From: Kris Vansteenwegen []
Sent: December 18, 2003
Subject: File No. S7-23-03

Dear Madam, Sir,

Hereby I would like to react on the Proposel Rule concerning Short Sales, Release No. 34-48709; File No. S7-23-03.

Currently, not all exchanges provide a proper protection and sufficient guarantees to be attractive for (institutional) investors. Thus, a lot of listed companies are relying on continuous dilution and - often as a last resort - they count on dubious equity financing. This results in dead spiral financing, short selling and naked short selling techniques orchestrated by certain parties involved which is disastrous for the company, its investors and the stock exchange where it is listed.

The objective for a company to list on an exchange is to raise funds to be able to research and later to grow its business. The objective of an investor is to see a return on investment through progress made by the company, and not by dubious speculation. The interest of the governement is to grow new businesses, industries and to create jobs. Questionable practices have a negative impact on all the previous mentioned areas, therefore, impacting society as a whole.

Most of the (startup) companies do not have the time, means or funds to properly report, or do simply not make a spectacular progress during the first year of their existence. Thus it is already extremely difficult for investors to assess the risk, assess the chance for success, let alone to take into account the competition, economic situation and other market factors.

Therefore, I think the proposed rules are a necessary step in making the exchanges more structured, more transparent for (institutional) investors and less likely the target of malicious practices. Especially today these measures are extremely important to support the troubled economy.

In the following section

II. Naked short selling
C. Proposed Amendments
1. Short Sales

the following quoted statements are of CRUCIAL importance to protect the companies listed on the exchanges, their continued existence, the motivation to stay- and become a listed company and to justify the risk/reward ratio of starting, maintaining and - most important - investing in a listed company.

The following quote is totally justified:

"We believe that securities with lower market capitalization may be more susceptible to abuse, and therefore believe that these additional delivery requirements should be extended to all equity securities registered under Section 12 of the Exchange Act. "

Exchanges such as pinksheets and OTC-bb specifically list a number of startup-companies that have to concentrate on research and developing their business. These startup-companies are the driving force behind new - sometimes revolutionar - technologies, have limited resources for accounting and regulatory affairs, and have it extremely difficult to find required funding. Therefore, specifically these markets should be protected and an attractive environment should be created for investors.

The below quote is, from my opinion, again CRUCIAL for the effectiveness of this proposed rule. It would be naieve to think market makers are not involved in (naked) short selling and do not develop trading strategies that are harmfull for the company and its investors. Therefore, especially market makers, who have more control over a security than anybody else, should be limited in performing harmfull operations and maintaining harmfull strategies.

"We believe it is questionable whether a market maker carrying a short position in a heavily shorted security for an extended period of time is in fact engaged in providing liquidity for customers, or rather is engaged in a speculative trading strategy. Therefore, we are not proposing an exception from these additional delivery requirements for short sales in connection with market making."

Q. What is the appropriate manner by which short sellers can comply with the requirement to have "reasonable grounds" to believe that securities sold short could be borrowed? Should short sellers be permitted to rely on blanket assurances that stock is available for borrowing, i.e., "hard to borrow" or "easy to borrow" lists? Is the equity lending market transparent enough to allow an efficient means of creating these lists?

Personally, I do think the corrective effect of short sales is sufficient if it will be performed by "normal" transactions. I.e. shorting a security by private or institutional investors that own the security. I question the "borrowing" as a whole. I strongly recommend AGAINST creating "borrow lists" because 1) I do think the equity market is not transparent at all to allow an efficient means of creating such lists and 2) I do believe a "reasonable ground" based on blanket assurance that the stock is available for borrowing is subject to discussion and does leave the door open to continue with the current practices. I strongly recommend borrowing - if acceptable at all - has to be proven through hard evidence.

Q. Should short sales effected by a market maker in connection with bona fide market making be excepted from the proposed "locate" requirements? Should the exception be tied to certain qualifications or conditions? If so, what should these qualifications or conditions be?

No, market makers should fall under the same rule without any exceptions. I do not see any required exception that can be properly justified.

Q. Should the proposed additional delivery requirements be limited to securities in which there are significant failures to deliver? If so, is the proposed threshold an accurate indication of securities with excessive fails to deliver? Should it be higher or lower? Should additional criteria be used?

No, the proposed rule should be a general rule being applied to ALL securities and all markets. I do not see any exception or limitation that can be properly justified.

Q. Are the proposed consequences for failing to deliver securities appropriate and effective measures to address the abuses in naked short selling? If not, why not? What other measures would be effective? Should broker-dealers buying on behalf of customers be obligated to effect a buy-in for aged fails?

Yes, under condition the above quoted paragraphs are applied as a general rule, without exceptions for market makers or certain securities. As I am totally against the borrowing principle, ideally I would be in favor for the suggested buy-in.

Q. Is the restriction preventing a broker-dealer, for a period of 90 calendar days, from executing short sales in the particular security for his own account or the account of the person for whose account the failure to deliver occurred without having pre-borrowed the securities an appropriate and effective measure to address the abuses in naked short selling? Should this restriction apply to all short sales by the broker-dealer in this particular security? Should the restriction also apply to all further short sales by the person for whose account the failure to deliver occurred, effected by any broker-dealer?

Yes to all, for sure.

I tried to respond and forward you my comments on the first part of the proposal. The effectiveness of the following parts of the proposal are highly dependant on the previous statements.

I hereby hope to have contributed to a proposal that could change and re-shape the stock-exchange landscape. I do strongly believe we will hear a sigh of relief from currently listed companies when this rules passes. It is of no doubt that today, unethical practices by financers, market makers, lobbies and conspiracy-like financial constructions do harm the US economy and society in a severe way and on a large scale.

Best Regards,
Kris Vansteenwegen