Furthermore, the Securities Industry Association has stated in a comment letter to the previous proposed rule - short sale: "in developing "Easy to Borrow" lists, broker-dealer stock loan desks use information from a number of sources, including institutional lenders that have sophisticated systems for estimating borrow supply. Broker-dealer stock loan desks also consider the availability of inventory at their own firms and potential availability from other broker-dealers that act as conduit lenders. Much of this information is available through electronic feeds and is updated frequently." The bottom line is if a short seller can check the borrowing costs to avoid a short squeeze, so can a potential short squeezer check the borrowing costs. The potential short squeezer already has all the information they need. It is time the SEC and Wall St ceased utilizing the short squeeze red herring. Its nonsense and the industry acknowledges it in these comment letters. Further illustrating the nonsense of the "short squeeze" red herring is the fact that stock specific FTD data has been released via FOIA without short squeezes occurring. It is time for transparency and some intellectual honesty from the SEC and the Securities Industry on this matter. Stop trying to base decisions for non-transparency on non-existent risks. It's absurd, an insult and lends credence to claims that the Industry's lobbying dollars are clouding the SEC's judgment. CFA letter - http://www.cfa.com.hk/centre/issues/comment/2003/pdf/ FSA17ShortSelling020603.pdf. SIA letter - http://www.sec.gov/rules/proposed/s72303/sia013004.htm In addition to these concerns ,many short sellers are borrowing stock in London and selling long in the U.S. due to a misreading of certain Federal Reserve Board letters that allow the borrow but require the sale be marked short.. I submit that Chairman Cox could achieve the appropriate disclosure by asking DTCC and its members to voluntarily release this information to the public without the exceptions noted and including fails, through the SEC on a pilot basis in order to study its usefulness. He should also put the firms on warning regarding their London stock lending operations. There is no downside and both issuers and the public can us it to understand the effect of naked shorts on investments. The use of such information may however be exaggerated because some of the fails may be inadvertent . However large numbers will allow the issuer to explain to his shareholders and will allow those shareholders to pressure the regulators to investigate. Overstock.com has noted the following reasons for disclosure • There has been much controversy about whether or not naked short selling is truly a problem. Whatever the true extent of the problem, it would be easy for the SEC to clear up the mystery by publishing the size of the FTDs for the companies on the Reg SHO Threshold List.
• Without failures to deliver reported daily for each threshold security – both within the DTCC and outside the DTCC in “ex-clearing” – the level of naked shorting and its risk to the capital markets is unknown.
• “Sunshine” will provide a disinfectant reducing or even eliminating market manipulation in the form of abusive short selling.
• Additionally, when more is known about particular stocks, it will provide investor confidence in the market.
• The current Reg SHO threshold lists simply contain the names of companies and dates, but do not quantify the number of shares that were not delivered.
• To date, it has been difficult (if not impossible) for companies to obtain information on the amount of fails to deliver in a particular stock.
• The SEC requires that issuers disclose their total number of issued shares. Similarly, issuers and shareholders should be able to access information on the volume of failures to deliver.
• Until there is transparency, we will never know the extent of the risk to our capital markets.
Committee Reports
102d Congress
House Rept. 102-414
102 H. Rpt. 414
SHORT-SELLING ACTIVITY IN THE STOCK MARKET: MARKET EFFECTS AND THE NEED FOR REGULATION (PART 1)
DATE: December 6, 1991. Committed to the Committee of the Whole House on the State of the Union and ordered to be printed
SPONSOR: Mr. Conyers, from the Committee on Government Operations, submitted the following
REPORT (based on a study by the Commerce, Consumer, and Monetary Affairs Subcommittee)
TEXT: On November 13, 1991, the Committee on Government Operations approved and adopted a report entitled "Short-Selling Activity in the Stock Market: Market Effects and the Need for Regulation (Part 1)." The chairman was directed to transmit a copy to the Speaker of the House. I. Introduction and Background Short selling has been practiced in the Nations securities markets for many years. It is not a recent innovation in finance. However, the effects of short selling on the securities markets are not widely understood. Moreover, strong criticism has been directed in recent years at the regulatory system by investors and by companies who believe that inadequate regulation has permitted substantial abuses to develop. Although the basic practice of short selling is not new, it has taken on a new significance just recently. Modern innovations in the clearing and settlement of securities transactions and the widespread adoption of book entry recordkeeping systems have dramatically reduced the costs and increased the market opportunities for short-selling transactions. A new evaluation of how short selling fits into modern securities markets and whether the complaints being heard are valid is therefore needed. For these reasons, the Commerce, Consumer, and Monetary Affairs Subcommittee of the House Committee on Government Operations has conducted an extensive investigation of short selling in the equity market. Three days of hearings were held in November and December 1989 , a survey of affected companies was conducted in 1989, comprehensive tabulations of short interest statistics were compiled for the years 1986-90, the securities clearing and settlement system has been closely studied, and numerous other aspects of short selling have been evaluated. Certain elements of this investigation are still in progress. Consequently, the committee has not reached final conclusions and recommendations with respect to many of the questions that have been raised. The questions that are still under study are identified briefly in Section I.C below. This report represents, therefore, an interim statement of findings and conclusions. The recommendations presented in this report are firm and final, but they do not address several important issues that are still under investigation. A. The Mechanics of Short Selling 1. The individual short-sale transaction In a short-sale transaction, an investor places an order with a securities broker to sell shares of stock he or she does not own . If this order is executed by the broker, the investor will then be "short" this stock, meaning he or she will owe so many shares. This short position will appear as a liability item on the investors account statement with the broker. The purpose of such a trade is to make a profit if the stock price goes down. At some future time the investor buys back the same number of shares of stock, and if this purchase is at a lower price than the price of the short sale, the investor has made a profit. The cash received from the short sale is credited to the investors account but cannot initially be withdrawn in cash. In fact, the margin regulations of the Federal Reserve require that additional cash be deposited by the investor, or borrowed from the broker, to assure that the investor will be able to buy back the shares sold short to complete the transaction. Moreover, the investor may be required under the margin regulations to deposit additional cash (or borrow more from the broker) at a later time if the price of the shares sold short increases after the short sale. If the investor is unable to provide the additional margin, the short position will be closed out by the broker, and the investor is charged for the cost of buying back the shares. On the other hand, if the price of the stock in which the investor is short should decline, the investors broker is permitted to release a corresponding portion of the cash margin and pay it out to the investor. If the price should decline to zero because the stock has become worthless, then the investor may get all his or her money out in cash without ever purchasing back the stock to close out the short position. As long as his or her account has sufficient margin, the short investor may remain short indefinitely. There is no time limit on short investments. The only complication, other than insufficient margin, that could force an investor to close out a short position prematurely by buying back the shares would be when
News 
Market Data 
Discover 
