Subject: File No. S7-12-06
From: Mary Helburn

April 16, 2007

Comments on specific close out requirements of grandfathered positions

"Should we consider instead providing a longer period of time to close out fails that occurred before Jan3, 2005 or fails that occur before a security becomes a threshold security or both?"

This just irritates me. How much time do they need? It has been over two years. If they haven't closed out the fails by now, they shouldn't be given any more time. Deliver the security to the buyer. Anything else and delays in doing this are fraud. A simple time limit for all securities would eliminate problems from using various time limits. If the brokers have been sitting on fails since the time that this proposal was initiated, they have had ample time to close out the fails without the upward volatility that the Commission is so concerned with. Anyone who fails to deliver under these circumstances deserves to be caught in a short squeeze.

Any delay in delivery allows for there to be downward pressure on a security. On thinly traded stocks, shorting without borrowing can be done intra-day. See recent Commission findings where brokers allowed shorted shares to be mismarked as long. A sizeable option position can be secured and then shares dumped on the market, creating a favorable option situtation that can be closed at a profit and then the naked shares can be bought in. Manipulating stock to generate profits in options is unfair. If this kind of fraud can be done in hours, why should you allow any longer time, where this process can be repeated over and over creating downward volatility that harms long investors and those who lend their shares? Anyone who sells short without borrowing should be fined and brokers who allow this should be censured and fined.

Make the fines for failure to borrow or mismarking trades more severe than whatever profit is generated in the trade. If the securities have been borrowed, there will be no failures to deliver. Liquidity is not as important as fairness to all investors. Investors used to believe that companies with a low float would have less liquidity than those with a large float. Since the instituting of exceptions and grandfathering of fails, trading of the entire float or more can be done in a day.

Monitoring the costs and compliance with a bunch of varying rules would cost more than monitoring a simple rule. T+3 is ample. Anyone that doesn't deliver the shares should pay a penalty. Clearing and settling should be tied together. Separation of these is what is causing the abuses. Paper certificates is not a reason for allowing a delay for delivery. Delivery is the responsibility of the seller. Get those certificates in before the trade is initiated. Borrow the shares before the trade. Locating is not borrowing.

If you keep the rules simple, they will be easier to follow and easier to enforce. Costs will be minimal. Liquidity is not a fair trade off for the abuses that are created from the exceptions.