June 17, 2009
Madam Chairman and Commissioners,
During the SEC's open meeting on April 8, 2009, Chairman Mary Schapiro noted that "... we are not aware of specific empirical evidence that the 2007 elimination of short sale price tests contributed to this volatility in the U.S. markets ..."
Given this admission, I find this entire process stunning. Since September 22, 2008, the SEC has been collecting an unprecedented amount of information about short selling through the introduction of Form SH. This form includes weekly information about all new short sales, largest intraday short position, and time a manager had their largest short position, among other data.
During the period Form SH was mandated, the SP fell 45.3% (From September 22, 2008 #8211 March 9, 2009) and volatility rose more than 150% (as measured by the VIX from September 22, 2008 #8211 November 20, 2008). Stocks such as Wachovia, Citigroup, General Motors, Bank of America, Barclays, and many others fell by more than 90% during this period.
In short, this was an ideal period for the SEC to use Form SH data to determine if short selling had any impact on the market's decline in value or increase in volatility.
Given that Chairman Schapiro and the SEC are "not aware" of any impact short selling has had on the market, I am left with only two conclusions. Either the SEC has not examined the wealth of Form SH data you have, or that data shows that short sellers did not contribute to the market's performance.
If the former is true, then shame on you for burdening money managers with the incredibly time-consuming task of filling out Form SH every week. If the latter is true, then shame on you for wasting everyone's time discussing the need for further short-selling regulations. Because clearly further short-selling regulations are not needed.
Eric Newman
Portfolio Manager
TFS Capital LLC