From: idpatch [idpatch@attbi.com] Sent: Wednesday, March 05, 2003 9:01 PM To: Thompson, Bernard; sletzler@dtcc.com; sgoldstein@dtcc.com; ryanr@sec.gov; pitth@sec.gov; Pat Clem; marketreg@sec.gov; enforcement@sec.gov; chairmanoffice@sec.gov; AskDOJ@usdoj.gov; aalizzi@dtcc.com; rule-comments@sec.gov Cc: Steve-D.Jones@wsj.com; SCrane; oreilly@foxnews.com; lynn.cowan@dowjones.com; letters@nypost.com; John_McCain@McCain.senate.gov; jkehoe@ida.ca; jdaw@thestar.ca; InvesTrend; editor@globe.com; DDecloet@nationalpost.com; cmacfarlane@osc.gov.on.ca; carol.remond@dowjones.com; bmudry@stockwatch.com; bizcenter@cnbc.com; BillM@fool.com; bcopple@forbes.com Subject: Release No. 34-47365; File No. SR-DTC-2003-02 The DTCC has requested new policy restricting companies from exiting their settlement services to convert to a more controlled method of "Custody Only" trading. This new policy would have tremendous impact on those companies abused by the present market tool of Naked Shorting for Stock manipulation. Presently 50 - 60 companies have sought or have already exited the DTC to restrict the abuses the naked shorting has on their share value. Are they substantiated in their claims? Nobody really knows as the SEC and the DTC have done nothing to validate trade settlements on any of these stocks. Instead the DTC has already restricted future exits while this proposal is in it's comment period at the SEC. In effect, the DTC is enforcing policy before the SEC has made policy. The question is, did we learn from our past and have we made progress for the future. To answer this we all ought to take a step back in time and re-read the Pollack Study on Bear Raids. This study discussed the affects short sale abuses can have on share values and how Bear Raids played a part in the Stock Market crash of 1929. To simply make a policy change such as this that limits the ability for companies and shareholders to protect themselves while the SEC and DTC evaluates their performance is unprofessional and dangerous. The Economics of today and the reputation of Wall Street are both on shaky ground. making policy that, in affect, supports insider wall Street and does nothing to protect the investor is against all the charters that the SEC was created to protect. I request that there be a total study done to evaluate the performance of the DTC today with regards to the implications of the study done many years ago. If we have not improved or met our intent for a fair market, we certainly should not take steps to restrict independent protections. Re-read the Pollack Study and the implications it suggests. Pollack Study: http://www.sec.gov/rules/concept/34-42037.htm I. Introduction The Securities and Exchange Commission (Commission) adopted Rule 10a-11 (short sale rule or Rule) under the Securities Exchange Act of 1934 (Exchange Act)2 at a time when the securities markets had less trading volume and simpler trading strategies than current markets. Since the adoption of the short sale rule, securities trading has increased drastically in volume, velocity, and complexity. There have also been substantial improvements in market transparency and surveillance mechanisms. Short sale regulation, however, has remained fundamentally unchanged. This separation between Rule 10a-1 and the markets has resulted in frequent requests for relief from the short sale rule and suggestions for modification of it. Our goal is to examine ways to modernize our approach to provide the most appropriate regulatory structure for short sales. And... Although short selling serves useful market purposes, it also may be used as a tool for manipulation.5 One example is the "bear raid" where an equity security is sold short in an effort to drive down the price of the security by creating an imbalance of sell-side interest. Many people blamed "bear raids" for the 1929 stock market crash and the market's prolonged inability to recover from the crash.6 Short selling was one of the central issues studied by Congress before enacting the Exchange Act, but Congress made no determinations about its permissibility.7 Instead, Congress gave the Commission broad authority to regulate short sales in order to stop short selling abuses. 8 Dave Patch