Tri-Valley Corp (fka TVLYQ)

[alexyba]

A response from the SEC. Naked Shorting.


Thank you for your recent email concerning the emergency order that the SEC issued on July 15, 2008. The order enhances protections against “naked” short selling in the securities of Fannie Mae, Freddie Mac and primary dealers at commercial and investment banks by subjecting short sales in these securities to a pre-borrow requirement.

The emergency order was amended on July 18, 2008, in part to except bona fide market makers, and extended on July 29, 2008, until August 12, 2008. Copies of the orders, related press releases and guidance about the emergency orders are available at:

http://www.sec.gov/news/press/2008/2008-143.htm
http://www.sec.gov/rules/other/2008/34-58166.pdf
http://www.sec.gov/rules/other/2008/34-58190.pdf
http://www.sec.gov/divisions/marketreg/emordershortsalesfaq.htm
http://www.sec.gov/news/press/2008/2008-155.htm
http://www.sec.gov/rules/other/2008/34-58248.pdf

Question 8 of the guidance explains how members of the public can provide comments on the emergency order or any potential rulemaking that the Commission may take with respect to short sales.

Many investors have asked why the Order applies only to certain securities. The firms identified in the order have been designated by the Federal Reserve Board as eligible for access to liquidity facilities. The Commission issued the Order as a temporary, emergency measure to stop unlawful manipulation through “naked” short selling that threatens the stability of financial institutions. In particular, the Commission was concerned about rumors that had been spread regarding the liquidity and stability of these significant financial institutions that appeared to have no basis in fact. The Commission is continuing to evaluate whether additional regulatory action is needed, including whether additional categories of issuers should be included in any such action.

The July 15th order is part of the SEC’s efforts to help curtail the market impact of false rumors and to ensure that investors remain confident that trading can be conducted without the illegal influence of manipulation. To that end, in addition to the emergency order, the SEC announced on July 13, 2008, http://www.sec.gov/news/press/2008/2008-140.htm, that it is conducting examinations aimed at the prevention of the intentional spread of false information intended to manipulate securities prices. Because abusive “naked” short selling can exacerbate “distort and short” schemes fueled by false information, these actions are needed to ensure both that legitimate short selling is allowed to continue while preventing manipulators from forcing down prices without regard to supply and demand.

Many individuals also have argued that last year’s elimination of the uptick test has exacerbated manipulative short selling by hedge funds and others. Although the elimination of the uptick test was based on a real-world analysis of its impacts and shortcomings that found that the tick test had little impact on short selling, the SEC staff currently is reviewing whether another price test could be useful in combating manipulative short-selling activities.

Once again, thank you for providing us with your comments.


Sincerely,

STEVEN G. JOHNSTON
Office of Investor Education and Advocacy
U.S. Securities and Exchange Commission