Pcyhuang contributes another powerful piece on NSS
From: pcyhuang 3/26/2008 11:17:41 PM
2 Recommendations of 3339
"Locate" vs. "Borrow" in Naked Shorting
The fines that the SEC levies against market manipulators is inadequate to curb the abuses. I support criminal prosecution of those who misrepresent having a firm locate. Part of the problem stems from the use of "locate" rather than "borrow". Brokers, as well as the parties who misrepresent a firm borrow, should be held accountable. Putting the responsibility strictly on the seller is inadequate and gives the broker the opportunity to do trades without having real shares to short. By the time the broker realizes that there were no borrowed shares, a rouge trader, now able to dump shares without the curtailment of the uptick rule, can naked short, drive the price down, cover, profit, and deliver the same shares that he fabricated that day.. every day.
The borrowed shares should be in the client's account before a short sale is allowed to be transacted. A firm,identifiable borrow should be the criteria for all short sales. The broker should be held responsible for all trades. Making "misrepresenting a firm locate" criminal behavior will do nothing to curtail naked shorting if the brokers are not held responsible. These types of rules are adhered to by honest people, not criminals. It will be no different than the current debacle.
Grandfathering the fails, trusting a pilot test of the uptick rule would accurately reflect what would happen when it was eliminated, and giving market makers the ability to counterfeit stocks under the guise of creating liquidity are examples of the SEC being out of touch with the real world and the abuses that naturally occur when there are criminals trading in our markets. Give an inch and they will take a mile.
Under what authority does the SEC allow anyone other than the legitimate issuer of a security to sell securities that are designated as the same as registered securities and allow those fake securities to be placed into investors' accounts? The necessity of the SHO list demonstrates that the SEC can't or won't do its mandated duties. The SHO list is a travesty. The failures to deliver are the SEC's failure as an institution and a failure of the Commission. Donaldson and Nazareth now look like tools of organized crime. First they and the DTC denied a problem with fails, then the Commission made rules that made the problem worse, helping the criminals. The rescission of the uptick rule makes the current Commission look criminal/stupid.
In a matter of days, foreign exchanges go after fraudulent trading, bogus whisper campaigns, and manipulative trading. The SEC is anything but the "gold standard". It is the "molasses in January" standard. Instead of promoting how great a job you are doing, read the Securities and Exchange Act and see how many loopholes you have allowed. Your latest proposal is nothing more than a loophole from which brokers can avoid liability while promoting a fraudulent market.
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