March 31, 2007
Subject: File No. S7-12-06
The Honorable Christopher Cox, Chairman
Securities and Exchange Commission
100 F Street, NE
Washington, D.C. 20549
Dear Chairman, Ladies and Gentlemen of the Commission,
I hereby submit the following article that I find germane to the issues at hand,
Remember How The SEC Stalled Meaningful Action for Years on FTDs? More Doing Nothing Ahead...
Location: Blogs Bob O'Brien's Sanity Check Blog
Posted by: bobo
3/26/2007 1:30 PM
It would be very funny if not completely true.
Those who lost fortunes over the last 7 months, while the SEC finally grudgingly acknowledged that Reg SHO wasn't working, will be glad to hear that the desperately and anxiously awaited action we've all been waiting for has been......
Delayed yet again.
Yes, instead of doing simple things like admitting that the Grandfather clause, which was unlawfully slipped into Reg SHO, and in violation of the SEC's own rules, never received a comment period (thus making it an illegitimately issued hall pass for those refusing to deliver what they sold, often for years)...and doing away with it, what instead has the commission done?
Re-opened the comment period for SHO.
Huh? WTF? Why? We already know that there is no basis in the SEC's charter to forgive persistent delivery failures. There is no basis in its mandate of investor protection to allow exemptions for market makers to create massive FTDs - none of which has the most remote basis in bona-fide market making. Failing for weeks, months or years is not bona-fide market making. Never was, and nobody with a working brain would buy it for a second. But apparently the SEC does, hook line and sinker.
We know that Reg SHO hides information rather than encouraging transparency, and badly damages investors and companies, for whom their stock is a fiction Wall Street bad guys have simply refused to deliver - after being paid for the product.
But now instead of an end to the grandfather clause, and a tightening, if not complete elimination, of the egregious options market maker exemption (wherein the options MMs are allowed to create naked short shares in literally un-checked amounts, in order for them to enjoy cost-free hedging in the derivatives market at the direct expense of equity securities investors) we get more stonewalling and requests for comments.
Where is it so hard to see that by allowing speculators in a different market - options - to create stock at will in the stock market (for the sole reason of providing free hedging for the options speculators), materially damaging stock investors as well as the companies affected, that it is BAD for everyone EXCEPT the options speculators? Where is the SEC allowed to favor the interests of options speculators, over the interests of investor protection? Point me to the code section. The enabling language that says, "If you are a company deriving financial benefit by speculating in options, you can hedge your for-profit trades by fabricating non-existent shares at no cost to you - and do so as early and often as you like. Screw investors buying those phantom shares, and those whose stock plummets due to the massive, unauthorized volume you just printed - it's all good. Knock yourself out."
Unbelievable. Really. I've never in my life even hinted at this level of gross and callous disregard for the rule of law as the norm, and yet for year after year after year, investor dollars are taken, nothing is delivered, and the best the SEC can do is "extend" the comment period. Because 8 years ago, naked short selling as we saw in the crash of 1929 was so, er, unexpected and misunderstood - you know, the idea that you might have to deliver the stock you sold, instead of just refusing to do so, and giving the investor the middle finger, was such a quaint notion that the SEC was unable to figure out it could damage companies and investors. That was a tough one. 8 years later, and they still need comments. How about this one: Settle the trades, or go to jail. Did I leave anything out of the mix? Some nuance omitted?
I suppose all those rapists, whose easy pickings every weekend night looked to be in jeopardy from the passage of laws that make it against the law to take women against their will, can rest easy, while the motivations of the rapists are discussed as more info becomes available. "I just get so mad," "She was asking for it," "She was wearing that dress - how clear did it have to be?"
Yet more opportunity to study the motivations of the violent criminal predators is now at hand, while the raping continues unabated.
Folks, I am absolutely dumbfounded.
"I sold, and continue to sell, tens of millions of shares that don't exist, uh, you know, because of the bona-fide market making I'm engaged in that requires the creation of tens of millions of non-existent shares..."
"Well, you grandfathered them all, so why would I go pay money to deliver the shares, when you gave me the free pass for years?"
"When I was selling with unbridled levels of aggression, while my hedge fund clients were telling me to put the company out of business, and bury them, I thought that was bona-fide market making, not criminal stock manipulation. Oops. I heard it was a fun and lucrative game. Cramer said everyone should do it. Sorry. Really. My bad."
"We figured that since you violated the law and enacted grandfathering, that was our go-ahead to use it to keep violating the law and ripping off the last remaining dollars in the US retirement savings system. How about another 6 months to comment on it while we pick the bones?"
"Gotta go create another million shares of OSTK while you have the rubes write letters. Too GD funny. Really very amusing. Ha ha ha ha."
And so on.
Copyright 2007 Bob O'Brien