July 17, 2008
Failure to deliver on settlements related to short sales must be eliminated. With no mechanism to prevent them, naked short sales can be done with near impunity and therefore corrupt our investment environment. I'm not opposed to short selling. I am opposed to loop holes in the law that allow people to short stocks when they have no plan to a) legitimately obtain and b) provide proof of acquisition of shares prior to the short sale. Borrowing shares should be by "public outcry" and thus made transparent in all brokerage transactions. Like the commodities market, the stock market should not be able to open, on any given morning, unless the accounting of all public shares (both long and borrowed) is correct.
Further, a company should have the option to declare (by whatever legal/regulatory means) that its shares may NOT be shorted during any given calendar year. Thus balancing its desire for increased liquidity in its shares with the potential harm done by massive, illegal short selling. A company whose management authorizes short selling is publicly declaring its strength. The ability to voluntarily control short sales in this way adds one more, valuable piece of information to the economic puzzle that investors must assemble to properly gauge their market risk in any given stock they hold.