August 6, 2006
Mr Chairman, Ladies and Gentlemen
The fact that naked short selling is now generally perceived to be a significant problem for the investing community, stems not from Title 15 USC, but from the long standing acquiescence of the SEC and SRO to the self-interests of financial services companies, which have put profitability above fairness to others.
Regulation SHO, replete with the grandfathering of FTD and other exceptions granted to special interests, was a major signal to concerned investors that regulators and enforcers were not up to their tasks. The proposed change is an improvement, but absent vastly better enforcement of the underlying laws, it does not build confidence in the system or in those charged with its oversight and principles of good governance.
The plethora of recent settlements involving small penalties and the absence of guilt only builds on the lack of confidence Americans have in the fairness and honesty of the financial markets. We deserve better.
You will receive many letters avering that naked short selling is only a small problem, involves few companies and is often used as an excuse for poor management performance, but it exists, is dishonest and is used by entities gaming the system against retail investors. It must be stopped.
Perhaps it truly is only a microcosm of the growing problems in our financial markets systems if so, that is a terrible commentary on the Securities Exchange Act of 1934 and those of you charged with its enforcement.