March 18, 2009
My name is David Rocker and I was the founding partner of Rocker Partners, a hedge fund which traded siginificantly on the short side of the market. I have been retired since Jan 1,2007. I would like to suggest a modification to the short sale rule. I had made this suggestion quite some time ago. The SEC previously elicited comments on it and Annette Nazareth will remember it, I believe.
Inasmuch as there seeme to be particular concern that short selling may drive down share prices, but there is also a recognition that short selling may assist fair market price discovery by providing supply during rising markets (including those fostered by unjustified bullish rumors), I suggest that the tick test be applied only when the share price for an individual security is below that of the prior days close. In other words, if stock X closed yesterday at $20/share, no tick test would apply when a trade today is entered at a time today when the stock is trading above $20. On the other hand, a tick test would apply to orders entered when stock X is trading today below $20.
I think this would give the market the protection it needs and also restrict upside manipulation in other market environments. Totally reinstating the old short sale rule biases the markets upward which can create prices which are unsustainable. When the market finally corrects, the small investor,especially, will be unjustifiably injured.
I would be happy to amplify should you wish to talk to me at [phone number redacted].
David Rocker