December 1, 2005

The International Association of Small Broker-Dealers and Advisers appreciates the opportunity to comment upon the above referenced matter involving short sale delivery requirements. The Association's purpose is found at The NASD'S effort to improve short sale delivery requirements is long overdue but welcome. It is also understandable why the NASD would follow the SEC's model .However it may not be the best model for the markets to be covered and it should not be assumed that it is. The problem with short sale delivery may be directly traced to the "mother of all loopholes" the locate requirement. The weakness of this requirement and its progeny of hard to borrow and easy to borrow lists and customer locates and blanket assurances directly contributes to the public outrage concerning naked shorting. The NASD must consider whether it is wise to maintain this faux delivery requirement. Would it be logical to change the net capital rule to require brokers to only locate the capital? While it is unlikely that real delivery will ever be required, it is logical to demand it after a firm has failed for a significant period. The sanction for doing so should be a requirement to pre-borrow for all future short sales and not merely for the security in question and the clearing firm involved. The 90 day restrictions found in Reg t would be a powerful deterrent in this regard.. Finally the staff and Commission should consider whether all threshold stocks should be subject to a preborrow requirement immediately at least on a pilot basis. While this does add expense it also adds certainty to the regulatory process and a 1 year pilot would be instructive.

The NASD should also clarify the allocation process and make clear that the penalties can be allocated to identified customers and brokers alike. Finally the NASD should make very clear that the forward looking threshold sanction is in addition to a backward looking sanction for failing to legitimately locate the securities in question including any fails prior to threshold status. I believe there is a public misunderstanding that the threshold sanction is the only sanction. It is the automatic sanction but it assumes a legitimate locate. there is no amnesty for grandfathered stocks. While the locate may not be a business contract it should be viewed as a regulatory contract. The NASD MUST ALSO REACH OUT TO THE ISSUER Community FOR ITS VIEWS. Reg SHO had no issuer comments except that the NYSE represented that it was speaking for all its issuers. The NASD should directly contact all impacted issuers and ask them to comment on this proposal. This lack of issuer input should be compared to the weekly meetings on the development of Reg SHO with the large stock loan and prime brokerage firms. The SEC and NASD must be wary of the exisiting disproportionate influence of the stock loan community in its decision making and seek equal input from others including NASSA ,ISSUERS AND SMALL INVESTORS..

Peter J. Chepucavage
General Counsel
Plexus Consulting
202-785-8940 ext 108.