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John Chinnock Mr. Jonathan G. Katz, Secretary Dear Secretary Katz: I am writing this letter with regards to the new Regulation SHO that the S.E.C. is considering implementing in the near future. I am strongly opposed to the S.E.C. suggestion that would restrict all short selling unless it is done at 1 cent or higher above the best consolidated bid quote. One of the primary functions of the S.E.C. is to ensure fair and equitable trading across the markets, as well as eliminating market manipulation. However, restricting short selling unless it is one cent above the bid only encourages severe market manipulation. Imagine traders in thinly traded stocks with large spreads now being able to put large bids in knowing that their risk and liability of being executed against is limited solely to other traders with long positions. If they knew that the stock was very thin and had little trading activity, they could manipulate the stock upwards with large high bids that other traders who were flat the stock could not execute against. The rule, if enacted, would allow market manipulation to become rampant in thinner stocks of this type. If the S.E.C. is trying to make the markets as efficient as possible, then there needs to be little or no restrictions on traders attempting to sell short. Only in this way can the markets be truly representative of what the public agrees is a fair price on any individual security. Another flaw with the proposal is the severe restriction of short selling by everyone in the marketplace except the market makers. The market makers have shown repeatedly that they will abuse any privilege as much as possible for their own financial benefit with no regards to maintaining an orderly market. If the S.E.C. truly wants all trading to operate on a level playing field, then having two sets of rules: one for market makers, and one for everyone else, just makes no sense at all. In summary, I am strongly against the Regulation SHO proposal, and I believe that the S.E.C. should strongly consider abolishing any short sale restrictions entirely. Only in this way can markets truly be efficient and fair for all active participants. Sincerely, John Chinnock, M.B.A.
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