November 18, 2007
I have read the comments that the Chicago Board Options Exchange has made to the Commission's proposal to eliminate the options market maker's exception to the close out requirements established by Regulation SHO. Naturally, any entity that stands to lose profits by a change in regulation should be expected to protest.
It is their profits made on the sale of options contracts that they are concerned about. Naturally, the cost of an options contract will increase, if there are not an unlimited number of shares of the underlying stock with which they can sell naked in order to hedge their position. The proposal to end this privilege is a curtailment of liquidity? Clearly, the market that these options market makers create in any stock that sees excessive options activity is an artificial contrivance of their exception. Economists will tell you that all prices in a free market are set by the factors of supply and demand. Naked short sales effectively, if not in reality, increase the number of available shares of a company's stock. How could this not adversely affect the price of that company's stock?
I urge the commission to end this travesty of the market makers exception immediately. It is widely known by all participants in the equity market place that this exception is regularly "hijacked" by powerful market participants in order to manipulate the stocks of smaller companies. This has an adverse effect of limiting capital formation for many start-up companies and is therefore damaging to our market place and our economy.