April 2, 2008
It is imperative that the SEC consider the Totality of the recent market changes when evaluating naked short selling, the removal of the up tick rule, and the market maker exceptions. The implementation of reg NMS and the removal of the tick rule have combined with the mm exception to short selling and a rise in failure to delivers to create a market that lacks any price discovery or investor protections. The reduction of specialists role and the focus on execution have only served to further remove any barriers that may have protected the investing public from illegal short sales and "bear raids" on securities.
Companies are being forced to raise capital to defend their share prices rather than using that capital in a productive fashion. The recent examples of both Bear Stearns and Lehman Brothers illustrate how a coordinated move on the equities of a company can constrict access to capital and eventually lead to a company being forced to either declare bankruptcy, be bailed out or dilute the value of the shares in an effort to raise capital for defensive purposes. The capital markets are designed to foster business growth not as a vehicle to extort corporations into opening up coffers in efforts to save the value of the shares.
The SEC needs to address the issue of failure to delivers and naked short selling in conjunction with its repeal of the uptick rule and the market maker exceptions to the failure to deliver rules. The discussion must be broadened to view the affects that all these rules in combination have on the capital markets not simply on an isolated case by case analysis.
The rapid changes in the capital markets through international expansion and competition for global liquidity requires the SEC to maintain the confidence and integrity of our capital market structures. The widespread misuse and ill advised sweeping changes to our market's structure have left them looking vulnerable at a time of increasing competition from abroad. The SEC must by mandate protect the public confidence in our markets and that confidence has been severely shaken as a result of the SEC's own recent actions.
Sincerely,
Arik Fetscher