April 19, 2009
Neither proposed solution will really address the primary problem. The real issue is naked short selling. Small investors like me are prohibited by their brokers from naked short selling. Larger traders are not playing by the rules and are selling shares which are never delivered, or are not delivered by the required settlement date. If there were penalties such as giving up any profits plus a fine of 5 to 10 times any ill gotten gains associated with not delivering naked short shares, and if the SEC actively investigated and enforced, often unfounded bear raids would be significantly reduced. Only market makers should be allowed to naked short a stock. Even market makers shold be required to deliver the shares no later than 1 day after the normal closing day. Large traders should be forced to comply with existing rules.