Subject: File No. S7-08-09
From: Jack Kristeller

October 6, 2009

Dear Chairman Shapiro

As an investor for the last 10 years, I would like to draw your attention to hedge fund organised short raids pounding all bids in sight, markets in general and financial institutions specifically collapsed in March and are still on very precarious grounds, despite help from the "invisible" hand of the Fed. Many smaller stocks have never recovered, despite a solid future ahead of them. (See my remarks below about short selling and investor risk - this is right to the point.)

I understand that you are still soliciting commentary on the matter of the Uptick Rule (above bid rule) and short selling. Illegal short selling persists and investors are being unduly punished for the benefit of "rogue traders" and under the pretext of maintaining liquidity supported by academic studies and a large parade of self-interested professors.

I have little problem with legitimate short sellers - although my personal feeling is that short-selling is against all principals of what might be called 'natural' or 'pure' capitalism. For short-selling to 'work' as a part of a unfettered, i.e. a free market, there has to be, at the very least, a lack of supervisory oversight, a 'turning of a blind eye' by the authorities with the responsibility of ensuring a fair and orderly market, if you like. This turns truth and logic on its head for, as you will have to agree, the market can no longer be free and fair in these circumstances. It is an impossibility for this to be the case. The naked truth is short-selling is manipulation is all but name and naked short selling is the most damaging manipulation of all. It destroys the wealth of those who have done nothing wrong but to risk their scarce capital resources (free cash) in the share issues of the companies of their choice. The risk of those companies failing, in whatever manner, and such failing reflected in the share price is, of course, the risk that the investor bears. Why should he/she bear an additional, unnecessary risk of loss of value because someone borrows (possibly the very shares owned by this investor) and sells them into the market to 'buy' them back when the share price falls? Is that 'fair' practice or 'sharp' practice?

There is an additional problem of shares issues being traded by market-makers which, rather than being actual company stock, are, in fact, shares which short-sellers have 'failed to deliver' to the market when a trade is closed. I firmly believe that this problem is wide-spread, and is indeed now so serious that the authorities, including the Securities and Exchange Commission, are loathe even to acknowledge its existence for fear of huge litigation from stockholders who will claim that the SEC was asleep while it took place when it should be awake, vigilant, at all times.

In Canada and other non-US sites it still persists, despite the fact it is considered illegal. What do you need to see to reinstate integrity to North American financial markets, and save investors, pensioners and businesses (large and small) that have been the foundation of a thriving America, Canada and United Kingdom?

The time has come to take action. The frequency trading, front running, quasi-derivatives, insider trading and wanton naked short selling make a mockery of our markets. They make Mr. Madoff look like a Saint. Everyone knows it. Who will be left to trade at the end of this?

Dear Chairman Shapiro, I realise it takes time to weigh up the issues confronting your organisation. However, time is not on our side. We are all getting older by the day and future generations will pay dearly for the consequences of our inaction.

Yours sincerely

Jack Kristeller