Subject: File No. S7-19-07
From: Concerned Investor

September 11, 2007

What actions does the SEC plan to take to insure that the abuses to be allowed in Canada do not flow down to become manipulation in the US Markets and to US Companies? Recall, Canada was the first to bring an SHO violation against Union Securities for shorting without settlement SHO Companies. Union was using a US Market Maker who was never charged with the fraud despite the evidence against them. Without the enforcement of shorting abuses, as a mechanism of manipulation and not compliance violations, our markets will once again be ripe for abuse through Canada.

There was a reason Phil Gurian and the US Mafia went to Canada to launder their money. There is a reason convicted felon Anthony Elgindy went to Canada to short stocks and manipulate US markets. Because Canada allowed the abuse and the SEC never enforced the US Laws.

New rules in works to short a stock 'Tick Test' Removal

Carrie Tait

Financial Post

Monday, September 10, 2007

A set of proposed changes to the rules governing short selling in Canada could lead to an increase in shorting stocks, and could ease the administrative burden that comes with these types of trades.

Market Regulation Services Inc. published the proposed rules changes late Friday, and lawyers who have reviewed the document say the most significant change is the removal of the so-called "tick test," which blocks traders from shorting a stock when it is falling.

By removing this rule, traders could short a stock at any time, unlike the current rules which say stocks can only be shorted when they are rising or trading flat.

"I think everybody would agree it is likely to increase the amount of short selling that would happen," said Patricia Koval, a partner specializing in corporate finance and mergers and acquisitions at the law firm Torys LLP.

A short sale is a bet that the value of a stock will go down.

Traders borrow stock and sell it into the market, and when the stock goes down, they buy it back at a cheaper price and return the stock to the lender. The short-seller makes money by pocketing the difference.

For example, a trader could borrow and sell a stock at $5, watch it drop to $3 and then buy it back. The short-seller then returns the $3 stock to the lender, making $2, less trading fees.

While RS has been reviewing its short sale rules since 2004, the proposed elimination of the "tick test" comes after the United States made the same change in July. Following that shift, RS allowed Canadian stocks that trade in the United States to be shorted under the U.S. rules. But not all the proposed changes will mirror what U.S. regulators introduced.

For example, Canada will still allow so-called naked shorting, or shorting a stock without actually having located stock to borrow. This is a problem because it can lead to "failed trades", or trades that can not be completed.

"RS believes the majority of the Canadian marketplace is behaving responsibility, and they are lining up their borrows before they short sell," Ms. Koval said. "RS believes that brokers are adopting prudent practices ... so they chose not to impose the U.S. 'locate' requirement."

The proposed rules come with concerns. "Could it lead to increased volatility? That's the biggest question," Ms. Koval said. "Could it lead to liquidity problems?"

The new rules could make it easier to manipulate thinly traded stocks. In order to combat this potential problem, RS' proposed rules come with a "safety valve," said Simon Romano, a partner at Stikeman Elliott LLP. Under the proposed rules, RS can disallow short selling in certain stocks if the regulator believes it is being manipulated.

Mr. Romanosaid the tweaks "could perhaps drive down the price of illiquid stocks and increase their volatility"

On the administrative side, market participants are currently required to file twice-monthly reports detailing their short positions. RS proposed eliminating this if a third-party reporting service is able to collect short sales data. This would lessen the administrative burden on outfits that short stocks, but at the same time, still provide the market with data about short positions. "From a transparency perspective, the market will still have the same information," Ms. Koval said.

RS gave observers one month to comment on the rule changes, a period which expires Oct. 9.

National Post 2007