A memo to the SEC

Discussion in 'Wall St. News' started by patchie, Apr 9, 2009.

  1. patchie


    Chairman Schapiro, Commissioners,

    I wish to first applaud your efforts in re-opening the comments for the uptick rule.

    For years as investors we have been told that the Commission carries two distinct responsibilities, that of the investor advocate and that of creating growth in our capital markets. These can, at times, be polar opposites when it comes to rule making policies and this issue is a very real case in point.

    Today, the elimination of the Uptick rule has most assuredly created a market confidence problem in a wide ranging scope of investor. From the retail novice to industry experts opinion exists that the repeal of the Uptick rule helped to exacerbate this bear market we now live. Note that I said exacerbate, not create. Others of equal pedigree have stated just the opposite and that the repeal had nothing at all to do with the exacerbation of this crisis.

    In the commentary yesterday the voting was unanimous that this issue should be reevaluated. For that alone it would be irresponsible of me not to give each of you credit and a personal thanks for taking this approach. I have been overly critical of the past actions taken by the Commission over the years and am quite pleased that the Commission staff took a unanimous position on this issue at this time.

    I am concerned however with the comments regarding empirical data or lack thereof. This singular issue has been a long point of contention for many years.

    Empirical data is not something that is handed to us; we must go out and find it. We must likewise go out and find it using a variety of people and organizations with opposing views to assure that all stones are turned over and not just the shape of stone that suits us best. I think if we look to the Pilot program, it was a study conducted under a very heavily entrenched group of economists.

    As you are well aware by now, I believe that the SEC’s Office of Economic Analysis has a preconditioned bias in their studies towards short sale rulemaking and thus may not be effectively turning over all necessary stones to formulate a full picture of what is taking place in our markets. The OEA admittedly looks at this issue at a much more global perspective forgetting that bear raids are localized and that like any war, timing is everything.

    How does this impact the Commission?

    Clearly the Chairman and the Commissioners believe that in each of the studies conducted by the OEA no such empirical data exists to support the publics concerns regarding the uptick rule or short sale policies in general. But what if these studies are flawed? Should the public be subjected to poor policy making based entirely on the flawed studies of the SEC?

    Over the past few years I have requested the raw data that has been used by the OEA in their studies under FOIA requests. The goal of these requests was to have an opportunity to look at how the data was being captured and to have experts of a different mindset look at the data from possibly different angles. If our conclusions were similar to that of the OEA they would be reported as such but if not, the Commission would have a different interpretation to consider.

    Ultimately, isn’t that the goal. To be able to look at an issue in 3-D instead of in 2-D?

    They say short sellers bring price efficiencies to our capital markets because they come with opposing views of the long seller. Why then would it not be beneficial to have data analyzed by people with opposing views of the OEA if policy efficiencies are what is being sought after?

    Each attempt at gathering this data, raw data only the SEC has access to, has been denied under FOIA Request. I have been denied several times as has Bloomberg as reported in a recent story.

    What if anything does the Commission have to hide in providing the raw data from past trading activities? What concern does the Commission have in having outside opinions presented on an issue that is breaking down the confidences in our Capital markets?

    To analyze the impacts of a short sale into a market the data must look at markets individually and not globally. What fits the likes of companies like Berkshire Hathaway or Wal Mart will not be the same for Dendreon or Overstock.com. Compiling data that looks at them as equals will distort the premise behind a bear raid. You don't win a war by attacking a country, you win a war by attacking key targeted areas and if SHO has shown us nothing else, the level and areas of abuse is localized.

    How and when a short enters a market is as important as how many shares are being shorted. If the OEA studies do not look at those exact specifics, it is near impossible to conclude one way or another what impact that short sale may or may not have.

    I hope that the SEC reconsiders their position on denying third parties the right to evaluate the data that helps make the decisions of Commission staff. Clearly the sanitized analysis presented by the Commission is being widely used by third parties to state the case for the elimination of such policies so why then is such analysis void of any checks and balances?

    I applaud you on this first move to reconsider past policy changes. It is a step in the right direction. I similarly urge the Commission to reconsider the denials of the release of studies and raw data used in those studies by the OEA so that validations can be made.

    We all want this to end and to end with success.

    Thank You for your Time,

    David Patch
  2. etile


    The SEC and the government in general are getting too top heavy. Politicians are getting too fat and holding back the efficiency of the market to correct itself.

    Some regulation is good, but the way Pelosi and the Obama admin are pushing the country towards will handcuff the market.

    Although pluses to obama for trying to cut down pork barreling and earmarks. But then again that's kind of overshadowed by his bloated budget.
  3. me thinks the short squeeze of all short squeezes has begun.

    If you look at FRPT, JOSB, TASR, CALM, NFLX, OSTK, they all ramped. In the past, it was always said the SEC wouldn't let this happen because it would kill the brokers. Well, the brokers are dead, and Fuld and Mack complained about the very same practice OSTK is suing them for , and the one the brokers said didn't happen. It's called naked short sellling. It appears the SEC has thrown in the towel. They can't protect what's left of the Street. So, it's open season. No risk manager is going to look at an offshore account and let him carry huge debits on naked short positions. He knows the game is up, and he knows the guy will walk on the debit. We know some individuals had hundreds of accounts. That's no secret. Now, we'll see how the brokers act when they know the jig is up.

    Also, the UBS fiasco is going to spit out some very interesting names. There should be some very interesting HF liquidations (buy ins) when that breaks.

    Let's face it. The "defenders " of the uptick rule aren't trusted by their mothers. They have brought the wrath of the populace down on Wall St, and investing in general. Learn where the bodies are buried, and you can make a career.
  4. Illum


    Yep, I made money in Ford of all places and Im a bear. You can smell the pain. This squeezing is ridiculous and beyond any fundamental justification. But it just doesn't matter, too many shorts and no one is letting them out.
  5. Yep. They fly, and the talking heads go on tv and tell you why they went up and what they see.

    They are little electronic chits, and when they are due at a place they are supposed to be, instead of where they are, the price ticks up, and up, and up.

    All this is doing is taking the few people who have some money left, and fleecing them out of the rest of it. Enjoy it while it lasts.
  6. Let me make it simple:

    Short-selling has nothing to do with market crash, selling does.

    Why? Because short-selling is followed by covering. The two actions cancel each other out. It is selling without buying that decreases the price of a stock permanently.

    You want to prevent market crash? The only solution is to ban selling.

    I have a rhetorical question: Why does such simple logic evade so many people in the investment community for so long?

    The answer to the question will explain why so many mutual funds and investors and traders are losing money. If you think further, you will support the idea of keeping those people at their current intelligence level. If everybody is smart, nobody will make money, right?
  7. patchie


    By your logic there is no problem with a pump and dump. Every buyer will eventually be a seller and thus they add liquidity to a market. The pump adds liquidity which is good and the dump creates market efficiency. It is buying without selling that creates price distortions which is why longs sell. they sell to cover their buys and book their profits.

    I have never heard more Bullshit in my life. A short sells first and buys later. A long buys first and sells later. BOTH execute exactly two trades just in an opposite sequence.

    I have come to learn most recently that the short sellers on ET are morons that really understand little about the markets. They think they bring price efficiency because they sell first and that longs only create price distortions. Short sellers do not view their trading as equal and opposite to long investors which is totally moronic.
  8. At least in the 20's, at least as far as I can see, the regulated pools didn't mask their raids with this "holier than thou" bullshit. "We're all about price discovery", or " we bring liquidity". They were there to fleece the liquidity pools, and did a great job. And like now, when everything was destroyed, they paid a price. Although then, only one went to jail. They'll be quite a few more this time.

    Follow the rules, dont' pay reporters to write nasty stories, analysts to do your dirty work, and class action firms to sue your targets or FBI agents to dig up dirt. Everything will be fine.

    And,btw, the rules are about to become rather stringent. Congress is writing them.