Subject: File No. S7-19-07
From: Joseph Carvalho
Affiliation: Citizen / Investor

July 25, 2008

Reg SHO - Eliminate ALL Naked Short Selling(NSS) in ALL markets.

In the Reg SHO rule changes currently under review, I beseech SEC to seriously consider and adopt this KISS KEEP IT SIMPLE SHO rule, as outlined below:

A simple and clear rule when a share is traded in the markets should be

NO DELIVERY will mean NO SALE and NO PAYMENT to seller.

I am a citizen of the USA and have participated in the stocks markets for over 25 years. My primary interest is in the small-cap or penny stocks markets.

I am totally amazed at the rampant abuses of NSS that systematically destroys young and growing companies. To-date SEC has NOT prevented this fraudulent and illegal NSS aka "Phantom" shares or Airshares in our markets. Many of these companies have their share prices driven down systemathically to price per share between 0.0002 and 0.0001(or less) and held there in a vice-like grip resultng in CELLAR BOXING. Very few companies can survive this total destruction by shorters and in the process, investors lose most or all of their investment. This has resulted in an unprecedented lack of confidence in the marketplace, and indeed, if it continues, will ultimately cause the collapse of the financial system as we know it.

First of all, it is paramount to recognized that EACH SHARE, with all its endowed rights and privileges, legally issued by a SEC registered public company can be owned, individually or jointly, at any given time only in ONE account/name(s) at the brokerage, whether shown in electronic entry form or held in certificate form. There cannot be multiple entries or so-called markers for this same share if any multiple entries are made for the same share, it is illegal and fraudulent and punishable under The Security Act, as regulated and enforced by the SEC.

Here s how the rule can work in real-life:

Any person placing a Buy order through the brokerage has funds on deposit in account to complete the buy-side of purchase, and this means the Buyer is entitled to receive from the Seller a legally issued share of the company. This creates a contract between a Buyer and a Seller with the Brokerages acting as intermediaries in the market place for the transaction.

Thus, if from the sell-side there is NO DELIVERY of legal share on the scheduled delivery date, currently on third business day, an FTD (Failed To Deliver) occurs and the defaulting brokerage must immediately purchase a legally issued share in the market place the very next trading day to fulfill the contract.

The Seller who caused the FTD of legal share(s) will have a NO SALE and will receive NO PAYMENT for the unfilled sale, and may even incur additional purchase costs (and fees) incurred by the brokerage to fulfill the contract. The brokerage should be allowed to (and can easily) collect a penalty as a deterrent, in addition to other restrictions imposed on Seller for repeat offences.

The mechanics of transactions such as these are in place at the primary brokerages, and will not require major overhaul in systems to implement this rule.

May I strongly suggest to SEC to incorporate the above idea forthwith.
This will result in NO (or very few ) FTDs, and result in transparent and fair trading for all investors across the board , and will go a long way to restoring confidence in our markets. Protection of investors from fraud and manipulation must be a paramount goal of SEC.

Additionally, this same rule should be applicable and applied to ALL publicly traded stocks across the entire stock market.

Thanks for the opportunity afforded to express my opinions.

justin_123 ( Joseph Carvalho )