From: Ryan Weber [firstname.lastname@example.org]
Here is the hole I am referring to: http://www.sec.gov/rules/proposed/34-48709.htm#IIC1
The Commission is proposing an exception from these requirements for short sales executed by specialists or market makers but only in connection with bona-fide market making activities.49 We believe a narrow exception for market makers and specialists engaged in bona fide market making activities is necessary because they may need to facilitate customer orders in a fast moving market without possible delays associated with complying with the proposed "locate" rule. Moreover, we believe that most specialists and market makers seek a net "flat" position in a security at the end of each day and often "offset" short sales with purchases such that they are not required to make delivery under the security settlement system.
That is a hole big enough to drive a truck through it. Let me see instead of driving the price from 1 dollar to 10 cents in a matter of days, it will take a couple of weeks longer. Market makers and specialists are free to have naked short positions as long as they balance everything by the time of settlement, which gives them a couple of days to cover and short again. While they are covering they short again, simultaneously. They have no limits on number of naked short positions, as long as they are trading within the trend for the stocks. So now they will have to establish a trend to trade within.
Looks to me it is business as usual, except criminals, drug lords and terrorists are not invited.