August 7, 2006
A short seller should have to actually borrow a stock before he sells it to someone else. The alternative - "locate" a stock or "get assurances" that a stock is available to borrow - is so much like a "check's in the mail" standard that I am simply amazed it has been accepted for any amount of time.
If a buyer of stock can be given, in effect, an assurance that there is a share of stock available for him to use to vote, or to sell, why shouldn't he be able to give the short seller assurances that he will pay the short seller if and when the short seller absolutely demands the money? That would be fair, wouldn't it? The buyer does not believe he is buying an assurance or a locate, he believes he is buying a share of stock, and the SRO's should make that belief a true one.
The grandfathering of failures to deliver under the current SHO regulation is giving unscrupulous broker-dealers and market makers a mulligan for past fraud. I try to act honestly in all of my dealings, and I do not see why anyone else should be allowed to exercise a lower standard, especially by a regulatory organization that is supposed to be protecting the public interest.
Please get it right this time: No short sale without actually borrowing the stock.