume issues, someone with a position should have an advantage selling out their shares over someone trying to take a new position by shorting. The equity seller should not be forced to drive the price down by selling at the bid price in order to get in front of a block of short orders submitted at the same time.
It is important for the rule to also dramatically improve the transparency of any shorting that is done. Substantial short positions should be disclosed in a timely fashion and if possible, the short trades should be identified at transaction time.
The transparency will allow trading patterns to be monitored by everyone and reduce some of the SEC investigation work by having the visibility deter abusive trading. Abusive trading patterns will be pointed out to the SEC by those close to the trading of the stocks and provide a certain level of self policing. If the trade types are identified at transaction time, the number of false abusive trading claims will be lower.