July 18, 2008
Dear sirs,
As a foreign investor watching the US markets, I perceive the proposed changes as a first seed of potential reform in capital markets gone wild.
The loopholes in Reg SHO should be completely closed as naked shorting is nothing short of counterfeiting to the detriment of legitimate investors in your markets, and increasingly in other markets. Is it any wonder that the world is losing confidence in the US with such failures to enforce existing law. I do acknowledge that it is probably abuse of the loopholes and not intent of the SEC that allows this behavior.
Any medium of exchange like a currency or a stock exchange is worth only what trust it engenders in its participants. I'm afraid that these failures have contributed to damaging that trust. Sec. Paulson now has a unique opportunity to make a change that may BEGIN to restore faith and to provide a stepping stone to further enhancements of integrity and quality in the markets. I do not mean total regulation, but just rules enforcement that guarantee freedom of the market, not manipulation thereof.
Sec. Paulson's intent to limit NSS is worthy, but only if applied to the whole market in a comprehensive manner. If the law is selectively applied to protect only favorite stocks, then the plan seems to reflect nothing more than self interested corruption. True or not, that is what I sense as a common perception. NSS is perceived to have killed or limited many companies that could have been supporting the economy right now.
I also feel the uptick rule should be revisited. It is my opinion that it was revoked to facilitate reverse index funds and derivative traders. If I cannot find shares of a certain stock to short, why can I buy a double leveraged derivative based reverse index ETF that includes that stock?? Such funds could not operate if they had to borrow shares to short moment by moment in the real market and had to wait for an uptick. But again the health of the market has been subordinated to the whims of Wall St and the derivative writers.
Perhaps no bank should become too big to fail or big enough to manipulate. Perhaps the solution lies in splitting up the big ones, not consolidating them. I fear the prospect of a behemoth bank emerging from the ashes that controls everything. That would be the end of Western capitalism, if in fact it still exists.
Please take this opportunity to stop all NSS now. It would be a positive first step on a road that needs to be travelled.
With my very best regards.