August 31, 2007
Thank you for the opportunity to again comment on the proposed elimination of the market maker exemption to Reg SHO.
I think it does the SEC, and all investors, a great disservice to not list those who took the time to submit comments. Simply indicating that 32 investors took that time, and submitted a letter that they endorse, without listing their names, is a slap in the face to them, and serves to marginalize their input. I would respectfully submit that the SEC not publish this: "Comments have been received from individuals and entities using the following Letter Type A: 32" and instead, publish the names, and the letters, as they have done with all the rest. These people want their comments to be counted and recognized, not lumped into a bin and minimized.
As to the market maker exemption, NCANS is preparing a comment letter. My personal sentiment is that no discussion is really required. The facts are clear. The SEC must only grant exemptions when they are necessary for the protection of investors and serve the public's interests. This is not an elective, or a suggestion, or an option. It is part of the 1934 Act's language. Exempting market makers from delivery requirements is not only against the interests of the public, it directly harms equity investors, so that options speculators can enjoy favorable pricing for their options speculation activities. Nowhere is the SEC allowed to favor the business interests of options speculators and market makers above those of investors, nor is the SEC allowed to toss investor protection aside in favor of sweetheart exemptions for market makers. Equity investors are harmed when delivery failures are allowed as part of an options market maker's trading and hedging strategy. Supply is flooded with securities entitlements wholly lacking delivery, which is not consistent with investor protection. It is in nobody's best interests but the options market makers' for-profit business interests, as well as the manipulative interests of larcenous predators, who abuse this exemption to create a de facto share printing press via the options market.
This is not a complicated issue. The SEC is not supposed to hand out exemptions like dollar bills from drunken sailors. It is not supposed to favor the business interests of options speculators over the protection of equity investors. It is not supposed to condone arguably fraudulent behavior (taking investor money and then failing to deliver the product purchased) because greater liquidity can be produced via all this fraud - which benefits only the participants whose livelihood depends upon liquidity, even at the expense of investor protection.
This isn't hard. Many companies are obviously and consistently harmed when "bullets" are traded on the options exchanges, whereby market manipulators abuse the market maker's exemption by buying massive amounts of puts, for the sole purpose of creating a flood of non-existent naked shorted shares generated by the hedging activity of the options market makers. All the SEC has to do is tune into the message boards of countless stocks whose shares are abused in this manner, and where the options trades are now routinely reported and discussed as manipulations. It seems that the SEC is the last to catch on to the idea that this exemption drastically harms equity investors in those stocks, in spite of years of letters, and eloquent and exhaustive comments like those generated during the Fall of 06 during the comment period for Reg SHO's grandfather exemption.
One might get the idea that the SEC is more interested in stalling genuine and positive change, and investor protection, in favor of sustaining a billion dollar loophole for options speculators and market makers, and the manipulative entities who abuse the exemption to damage equity investors.
The NCANS letter will describe, in detail, with citations, why the SEC is violating its Congressional mandate of investor protection, and abusing its exemption authority in an egregious manner. In the meantime, please publish the names and comments of ALL investors who have been concerned enough to send in comments, not just those you feel are diverse enough to warrant mention. I know I am not alone in feeling that the SEC is giving investors the short end of the stick by trivializing the 32 submissions, and attempting to turn the comments of concerned investors into an annoying footnote.