Subject: File No. S7-12-06
From: Dave Patch

August 1, 2007

Members of the Commission,

As the Division of Market regulation continues to cower to the threats of the industry to maintain their exemptions to trade requirements (options market making exemptions) those very same member set are manipulating markets using these exemptions.

With a ratio of far worse than 1 in 1000 fraudulant acts being brought to regulatory enforcement the risks to abuse privilege is negligible.

Below is a copy of a comment memo the SEC received and acted upon in favor of the member firm....

Sent: Friday, March 26, 2004 1:07 PM
Subject: File No. S7-23-03
To whom it may concern:
I am the managing member of SBA Trading, LLC and LTA Trading, LLC, both
market making firms on the American Stock Exchange. This letter is written
to express our opposition to the proposed short sale rule. We support the
current exemption of market makers not being forced to locate stocks before
shorting them.
This proposed rule would greatly inhibit broker dealers from making markets
in many securities.
It would artificially temporarily inflate stock prices and make the stock
market inefficient. Allowing flexibility for shorting stocks promotes
liquidity, efficiency, and an orderly market place.

Scott Arenstein
Managing Member, SBA Trading, LLC and LTA Trading, LLC
241 Central Park West, 6E
NY, NY 10024

And with this exemption in place, here is how Mr. Arenstein maintained market efficiency and market integrity. He manipulated stocks for personal profit.

NEW YORK, July 31, 2007 - The American Stock Exchange® (Amex®) today announced two final disciplinary actions for violations of Securities and Exchange Commission (SEC) Regulation SHO short sale rules in connection with trading activity in threshold securities, which occurred on various options and equity exchanges. In the first action, Scott H. Arenstein and his firm SBA Trading, agreed to a fine of $3.6 million, disgorgement of $1.4 million in trading profits, a censure and a five-year suspension from Amex membership in any capacity, including employment or association with an Amex member or member organization during such period. In the second action, Brian A. Arenstein and his firm ALA Trading, LLC agreed to a fine of $1.2 million, disgorgement of $1.8 million in trading profits, a censure and a five-year suspension from Amex membership in any capacity, including employment or association with an Amex member or member organization during such period.

SEC Regulation SHO generally requires market participants to locate shares to borrow prior to effecting a short sale transaction. However, options market makers receive a limited exemption from this requirement when selling an underlying equity security short to hedge options positions established during the course of bona fide options market making activity.

Despite the fact that neither respondent was acting as a bona fide options market maker in the particular securities in question, each of them improperly utilized this market maker exemption to impermissibly engage in naked short selling by failing to locate securities to borrow and then engaged in a series of close out transactions designed to circumvent his Regulation SHO delivery obligations in such securities by creating the appearance of a bona fide repurchase of the securities he initially sold short. As a result of this violative trading activity, they were able to maintain impermissible naked short positions in a number of Regulation SHO threshold securities for a virtually unlimited period of time.

Regulation SHO is a critically important framework of regulatory requirements designed to prevent and deter abusive short selling and reduce persistent fails to deliver. The respondents circumvention of these requirements was egregious and improperly contributed to persistent fails to deliver in certain Regulation SHO threshold securities, said Claudia Crowley, Senior Vice President and Chief Regulatory Officer of the Amex. This settlement should send a strong message to other market participants that trading which involves the improper use of the Regulation SHO market maker locate exemption and circumvention of the requisite delivery obligations are unacceptable and will result in serious sanctions.

Scott H. Arenstein, SBA Trading, Brian A. Arenstein and ALA Trading consented to findings that they violated SEC Rule 203, Article V, Sections 4(h) and (i) of the Amex Constitution and Amex Rule 958 – ANTE. In settling these matters the respondents neither admitted nor denied the charges.

This violative activity was detected and investigated by the Financial Industry Regulatory Authority (FINRA), formerly the NASD, acting on behalf of the Amexs Regulatory Division.

The Decisions and related Stipulations of Facts and Consent to Penalty can be viewed at the following link:

How much more of this abuse will Mr. Brigagliano accept before he realizes that the member firms he is protecting are making him look the fool (and possibly more)? The actions as stated above only reduce the confidence the people have with these public markets. The Federal Regulator protecting exemptions for firms who use such to manipulate our accounts and steal our financial safety.

The evidence continues to grow as the SEC's Division of Market Regulation delays reforms and buries their heads in the sand.

What is the real status of our Capital markets Mr. Chairman? I don't mean the political public response you provided the Banking Committee this week - the REAL answer. How crooked is it getting and what future will the next generations have if our market integrity continues in the downward spiral we see before us today?