July 13, 2008
July 13, 2008
Nancy M. Morris, Secretary Securities and Exchange Commission
100 F Street, NE Washington, D.C. 20549-1090
Re: Comments on Regulation SHO Amendments File No. S7-19-07
Dear Ms. Morris: and Chairman Cox,
Fails to deliver in non-optionable securities declined significantly after the elimination of the grandfather exception while fails to deliver in optionable securities increased significantly.
Thus, the net impact of the amendment across all threshold securities was mixed. One explanation of these results is that the investors who previously failed to deliver in the equity market have now moved to the options market to establish a synthetic position. Since the option market makers still enjoy an exception to the close-out rule and tend to hedge their positions in the equity markets, the fails may now be coming from the option market makers instead of the equity investors themselves.
So with the elimination of the option market makers exception would be the right thing. To do for the right reason.
Short selling was best described by Daniel Drew, the Gilded Age speculator and
robber baron: He that sells what isnt his must buy it back or go to prison.
In the 1930s, the Securities and Exchange Commission (SEC) adopted a regulation
to prevent bear raiding. The uptick rule1 states that a short sale may occur only if the
last price movement in a stocks price was upward. This prevents short sellers from
piling onto a falling stock and setting off a downward price spiral. In the words of a
standard securities law textbook, the tick test (and related rules) seem pretty well to have
taken the caffeine out of the short sale.
But cant you see that now its been 70 years and the and the loop hole that lets the manipulation to continue year after year is still in place for some one to sells what isnt his, I think it is time to take any and all short sale out once and for all.
I would like to point out some thing I found on the CRS Report for Congress Order Code RS22099 March 30, 2005.
Regulation of Naked Short Selling CRS-3
4 Market makers are dealers who stand ready to buy or sell a stock at any time and who publish
the prices at which they are willing to trade. They are the key intermediaries on the Nasdaq on
the New York Stock Exchange, they are called specialists.
5 The uptick rule does not apply to OTCBB stocks.
6 Release No. 34-50103, Short Sales: Final Rule, July 28, 2004. Available online at
It is important to note that naked short selling is not always evidence of intent to
manipulate prices. Under certain circumstances, a market maker4 may engage in naked
short selling to stabilize the market. For example, assume that there is a sudden flurry of
buy orders for a stock. The market maker may judge the buying interest to be temporary
and not justified by any real news about the companys prospects. It may be the result of
a questionable press release or a rumor in an Internet chat room. The market maker may choose to sell short to avoid what in its view would be an unjustified run-up in the stocks price. In this situation, naked short selling by the market maker may protect investors against manipulation.
Now come on, who made the market maker the police of the market? To allow them to naked short sell a stock and drive the price down because of something they read on one of the many internet chat rooms under the guise of protecting investors against manipulation is outlandish. When in fact, they are the ones doing the manipulating and driving the price down.
Please dont continue to let market makers be the MARKET MANIPULATORS
George Fitzpatrick President,CEO