Subject: File No. S7-12-06
From: Paul J Floto

July 17, 2006

The Options market maker exemption totally guts Reg.SHO.

There is an easily establishable history of an options market maker selling puts, buying calls, and shorting a block of stock to a buyer of a Reg.SHO security. This has been done repeatedly, with blocks of 100,000 to 250,000 shares of NFI.

This is a "no risk" transaction to the optins market maker, who obtains a guaranteed profit, while the hedge fund buyer obtains "long" shares that can be dumped to manipulate the market price of a stock that is already heavily shorted.

This provides NO extra "liquidity" to the options market, as the block of puts the hedge fund is long, and the block of calls the market-maker is long are never traded untill they are rolled forward, allowing the "naked short" to be preserved indefinately.

Illusory liquidity in the options market does not offset the huge damage done to the equity market when millions of fake shares can be created at will to manipulate the market price in the equity market.