http://www.govtrack.us/congress/bill.xpd?bill=h110-6517

Sponsor: Rep. Gary Ackerman [D-NY]show cosponsors (3)
Cosponsors [as of 2008-08-31]
Rep. Michael Capuano [D-MA]
Rep. Carolyn Maloney [D-NY]
Rep. Carolyn McCarthy [D-NY]

Cosponsorship information sometimes is out of date. Why?

Bill Text: Full Text
Status: Introduced Jul 16, 2008
Scheduled for Debate –
Voted on in House –
Voted on in Senate –
Signed by President –

This bill is in the first step in the legislative process. Introduced bills go first to committees that deliberate, investigate, and revise them before they go to general debate. The majority of bills never make it out of committee. Keep in mind that sometimes the text of one bill is incorporated into another bill, and in those cases the original bill, as it would appear here, would seem to be abandoned. [Last Updated: Aug 30, 2008]
Last Action: Jul 16, 2008: Referred to the House Committee on Financial Services.

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GovTrack.us. H.R. 6517–110th Congress (2008): To require the Securities and Exchange Commission to reinstate the uptick rule on short sales of securities, GovTrack.us (database of federal legislation) (accessed Sep 19, 2008)
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SEC Said to Consider Revising Short-Sale Ban in Options Market

By Edgar Ortega

Sept. 19 (Bloomberg) — The U.S. Securities and Exchange Commission is considering revising a rule barring short sales of financial companies to exempt options market makers, according to three people briefed on the SEC’s plans.

The agency may amend the rule to grant an exemption as soon as today, said the people who declined to be identified because a final decision hasn’t been reached.

John Heine, an SEC spokesman, didn’t immediately return a telephone call and e-mail message seeking comment.

To contact the reporter on this story: Edgar Ortega in New York at ebarrales@bloomberg.net.

Last Updated: September 19, 2008 15:42 EDT

It is simply and totally unfair for the SEC to ban short selling in a specific category of stocks. It is unfair to discriminate against any company by not providing the same protection. It is unfiar to game the system to try to clean up a problem created by those who game the system.

I am not a huge fn of short selling, but it should be a part of our capital markets. Indeed, what happens when all of the short squeezes are done by these emrgency rules that have little to do with cleaning up rthe system and the rules expire? what will prevent the shares from imploding from artificially high levels.

This isn’t capitalism, it’s stupidity.

Clean up the settlement system and stop this BS

R101

September 19, 2008 9:20AM
What the SEC’s Ban on Shorting Really Means
By Elizabeth MacDonald

The Securities and Exchange Commission took the dramatic step of banning for ten days short-selling on 799 financial stocks.

And of course with any hastily planned regulatory intervention, potholes have opened.

The SEC’s ban could be extended for up to 30 days, and comes after Wall Street executives say short sellers have caused catastrophic declines in stock prices that have led to the downfall of Bear Stearns, Lehman Bros, and American International Group.

The SEC’s moves follows close on the heels of Great Britain’s decision to ban short selling in 29 stocks until the end of the year. U.K. investors have accused short sellers of causing shares in HBOS Plc to plunge before it entered into a $18.9 bn takeover by Lloyds TSB Group Plc.

Short-sellers profit from falling share prices. They borrow shares from brokers and then sell them. When the price declines, they turn back the shares at the lower price and pocket the difference. In a naked short sale, the short seller does not borrow the shares and physically have them in hand.

Some $3 tn was wiped from stocks globally this week as financial shares plunged, causing the SEC to go on the offensive. The fear is that shorts are causing massive price plunges, triggering credit downgrades, slamming capital and forcing companies to sell assets at garage-sale prices. (See “Get Shorty,” “Did the SEC’s Plan to Get Shorty Work?,” and “Still Trying to Get Shorty.”)

The SEC acted after it met with heated entreaties to intervene from Wall Street executives including Goldman Sachs Group (GS: 133.63, +25.63, +23.73%) chief executive Lloyd Blankfein and John Mack, chief executive of Morgan Stanley (MS: 30.50, +7.95, +35.25%).

A stock price plunge in recent days could still force Morgan into the arms of a commercial bank like Wachovia (WB: 19.91, +5.41, +37.30%). Short interest in Morgan Stanley is triple the levels of a year ago. Both Mack and Blankfein have discussed short sellers five or six times in the last week, Mack told employees.

In taking the emergency action, the SEC says it wants to “prohibit short selling in financial companies” to protect the integrity of the securities market and boost investor confidence.

Who is on the List?

Wall Street titans Morgan Stanley, Merrill Lynch (MER: 28.27, +6.21, +28.15%), Citigroup (C: 21.43, +4.78, +28.70%), JPMorgan Chase (JPM: 45.56, +5.26, +13.05%) are on the SEC’s new list, as are Washington Mutual (WM: 3.81, +0.82, +27.42%) and Wachovia (WB: 19.91, +5.41, +37.30%). The SEC had met with criticism in mid summer when it initially banned a form of short selling in 19 financial stocks and left off the list Wamu and Wachovia.

Damaged bond insurers Ambac (ABK: 6.17, -0.50, -7.49%) and MBIA (MBI: 13.91, -0.09, -0.64%) also made the list, which couldn’t have come too soon as Moody’s Investors Service once again just placed the ratings of Ambac and MBIA on review for possible downgrade.

Warren Buffett’s Berkshire Hathaway (BRK) is on the list, Blackstone Group (BX: 17.98, +0.96, +5.64%) is on it, as are beaten-up companies E*Trade Financial (EFTC), Dollar Financial (DLLR: 18.47, +1.54, +9.09%) and Conseco (CNO: 6.73, -1.22, -15.34%).

Even Greenlight Capital (GLRE: 19.46, -0.28, -1.41%), the reinsurance company that is a wing of famous short David Einhorn’s hedge fund Greenlight Capital, is on the list. Einhorn earlier this year made his case for shorting Lehman Bros., arguing the now-collapsed firm was engaging in questionable accounting.

Market analyst Paul Kedrosky, who writes for the website SeekingAlpha.com, notes ironically that Lehman is on the list, though it is in bankruptcy status, that the SEC has Silver State Bancorp on the list, though it’s a failed bank already seized by the FDIC, and that the SEC is blocking shorting of NAHC. That ticker doesn’t exist, unless it stands for the Nigerian Aviation Holding Company, Kedrosky says wryly.

The Crackdown

The Securities and Exchange Commission is also clamping down on “naked” short-selling, where the underlying stock in a short sale is neither borrowed nor delivered by the short-seller. The SEC is not outlawing the practice.

Instead, short sellers and broker dealers must now actually deliver securities borrowed for short sales–or risk being accused of securities fraud and of being permanently barred from engaging in naked short selling.

The SEC’s moves comes fast on the news this week that the SEC has subpoenaed 50 hedge funds to find out if they were engaging in rumor mongering in order to drive down shares in 19 financial companies they had shorted in naked short sales to book a profit.

Hedge Funds Must Confess

The SEC now wants to force hedge funds to make disclosures of daily short positions, a move that would let regulators assess the impact of short-selling at funds with $100 mn or more.

Currently shorts file forms with the SEC that disclose their long positions and options on a quarterly basis. In the past, the hedge fund industry has gone so far as to sue the SEC to stop any regulation of the industry, litigation which could arise again.

The disclosures may help, though famous short James Chanos, who blew the whistle on Enron, says it would be the equivalent of forcing Coca-Cola to reveal its secret formula.

Check out the most recent filing from Greenlight Capital, run by David Einhorn, who raised serious questions about accounting problems at Lehman. Einhorn gave speeches and went on t.v. with his criticism, but his latest filing only shows about 581,000 in put options on Lehman, with little else detail.

Other Moves to Get Shorty are Underway.

After writing to 60 other pension funds asking them to follow its lead, the largest U.S. public pension fund Calpers, the California Public Employees’ Retirement System, said it is no longer lending out shares of financials like Goldman, Morgan Stanley or Wachovia to short. New York State and Texas pension funds are considering similar moves.

And New York Attorney General Andrew Cuomo said he was opening investigations into short sellers who he believes are engaging in false rumor mongering to manipulate stocks down in order to take profits. Cuomo went so far to say he’ll use the state securities-fraud law to go after short sellers, the Martin Act, which permits criminal and civil actions.

Marking to Taxpayers

The SEC’s emergency ban on shorting coincides with the US government’s announcement that it will set up a Resolution Trust-type entity, harking back to the S&L crisis, that would act as an assisted living facility for financial companies across the country, a mega-dumpster for their toxic subprime waste.

Now Wall Street and other banks would not have to pricetag these toxic assets and record losses on their own, an accounting endeavor called “marking to market,” which lately is the equivalent of sticking a finger in the wind.

Instead the government is “marking to taxpayers” these assets.

A so-called mega bad bank structure for thousands of banks around the country, a structure that Lehman desperately clung to in its final hours. An entity far different from the RTC structure of the S&L crisis, where the government got assets dumped on it from insured thrifts that had bellyflopped, then liquidated them.

The new entity would buy frozen solid assets from banks and then sell them, likely at auction, into the market.

The move might entail an $800 bn fund to purchase these so-called failed assets and a separate $50 bn pool at the Federal Deposit Insurance Corp. to insure investors in money-market funds, as a mini-run on these funds is now underway.

Takes the Pressure off the Federal Reserve

Setting up this government warehouse would take the pressure off of the Fed’s discount window, now strained with record bank borrowing. The Treasury in the past two days announced $200 bn in special bill sales to help the Fed expand its balance sheet.

Already banks around the world have taken more than $510 bn in writedowns and losses from the housing and credit crisis. Wall Street created about $1.2 tn of subprime mortgage-backed securities, some $200 bn to $300 bn are now thought to be sitting at FDIC-insured banks and thrifts.

It’s estimated that Citigroup, JPMorgan Chase (JPM: 45.56, +5.26, +13.05%), Bank of America Corp. (BAC: 36.97, +6.39, +20.89%), Goldman Sachs Group Inc., Merrill Lynch & Co. (MER: 28.27, +6.21, +28.15%) and Lehman Brothers had more than $500 bn of the most illiquid, toxic stuff, the so-called Level 3 assets as of June 30, according to research firm CreditSights Inc.

Markets Soar on the News

The governments’ moves have sent the markets soaring. Shorts now are racing to cover their positions, helping to send stocks higher as well.

Volatility is hitting record levels. The closely watched CBOE Volatility Index, the VIX or the Fear Index, has easily blown through the 30 ceiling in recent days, and briefly rose higher than 42.

The Potholes in the SEC’s Moves

A heated debate is now underway over the SEC’s ban, namely, that the companies under attack were rightfully shorted as they are insolvent, reflected in their stock prices.

An insolvency some say may have been inadvertently created by the SEC itself, as the agency did not do enough to force Wall Street firms who shoved debt into off-balance sheet vehicles that many thought went the way of Enron. The agency also is being criticized for not doing enough to get Wall Street firms to bolster their capital cushions, and instead let five firms weaken their capital positions (see blog “Still Trying to Get Shorty”).

The question too is when the SEC is going to pursue executives of defunct companies, or companies now on life support, when they’ve walked away with lucrative compensation packages they won after their companies essentially reported artificially higher profits from their management decisions.

Another irony, too, is that shorting selling has fueled the profit engines at the very Wall Street firms now complaining about the practice, including the big, bulge-bracket broker dealers like Morgan, Goldman and Merrill. The SEC’s move too would ban the investing strategies used by hundreds of mutual funds, hedge funds, pension funds, endowments and governments.

Also, short sellers can still short synthetically, via puts, exchange traded funds that carry many of the names on the SEC’s list of 799 companies via the option market. And market analyst David Merkel warns that the SEC’s move could hurt in the interim merger arbitrage funds, statistical arbitrage funds and other quant funds. He also warns that the implied volatility for put options would go up.

It’s unclear now whether the collapse of Bear Sterns, Lehman Bros. and AIG, and the near demise of Merrill Lynch, Fannie Mae and Freddie Mac were caused largely by short sellers. Gut-clenching price declines on a daily basis of 40% in companies thought to be healthy should give you pause.

Crisis of Confidence

Our equity and credit markets are suffering from a crisis of confidence that touches all securities and all investors across the country.

It is a crisis of confidence exacerbated by the news that Lehman Brothers wanted to suddenly double the dollar amount of its Kryptonite assets shoved into a bad bank structure in a matter of days, from $40 bn to $80 bn.

It is a crisis of confidence aggravated by the news that American International Group can now borrow up to $85 bn in a credit facility from the Fed, more than double in a matter of days what it said it needed, $40 bn.

It is a crisis of confidence worsened by the news that Congress had to hire Morgan Stanley to go find out what landfill was sitting on the books of Fannie Mae and Freddie Mac.

It is a crisis of confidence over solvency.

And over the fact that our nation’s financial chieftains really don’t know what they are doing.

September 18, 2008, 1:42 pm
Clamoring For the Uptick: Brokers Beg For Return of Short Reins; Siebert Urges Global Margin Reqs, Disclosure

Bring back the uptick rule!
Almost with the same fervor as Beatles fans, some folks on Wall Street are clamoring for the return of the uptick rule that helps regulate short selling.

Last year, the Securities and Exchange Commission removed the rule that only allowed short selling when the last tick in a stock’s price was positive. This rule was implemented after the 1929 market crash to prevent short sellers from driving the price of a security down in a bear run. Now the SEC is investigating whether aggressive short selling is driving down shares of Goldman Sachs (GS) and Morgan Stanley (MS). John Mack, Morgan’s chief executive officer, certainly thinks so, according to an email he sent to employees Wednesday. Goldman shares have breached the $100 barrier once again to fall 20% today to $91.99. Morgan is down 28% to $15.48.

“An aphrodisiac for volatility”
The SEC removed the uptick rule after years of testing out stocks through a pilot program. That data is unclear, but for some market players the issue is black and white. Teddy Weisberg, a 69-year old floor trader on the NYSE and president of Seaport Securities, says he can’t tell whether short sellers are responsible for Morgan’s fall, but the absence of the uptick rule has only fueled the downward spiral. “It reintroduced the concept of the bear trade to the equities market, something we haven’t seen since the crash of ‘29, and I think it was a huge mistake on the part of the SEC,” he says.

“Removing the plus-tick rule is nothing more than an aphrodisiac for volatility,” says Weisberg, using the alternate term sometimes employed in place of “uptick.” “My frustration and unhappiness about this rule change is not directed to the short sellers, it is directed to the methodology” because it puts short sellers on parity with long sellers, adds Weisberg.

New rules to rein in shorts
On Wednesday, the SEC tried to rein in short selling, the process of borrowing a security and selling it, buying it at a lower price than you sold it, and returning the shares to the lender. The SEC’s approach involved issuing three new rules. Hedge funds and large investors are now required to publish their short positions daily. Investors are prohibited from “naked shorting” by requiring shorted securities to be backed by borrowed securities. And for options traders, the SEC is “making it illegal for a customer to mislead a broker about having located stocks and then failing to deliver them,” according to the Wall Street Journal. (Subscription required.)

But, concludes Weisberg, “anything short of reintroducing the plus-tick rule will not solve the problem.”

Global margin requirements needed
The first woman member of the New York Stock Exchange, Muriel “Mickie” Siebert, president of Siebert Financial Services, agrees. In addition to reinstating the uptick rule, she has been saying for decades that there needs to be greater transparency. The move requiring investors to disclose their short positions daily was long overdue. Now the financial sector needs global margin requirements because funds not allowed to borrow in New York were able to get money from London. The public is also entitled to know Goldman’s leverage and Morgan Stanley’s leverage, and to disclose how much exposure firms have to the “quadrillion dollars of derivatives out there,” Siebert says.

Awareness of the financial crisis has trickled down to the individual level, she observes. “I realize people are afraid and I’ve never seen this kind of fear,” says Siebert, who is approached by strangers about whether their bank accounts are safe. With that kind of fear, says Siebert, “What if the public said ‘I don’t want my money in mutual funds anymore’ and redeemed them. It would make this mess look like child’s play.”

– Naureen Malik, Reporter, Barron’s Magazine
Permalink | Trackback URL: http://blogs.barrons.com/stockstowatchtoday/2008/09/18/clamoring-for-the-uptick-brokers-beg-for-return-of-short-reins-siebert-urges-global-margin-reqs-disclosure/trackback/
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SEC bans short-selling
Agency puts temporary halt to trading practice that ‘threatens investors and capital markets’ for 799 financial companies.
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By David Goldman, CNNMoney.com staff writer
Last Updated: September 19, 2008: 7:41 AM EDT

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CRISIS ON WALL STREET

* Lawmakers promise fast action
* Money markets get a lifeline
* SEC bans short-selling
* Wall Street ready for big open
* Dollar pops on rescue plan

NEW YORK (CNNMoney.com) — The U.S. Securities and Exchange Commission took what it called “emergency action” Friday and temporarily banned investors from short-selling 799 financial companies.

The temporary ban, aimed at helping restore falling stock prices that have shattered confidence in the financial markets, takes effect immediately.

“This will absolutely make a difference,” said Peter Cardillo, chief market economists at Avalon Partners. “Short sellers are going to have to cover their positions very heavily.”

Short sellers borrow stock with the aim of selling it, then buy it back at a lower price, hoping to pocket the difference. The commission said short sellers add liquidity to the markets during normal conditions, but recent unbridled short-selling has contributed to the recent tailspin in the stock market.

“The commission is committed to using every weapon in its arsenal to combat market manipulation that threatens investors and capital markets,” said SEC Chairman Christopher Cox in a statement. “The emergency order temporarily banning short selling of financial stocks will restore equilibrium to markets.”

Cox said the action “would not be necessary in a well-functioning market,” and is just one of many actions being taken by the government to jump-start the embattled financial markets.

The SEC also said it would temporarily ease restrictions on companies’ ability to repurchase their stock, and force money managers to report their short positions in certain stocks that are not included in the 799 banned companies.

Some market observers have also blamed short sellers for the punishing declines in bank stock prices over the past few days. Critics of short sellers have argued that some had been spreading rumors about a company while “shorting” the stock in order to drive the price lower.

“In the marketplace, we need both sides of the equation,” Cardillo said. “But the relaxed regulation of the SEC has led to abuses of short selling that have destroyed many, many companies.”

As panic began to permeate the financial markets, many investors took short positions on already battered financial companies regardless of the news that came out of the companies or the government. For instance, investment banks Morgan Stanley (MS, Fortune 500) and Goldman Sachs (GS, Fortune 500) reported better-than-expected earnings Wednesday, but dropped significantly in trading.

“This decision will squeeze the shorts,” Cardillo added. “Now, if there is any good news, shorts will have to cover.”

The ruling comes after the SEC decided Wednesday to ban the practice of so-called “naked” short-selling, in which investors short the stock without actually borrowing it.

On Thursday, Britain’s Financial Services Authority also temporarily banned short-selling for financial companies. The SEC said it is consulting the FSA in the matter. To top of page
First Published: September 19, 2008: 6:12 AM EDT

SEC puts ‘naked’ short sellers on notice

New bailout planned

Market panic caused by rumor and speculation is now increasing the amount of capital needed by financial organizations so they can cover collateral, which is resulting in bailouts and bankruptcies. One can argue about the fairness of caps and limits on collateral obligations in relation to credit worthiness (Moodys, etc.), but the root cause is clear– the power of market panic, innuendo, and collusion. Market giants do not fail in the matter of weeks because of balance sheets, they fail because they are forced to fail by a series of ‘perfect storms’, such as threats of default swaps, bank runs, lack of liquidity due to fear, and declining stockholder confidence (thank you short sellers).

I don’t have answers, but regulations-off or hands-off capitalism is not the answer in my opinion.

And the UK joins the SEC in financial apartheid.

Morgan Stanley Applauds Cuomo and FSA Actions on Short Selling

Sep 18, 2008 3:28:00 PM
Copyright Business Wire 2008

NEW YORK–(BUSINESS WIRE)–

Morgan Stanley applauds Attorney General Cuomo for taking strong action to root out improper short selling of financial stocks. By initiating a wide-ranging investigation of this manipulative and fraudulent conduct, Attorney General Cuomo is showing decisive leadership in trying to help stabilize the financial markets. We also support his call for the SEC to impose a temporary freeze on short selling of financial stocks, given the extreme and unprecedented movements in the market that are unsupported by the fundamentals of individual stocks.

The FSA has already put in place a freeze on short selling in financial stocks that is designed to protect the integrity of markets in the UK, and we applaud their actions.

Morgan Stanley (NYSE: MS) is a leading global financial services firm providing a wide range of investment banking, securities, investment management and wealth management services. The Firm’s employees serve clients worldwide including corporations, governments, institutions and individuals from more than 600 offices in 35 countries. For further information about Morgan Stanley, please visit http://www.morganstanley.com.

Source: Morgan Stanley

McCain Says Cox Should Be Fired As SEC Chief Amid ‘Casino’ Markets…

“Republican presidential candidate John McCain, in remarks prepared for delivery Thursday, said he thought Christopher Cox, chairman of the Securities and Exchange Commission, should be dismissed.”

Source:

http://online.wsj.com/article/SB122175692668652881.html

one thinks they may have missed the point somewhat

John Mack is just upset because his stock isnt going up LMFAO

Useful as those t*ts on a boar this new one is.

With the leverage these hedge funds have, a great deal of damage can take place in that T+3 window.

SEC Issues New Rules to Protect Investors Against Naked Short Selling Abuses

FOR IMMEDIATE RELEASE
2008-204

Washington, D.C., Sept. 17, 2008 — The Securities and Exchange Commission today took several coordinated actions to strengthen investor protections against “naked” short selling. The Commission’s actions will apply to the securities of all public companies, including all companies in the financial sector. The actions are effective at 12:01 a.m. ET on Thursday, Sept. 18, 2008.

“These several actions today make it crystal clear that the SEC has zero tolerance for abusive naked short selling,” said SEC Chairman Christopher Cox. “The Enforcement Division, the Office of Compliance Inspections and Examinations, and the Division of Trading and Markets will now have these weapons in their arsenal in their continuing battle to stop unlawful manipulation.”

Source: http://www.sec.gov/news/press/2008/2008-204.htm

Dave Patch addresses the SEC on recent action against NSS

( in an email to the Chairman, Commissioners, and designated officials )

From: Patch, David
Subject: SEC Denies Public Protection – AGAIN

Mr. Chairman,

I must commend you on the steps taken today towards addressing naked short sale abuses. With Congress, public issuers, and investors alike seeking to have you and your staff tarred and feathered for the egregious negligence executed under the umbrella of federal protection you stepped out today and threw caution to the wind and told us all to pound sand.

I fully understand that the Commission staff and the Office of Economic Analysis is not convinced that this is a real issue that is destroying public confidence in our Capital markets. I understand that the OEA is not committed at looking at this issue seriously by dedicating the time and resource into analyzing actual trade data before opining on how this may or may not impact our markets. And I understand that private meetings with wealthy short sellers such as Jim Chanos provide opportunity for the Commission to gain support material into the positions taken despite the conflicts such meeting may create. But what I don’t fully grasp is why the general public must carry the burdens for the SEC’s negligence. Why should we be the people who must work longer to protect our retirements? Why should we be the people who must cut our expenses because we can’t afford to pay our bills due to the destruction of our personal savings accounts? Why should we suffer the pains so that people like jim Chanos and his peers can be provided ample opportunity to destroy public companies, local communities, and the financial stability of families across this nation.

Today the SEC took yet another half step to a whole problem. The SEC maintained loopholes in the short sale process so that certain short sellers would not have to carry the burden of expense in the execution of rapid short sales never intent on existing by settlement day. These are the very same short sellers who destroyed confidence in our financial markets and now the short sellers who will continue to destroy other markets and other public issuers.

Let me help you out here:

Hard T+3 Close-Out Requirement; Penalties for Violation Include Prohibition of Further Short Sales, Mandatory Pre-Borrow

The Commission adopted, on an interim final basis, a new rule requiring that short sellers and their broker-dealers deliver securities by the close of business on the settlement date (three days after the sale transaction date, or T+3) and imposing penalties for failure to do so.

If a short sale violates this close out requirement, then any broker-dealer acting on the short seller’s behalf will be prohibited from further short sales in the same security unless the shares are not only located but also pre-borrowed. The prohibition on the broker-dealer’s activity applies not only to short sales for the particular naked short seller, but to all short sales for any customer.

Although the rule will be effective immediately, the Commission is seeking comment during a period of 30 days on all aspects of the rule. The Commission expects to follow further rulemaking procedures at the expiration of the comment period.

Under this rule there are serious flaws in the Commissions thinking.

1. To determine a lack of compliance to this rule it requires the SRO’s or SEC to conduct an audit of the failing firms. These audits are not done daily but periodical. By the time the violation is identified the culprit is long gone with the monies and the markets manipulated by the potential abuse. This rule is a responsive rule instead of a pro-active rule.

2. This rule, as it stands will yield compliance violations at the BD level and will rarely result in penalties imposed on the originating seller. Compliance violations rarely achieve the penalty status as that which investors lost by the violation itself. This rule can likewise by circumvented by engaging in a separate violation; marking the trade long and failing that trade instead.

3. This rule does nothing to address the initial abuses of multiple locates on a common share during the time of trade execution. Since multiple locates can exist, fails will exist. This also allows, instantaneously, for there to be too many short sales executed at a single moment in time. Such trading creates the leverage the short seller need in order to drive down a market.

4. The day trader. How does this rule impact the abuses associated with the rapid day trading short seller? Using multiple locates and acting in concert with other hedge funds, a market can be destroyed within the 3-day settlement window and so long as the trades are covered by T+3 the SEC and SRO’s have no authority to take enforcement action. This rule simply redefined the window of time a short seller has to abuse a stock and create profit and with sophisticated computer programs the systems will be set up to cover this window. If a portion of the trade falls into the settlement window the trade will fail but…the SEC does not require a mandatory close-out with guaranteed delivery, the Commission only restricts future short sales until it is closed out.

5. Close-out of fails. What ever happened to mandatory w/Guaranteed delivery? The NASD presented the SEC with an argument in 2004 that identified how failed trades were not being closed out because it was not “cost effective” for the failed party to do so. The SEC continues to fail in adopting such language. In fact, the Commission is aware that firms have engaged in rolling failed trades to restart the clock. Nothing in this law changes that tactic. Nothing in this law requires that on T+4 the failing member must go into the market at market open and purchase this stock under guaranteed delivery status. Without such specific language members will game the system to make the close-out profitable.

Mr. Chairman your time is limited but your legacy will live on forever. This Commission will be remembered in history as the most conflicted of all time. The Comission staff that allowed a group of bandits to run rampant across our capital markets and destroy so much of our nations family wealth.

There will be people who no longer can afford to retire, as well as people who will lose their homes and their familes due to financial ruin and it will all be due to the negligence of this Commission.

The Commission has failed to hear the voices of the people and instead has listened to those who have their own self-interest in mind. This is the grandfather clause all over again and this delay is only a delay that will most likely force Congress to step in and make law for you.

Shame on you.

Dave Patch

SEC Issues New Rules to Protect Investors Against Naked Short Selling Abuses
FOR IMMEDIATE RELEASE
2008-204

Washington, D.C., Sept. 17, 2008 — The Securities and Exchange Commission today took several coordinated actions to strengthen investor protections against “naked” short selling. The Commission’s actions will apply to the securities of all public companies, including all companies in the financial sector. The actions are effective at 12:01 a.m. ET on Thursday, Sept. 18, 2008.

“These several actions today make it crystal clear that the SEC has zero tolerance for abusive naked short selling,” said SEC Chairman Christopher Cox. “The Enforcement Division, the Office of Compliance Inspections and Examinations, and the Division of Trading and Markets will now have these weapons in their arsenal in their continuing battle to stop unlawful manipulation.”

In an ordinary short sale, the short seller borrows a stock and sells it, with the understanding that the loan must be repaid by buying the stock in the market (hopefully at a lower price). But in an abusive naked short transaction, the seller doesn’t actually borrow the stock, and fails to deliver it to the buyer. For this reason, naked shorting can allow manipulators to force prices down far lower than would be possible in legitimate short-selling conditions.

Today’s Commission actions, which are the result of formal rulemaking under the Administrative Procedure Act, go beyond its previously issued emergency order, which was limited to the securities of financial firms with access to the Federal Reserve’s Primary Dealer Credit Facility. Because the agency’s exercise of its emergency authority is limited to 30 days, the previous order under Section 12(k)(2) of the Securities Exchange Act of 1934 expired on Aug. 12, 2008.

The Commission’s actions were as follows:
Hard T+3 Close-Out Requirement; Penalties for Violation Include Prohibition of Further Short Sales, Mandatory Pre-Borrow

The Commission adopted, on an interim final basis, a new rule requiring that short sellers and their broker-dealers deliver securities by the close of business on the settlement date (three days after the sale transaction date, or T+3) and imposing penalties for failure to do so.

If a short sale violates this close-out requirement, then any broker-dealer acting on the short seller’s behalf will be prohibited from further short sales in the same security unless the shares are not only located but also pre-borrowed. The prohibition on the broker-dealer’s activity applies not only to short sales for the particular naked short seller, but to all short sales for any customer.

Although the rule will be effective immediately, the Commission is seeking comment during a period of 30 days on all aspects of the rule. The Commission expects to follow further rulemaking procedures at the expiration of the comment period.
Exception for Options Market Makers from Short Selling Close-Out Provisions in Reg SHO Repealed

The Commission approved a final rule to eliminate the options market maker exception from the close-out requirement of Rule 203(b)(3) in Regulation SHO. This rule change also becomes effective at 12:01 a.m. ET on Thursday, Sept. 18, 2008.

As a result, options market makers will be treated in the same way as all other market participants, and required to abide by the hard T+3 closeout requirements that effectively ban naked short selling.
Rule 10b-21 Short Selling Anti-Fraud Rule

The Commission adopted Rule 10b-21, which expressly targets fraudulent short selling transactions. The new rule covers short sellers who deceive broker-dealers or any other market participants. Specifically, the new rule makes clear that those who lie about their intention or ability to deliver securities in time for settlement are violating the law when they fail to deliver. This rule also becomes effective at 12:01 a.m. ET on Thursday.

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http://www.sec.gov/news/press/2008/2008-204.htm

I can’t figure out what the deal is with him lately. Has he had a true “conversion” or is he just engaged in CYA? It seems like he wants to assign blame for all NSS to the SEC and Chairman Cox.

He was also very cryptic about “preparing people for the smear campaign that would start tomorrow [today]“.