From: Walt Shofner
Sent: July 19, 2006
Subject: File # S7-12-06 Comments on SHO rule changes

File # S7-12-06 Comments on SHO rule changes

II. A. Close out requirement. Face it: SHO has been a failure at encouraging close outs. But it should have served as notice to those who have not delivered that they will be bought in with the enactment of the amendment forcing them to do so. For God's sake put some teeth in the reg!

II. B. Grandfathering. Allowing past fails simply because you "always have done it that way" is asinine. You are moving in the right direction on this point. Failed deliveries certainly have had enough time to be settled by now--at least you've given them ample warning with the toothless SHO in its present state. Now its time to buy in. Now. As in "immediate". No phase in period. Incidentally, you say the only reason you allow grandfathering is because you were worried about "creating volatility through short squeezes". It's incredible and unfathomable that you would allow grandfathering with a complete disregard for long buyers who get hammered because of the downward manipulation caused by the naked short! Fire the man who came up with the idea of grandfathering and stop being biased in favor of short sellers. There's no good reason the short sellers shouldn't actually borrow the stock PRIOR to selling so they can deliver it promptly. None. That would also address SHO's flimsy "locate" requirement issues, the concept.of which is downright insulting to me. Who are you kidding with rules that allow everyone to ignore them?

II. C. Options Market Maker exception. You say the exception was created "to address concern regarding liquidity and pricing of options." Well you know what? Boo-hoo for the options market maker. To hell with liquidity in the options market. What good is option market liquidity if the underlying stock price is being manipulated? And why should the stinking options guy be allowed to push his risk onto the backs of long buyers? What were you thinking?

A general comment: All parties, including brokers, SROs, sellers, specialists, etc., should be prepared to provide to any interested party all data within their control that pertains to clearance and settling. This data should be transparent and reconcilable both at the aggregate and the individual account levels, and it should be available in a form that makes it easy to see who failed the transaction, whether it's an end party or some intermediary. No one should have to file a FOIA request with some goverment agency just to find out who is screwing around.

Walt Shofner