September 7, 2006
Thank you for the opportunity to submit comments on Proposed Rule- Short sale. This will serve as part two of my comments.
Transparency - Continued
The "Short Squeeze" red herring
The SEC needs to discontinue their use of a "short squeeze" risk as an excuse for not providing transparency regarding FTD data. Not only is it pure bunk, refuted by the industry itself, it is an insult to the intelligence of all investors.
As I mentioned in part one of my comments the real short interest or borrowing availability of all securities can identified through, as Chaiman Donaldson stated, INDUSTRY CONTACTS. Those "industry contacts" are the securities lending desks and organizations that compile, provide and make available a plethora of short interest and borrowing information to Wall St., hedge funds and institutions. In essence, the folks who have the capacity to execute a short squeeze already have all of the information they need.
As the the CFA Institute, formerly the Association for Investment Management, stated in its comment letter to the FSA (UK's version of the SEC) concerning the lack of transparency in short selling and responding to a naked short selling scandal in that country:
"professional investors use stock lending information from securities lenders to determine the level of short selling in a security. They can determine whether a large percentage of a companys shares are already sold short by checking the borrowing costs. By charging more for stocks with significant short interest,lenders provide these investors with information that enables them to determine the risk of a market squeeze."
AND
"reporting by subject stock achieves transparency without putting institutions that enable or engage in short selling at risk of market squeezes."
Furthermore, the Securities Industry Association has stated in a comment letter to the previous proposed rule - short sale:
"in developing "Easy to Borrow" lists, broker-dealer stock loan desks use information from a number of sources, including institutional lenders that have sophisticated systems for estimating borrow supply. Broker-dealer stock loan desks also consider the availability of inventory at their own firms and potential availability from other broker-dealers that act as conduit lenders. Much
of this information is available through electronic feeds and is updated frequently."
The bottom line is if a short seller can check the borrowing costs to avoid a short squeeze, so can a potential short squeezer check the borrowing costs. The potential short squeezer already has all the information they need. It is time the SEC and Wall St ceased utilizing the short squeeze red herring. Its nonsense and the industry acknowledges it in these comment letters.
Further illustrating the nonsense of the "short squeeze" red herring is the fact that stock specific FTD data has been released via FOIA without short squeezes occurring. It is time for transparency and some intellectual honesty from the SEC and the Securities Industry on this matter. Stop trying to base decisions for non-transparency on non-existent risks. It's absurd, an insult and lends credence to claims that the Industy's lobbying dollars are clouding the SEC's judgement.
CFA letter - http://www.cfa.com.hk/centre/issues/comment/2003/pdf/
FSA17ShortSelling020603.pdf.
SIA letter - http://www.sec.gov/rules/proposed/s72303/sia013004.htm
Thank you,
Thomas Reilly