Subject: File No. S7-12-06
From: Robert Almy

April 16, 2007

"The current definition of a threshold security is based, in part, on a security having a threshold level of fails that is equal to at least one-half of one percent of an issuers total shares outstanding.

The current definition is way to high and time to become a threshold security is way to long. The Bloomberg (Phantom Shares) special stated the SEC wanted to eliminate fails to deliver (FTD) before a security became listed.

First, the term threshold is a contradiction in fact. So-called Threshold Securities are not standing on the doorsill waiting for something bad to happen. They have been run over and dragged down the highway to hell by a FTD steamroller. By the time theyre listed millions of shares have already FTD. These are FTD securities.

The must be a mandatory pre-borrow requirement. It must be verified and have instant punitive action for anyone who violates the requirement. (1) Begin applying mandatory buy-ins to cases of failed deliveries whether or not they occur on the scale required for a stock to be designated a threshold security. This approach is used in Germany, Austria and Singapore and prohibit all short sales in the security until the buys in are complete; (2) Remove financial incentives for parties who continue to create and sell unregistered securities and in general abuse the settlement process. Don't let them have any of the cash, including any commissions, until they settle the trades. Don't let their clearing firms mark down the prices of shares the participants short as the prices are driven down, until they settle the trades; (3) The violator(s) and the broker(s) involved should lose the right to short securities directly or indirectly through another source for not less than 1 year and up to permanently depending on the extent of the violations. Fines not less than treble the value of the entire trade(s) at the time of the short(s) and/or mandatory jail sentences.

In order to ensure the pre-borrow requirement is strictly adhered to; disclosure of aggregate fail to deliver positions is essential to provide the necessary transparency. The amount or level of fails to deliver in all securities needs to be publicly disclosed on a daily basis.

Market maker exception is a key component in the FTD problem. It is illegal to collect money for selling something that you don't own, borrow, or intend to deliver. With todays straight through trading and a mandatory pre-borrow requirement there is no need for anyone to need more than T+3.

Concerns about reducing liquidity or otherwise reducing the willingness of options market makers to make markets in threshold securities are a non-issue. Trying to create liquidity with unregistered securities and FTD is absurd. Allowing OMM to hedge their positions with more than T+3 and pre-threshold noncompliance is unconscionable.

Neither short selling nor naked short selling is included in the plain meaning of liquidity. Thus short selling may only be considered as a privilege and not a right. This privilege can only be extended if the rightful owner (with his/her knowledge and consent) loans the asset or security to another party to sell short. Asking if OMM would be discouraged to make markets that trample the rights and loot the accounts of the rightful owners of the securities is beyond reason.