May 4, 2009
The Honorable Mary L. Schapiro
U.S. Securities and Exchange Commission
100 F Street, NE
Washington, DC 20549
SUBJECT: File Number S7-08-09
Dear Commissioner Schapiro:
The Security Traders Association (STA) has been involved in the short sale discussions
for decades. We have long respected short sales as a valid investment alternative. We
have held equally strong support for strict enforcement of locate and delivery rules that
serve to eliminate illegal and abusive short selling, including naked shorts.
The current discussions on how to combat abusive short selling and the attributed
volatility have been trading centric (trading triggers result in trading restrictions). We
believe that the past 18 months have taught us that we need to think outside the box. The
STA has communicated our concerns about “tick tests” and “bid tests” on many
occasions in the past. We believe that price tests (such as the “bid test” or “tick test”)
have been rendered ineffective by structural changes to the markets and that price tests
would be unable to dampen volatility even if they were to be reinstituted.1 It is the
considered position of the Board of Directors of the STA that an objective means of
establishing benchmarks for these tests does not exist in today’s market structure. We
continue to believe that both tests are seriously flawed and if they were to be
implemented gaming of these types of trading restrictions would become rampant again.
Neither price test would present any appreciable resistance for abusive short selling in
downward spiraling issues and thus would be ineffective in solving the current quandary.
The STA believes that rules should be promulgated to control identifiable and
measurable problems, and does not believe that reincarnating discredited regulations of
yesteryear will position us to effectively compete in today’s markets. In this vain the
Security Traders Association has developed an alternative Short Sale Circuit-
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