E*TRADE Financial Corporation and its subsidiaries (collectively, "E*TRADE)' appreciate the opportunity to comment on a significant proposal recently issued by the Securities and Exchange Commission ("SEC" or "Commission") to remove all short sale price tests under the Securities Exchange Act of 1934 ("Exchange ~ c t " ) . ~ E*TRADE commends the Commission for its past efforts regarding short sale regulation and for its decision to issue the current proposal. Our general view is that short selling enhances market liquidity and contributes to stock pricing efficiency, and thus is an important part of our securities markets, and that the existing restrictions on the execution prices of short sales ("price test restrictions") inhibit the free-market price discovery mechanism of an efficient market. Accordingly, we fully support the Commission's proposal to eliminate the current price test restrictions. This proposal is a result of the many years of experience by the SEC on the operation of price test restrictions for short sales, the amendments to Exchange Act Rule 10a-1to add various exceptions, and consideration of numerous written requests and granting exemptive relief from its re~trictions.~ Most importantly, the Commission's Office of Economic Analysis has
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