Securities and Exchange Commission

Here are my comments on the proposed changes to Regulation SHO, the “Naked ” Short Selling Anti-Fraud Rule. The proposal adds a new rule, 10b-21 which clarifies that deceiving a broker or a dealer or a purchaser about the ability or intent to deliver stock on the normal settlement date is an illegal practice. It is important to fix the problem of extended settlement failures, but this rule won’t do it. It is extremely important that the Commission take steps to prevent the extreme and protracted settlement failures that have led to so many complaints. Although such failures may affect only a small fraction of stocks at any one time, the ability to fail provides a tool for stock price manipulation. Protracted failures have afflicted large well known companies such as NYSE-Euronext, Netflix, Martha Stewart Omnimedia, and Overstock.com. This raises questions about the fairness of our capital markets and the effectiveness of SEC oversight. 1 Failing to deliver a security on time forces a buyer to make, in effect, an involuntary stock loan to the seller. This tramples upon one of the basic rights of a property owner, the ability to exclude others from use of the property. Many investors are rightly upset at the notion that they may be forced to lend their newly purchased shares without their consent to a short seller seeking to bring down the price of thei