From: fresco1@bellsouth.net
Sent: Thursday, November 13, 2003 3:33 PM
To: rule-comments@sec.gov
Subject: S7-23-03:

Many aspects of regulation SHO have merit with respect to the easing of 
certain restrictions on securities and providing uniformity, while tightening 
them on others. Unfortunately, it is the later I am concerned about because 
of a very strong unintended consequence the commission is overlooking.

By eliminating the affirmative determination exemption by market makers, and 
requiring that the borrow of the securities by secured in all cases prior to 
the short sale, you are allowing a market that will be unchecked by market 
forces, and ripe for manipulation in the smaller OTC less regulated markets.

The biggest market abuses from a regulatory view, are ones in which thinly 
traded securities are manipulated upward in what is commonly referred to as 
"pump and dump" schemes. It is often the ability of short selling that keeps 
these forces in check, that reduces the level of fraud. In addition, such 
short selling often leads to the information necessary provided often by 
"short sellers," for the SEC to investigate and prosecute such violations 
that are prevalent in the securities markets.

I have read many times about the short selling abuses of "naked short sellers," 
and such accusations are frequently originated by very small suspect public 
companies on the OTC markets. Such companies often have no significant 
operations themselves, ridiculous market capitalization's, and are using the 
capital markets to fund business ideas that privately they in all likelihood 
could not. I have yet to see any factual presented evidence of the level of 
abuse often referred to by these small companies. Such companies have seemed 
to develop a lobby for certain aspects of this regulation. It is almost 
impossible to borrow any securities on the OTC either because of the price, 
and/or because such securities are not marginable. By applying the "affirmative 
determination rule," in this particular regulation across the board without any 
exemptions, is in essence fueling the potential for more significant manipulation 
in the OTC markets, which I know is not the intention of the commission.

There has been clear evidence that there have been short selling abuses with 
respect to convertible debenture securities, where such shorting was used as a 
tool to drive the company out of existence, through the use of its own stock. 
This is what is commonly referred to as "Death Spiral " arrangements. Regulations 
to reduce or prevent this activity is certainly welcome, and warranted.

Beyond this type of abuse, I do not believe there has been any significant amount 
of factual evidence relating to abusive short selling, and such alleged "bear 
raids" that can be evidenced other than the "death spiral" case previously 
mentioned. Implementing the affirmative determination rule will significantly 
decrease the available liquidity in the markets and exacerbate the manipulation 
problem by allowing bullish, and in some cases manipulative market forces to 
remain unchecked.

The commission's serious consideration of this unintended consequence as a result 
of requiring a borrow under all circumstances, would be of great benefit to the 
investment community as a whole.

Best Regards,