July 17, 2008
In your emergency rule of July 17, 2008, the following statement is made:
"In these unusual and extraordinary circumstances, we have concluded that requiring all persons to borrow or arrange to borrow the securities identified in Appendix A prior to effecting an order for a short sale of those securities is in the public interest and for the protection of investors to maintain fair and orderly securities markets, and to prevent substantial disruption in the securities markets. This emergency requirement will eliminate any possibility that naked short selling may contribute to the disruption of markets in these securities."
This is a sensible argument. But why should such requirements apply only to a few securities and only under "unusual and extraordinary circumstances"?
Are these requirements not simply the ordinary standard that one should own something before one is allowed to sell it? And if one does not own it, one should not be allowed to receive money in exchange for a fake version of it?
It would make the most sense to extend this completely reasonable requirement to the entire market permanently. I strongly encourage the SEC to take this action. A "fair and orderly securities market" is not possible when people are allowed to obtain money in exchange for providing securities that they do not possess to unsuspecting buyers. It is equivalent to printing counterfeit money, which is illegal. It should also be illegal for ANYONE, "market-maker" or not, to conjure up counterfeit securities and sell them, which is precisely what has been allowed by the toleration of naked short selling.
Please take seriously your responsibility to protect the integrity of the U.S. securities markets, and end this shameful era of officially-sanctioned securities counterfeiting. Naked short selling is already immoral. The SEC should now fulfill its regulatory responsibilities by making it now clearly and unambiguously illegal.