July 16, 2008
I commend your efforts to close the remaining loophole in regulation SHO that has habitual, and I believe intentional, failure to deliver. The very concept of failure to deliver bespeaks of a practice that constitutes a failure of normal market functioning. By allowing failure to deliver in any form to persist regular stockholder are subject to dilution of their current holdings without their knowledge nor their ability to prevent. Anecdotaly there have been several instances where "naked short positions" have exceeded the entire float of the company in question. Clearly this should never be allowed to happen.
I must admit that I am dismayed that it has taken the failure of prominent financial instutions to prompt the SEC to consider action. In the interim smaller, "less important" companies, precisely those that are easier to manipulate because of their small market caps, have been left unprotected for many years. It's time to bring transparency and credibility back to the market place. Short selling is valid, and in fact necessary, for the smooth and efficient functioning of markets. Naked short selling, AKA "failure to deliver" is most definitely not.
Laurence Beer, M.D.