A Memo to SEC Commission Staff from David Patch
Chairman Schapiro, Commissioners,
I wish to first applaud your efforts in re-opening the comments for the uptick rule.
For years as investors we have been told that the Commission carries two distinct responsibilities, that of the investor advocate and that of creating growth in our capital markets. These can, at times, be polar opposites when it comes to rule making policies and this issue is a very real case in point.
Today, the elimination of the Uptick rule has most assuredly created a market confidence problem in a wide ranging scope of investor. From the retail novice to industry experts opinion exists that the repeal of the Uptick rule helped to exacerbate this bear market we now live. Note that I said exacerbate, not create. Others of equal pedigree have stated just the opposite and that the repeal had nothing at all to do with the exacerbation of this crisis.
In the commentary yesterday the voting was unanimous that this issue should be reevaluated. For that alone it would be irresponsible of me not to give each of you credit and a personal thanks for taking this approach. I have been overly critical of the past actions taken by the Commission over the years and am quite pleased that the Commission staff took a unanimous position on this issue at this time.
I am concerned however with the comments regarding empirical data or lack thereof. This singular issue has been a long point of contention for many years.
Empirical data is not something that is handed to us; we must go out and find it. We must likewise go out and find it using a variety of people and organizations with opposing views to assure that all stones are turned over and not just the shape of stone that suits us best. I think if we look to the Pilot program, it was a study conducted under a very heavily entrenched group of economists.
As you are well aware by now, I believe that the SEC’s Office of Economic Analysis has a preconditioned bias in their studies towards short sale rulemaking and thus may not be effectively turning over all necessary stones to formulate a full picture of what is taking place in our markets. The OEA admittedly looks at this issue at a much more global perspective forgetting that bear raids are localized and that like any war, timing is everything.
How does this impact the Commission?
Clearly the Chairman and the Commissioners believe that in each of the studies conducted by the OEA no such empirical data exists to support the publics concerns regarding the uptick rule or short sale policies in general. But what if these studies are flawed? Should the public be subjected to poor policy making based entirely on the flawed studies of the SEC?
Over the past few years I have requested the raw data that has been used by the OEA in their studies under FOIA requests. The goal of these requests was to have an opportunity to look at how the data was being captured and to have experts of a different mindset look at the data from possibly different angles. If our conclusions were similar to that of the OEA they would be reported as such but if not, the Commission would have a different interpretation to consider.
Ultimately, isn’t that the goal. To be able to look at an issue in 3-D instead of in 2-D?
They say short sellers bring price efficiencies to our capital markets because they come with opposing views of the long seller. Why then would it not be beneficial to have data analyzed by people with opposing views of the OEA if policy efficiencies are what is being sought after?
Each attempt at gathering this data, raw data only the SEC has access to, has been denied under FOIA Request. I have been denied several times as has Bloomberg as reported in a recent story.
What if anything does the Commission have to hide in providing the raw data from past trading activities? What concern does the Commission have in having outside opinions presented on an issue that is breaking down the confidences in our Capital markets?
To analyze the impacts of a short sale into a market the data must look at markets individually and not globally. What fits the likes of companies like Berkshire Hathaway or Wal Mart will not be the same for Dendreon or Overstock.com. Compiling data that looks at them as equals will distort the premise behind a bear raid. You don't win a war by attacking a country, you win a war by attacking key targeted areas and if SHO has shown us nothing else, the level and areas of abuse is localized.
How and when a short enters a market is as important as how many shares are being shorted. If the OEA studies do not look at those exact specifics, it is near impossible to conclude one way or another what impact that short sale may or may not have.
I hope that the SEC reconsiders their position on denying third parties the right to evaluate the data that helps make the decisions of Commission staff. Clearly the sanitized analysis presented by the Commission is being widely used by third parties to state the case for the elimination of such policies so why then is such analysis void of any checks and balances?
I applaud you on this first move to reconsider past policy changes. It is a step in the right direction. I similarly urge the Commission to reconsider the denials of the release of studies and raw data used in those studies by the OEA so that validations can be made.
We all want this to end and to end with success.
Thank You for your Time,
David Patch
investigatethesec.com |
