Date:    09/21/2000 11:35 PM
     
     
     
     
*******Securities & Exchange Commission Letter******* 
Mr. Jonathan G. Katz 
Secretary 
Securities and Exchange Commission 
450 Fifth Street 
Washington, D.C. 20549 
Or email address: Rule-comments@sec.gov 
     
Re: Release No. 34 42037 (File No. S72499), Short Sale Regulation 
     
Dear Mr. Katz: 
     
Rather than eliminate Rule 10a-1 or loosen the restrictions on short selling, 
the Commission should focus on more effectively enforcing the current short 
sale rules and should extend those rules to non-exchange listed securities. 
In my experience, the unchecked abuse of the current short sale rules deprive 
individual investors of essential investor protections and make it more 
expensive for companies to raise capital. In addition, exempting market 
makers and not extending the rules to non-exchange listed securities and the 
over-the-counter market deprive thousands of issuers and tens of thousands of 
investors from the protection of the rule that was adopted to curb a 
recognized abusive practice that has increased in recent years in these 
markets with the lack of regulation and the increased availability of 
enhanced communication and information technology such as the Internet. 
I will focus my comments on the question of whether the short sale 
regulations should be extended to the OTC-BB market and other non-exchange 
listed securities markets. For the reasons stated in this letter I believe 
they should. 
I do not see how a market maker or other short seller can make a legitimate 
market when they have put themselves in a naked position in which they cannot 
cover in the face of unexpected good news and positive developments except at 
significantly higher prices. Their economic interests are so adverse to the 
majority of the other shareholders, that they must control the price in order 
to protect their position. 
     
I believe that short selling in many companies' securities has: 
(a) artificially inflated the number of shares available in the market. 
(b) artificially depressed the price of the shares. 
I have observed short-selling, price capping, buy-high-sell-low strategies, 
"painting the tape" trading and other actions that have served to limit many 
companies' access to capital, diminished or suppressed the value of their 
shares and resulted in a volatile stock price for their securities on an 
almost daily basis. 
     
This short selling has proven extremely detrimental to many companies and 
their shareholders. We firmly believe that the Commission can and should take 
steps to curb these abuses, beginning with the extension of short selling 
regulations to non-exchange listed securities and the markets in which they 
are traded. 
     
Specifically, we recommend that the Commission: 
     
1. Extend regulation of short sales to all currently unregulated markets for 
non-exchange listed securities. 
     
2. Permit regulated short selling, subject to the monitoring, reporting and 
volume limitations discussed below. We believe there is a place for 
legitimate short selling, provided it is not manipulative. We believe that 
imposing the limitations now used in the Nasdaq National Market and in the 
national exchanges would be a very strong step forward to curbing abuse in 
the OTC markets. 
     
3. Require reporting and increased monitoring of short selling in the OTC 
markets. This would include imposing a requirement that all short sales be 
instantly reported in such a way that the net long position of each account 
participating in a short sale and flags naked shorting, down tick shorting 
and other "bear raid shorting." 
     
4. Limit market maker short selling and permit short selling only to meet 
legitimate temporary intra-day needs to maintain an orderly market. 
     
5. Implement velocity and volume limits on short sales. Prohibit the 
immediate re-lending of shares for further short sales that have been loaned 
to permit a short trade. Establish volume limits for aggregate short sales 
that include time limits for open short positions, volume limits on related 
accounts, and allocation of the volume limits among short selling 
participants. 
     
We urge the Commission to extend short selling regulations to non-exchange 
listed securities. 
     
Steven Cady