July 19, 2008
Dear Chairman Cox
Background:
On July 15, 2008 Sec issued Press Release # 2008-143 which pertained to an emergency order to enhance investor protections against "naked" short selling in the securities of Fannie Mae, Freddie Mac, and primary dealers at commercial and investment banks.
The SEC's order will require that anyone effecting a short sale in these securities arrange beforehand to borrow the securities and deliver them at settlement and is set out to be temporary in nature.
Comments:
The referenced locate and borrow rule has, in fact, been in place for very many years and across all markets.
Why in heavens name does the Commission require an emergency rule when such a rule already exists?
Perhaps the "emergency" here is simply to ENFORCE the existing short sale locate/borrow/deliver rule if it is being abused.
Without oversight and enforcement of this rule its easy to contemplate how these abuses can escalate and end up as out of control Naked Short Sales. This is likely the case as evidenced by the need for the new order.
Action Recommended:
Enforce the existing locate/borrow/deliver rule for all short sales.
Maintain the existing rule for all securities in all markets.
Keep this existing rule as a permanent rule.
Conclusion:
Naked Short Selling is nothing more than a product of the existing locate/borrow/deliver rules for short sales that have been abused and allowed to then run further out of control.
Providing oversight and enforcement of the existing locate/borrow/deliver rules has the power to eliminate Naked Short Selling.
Addendum:
The Commission should also consider (a) bringing back the up-tick rule for short sales and (b) eliminating the market maker exception rule.
Thank You
John Reiter
Oakville Canada