*******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.
Signed:_______________________________ |
