How the SEC Can Level the Playing Field

I have reviewed the proposals that the SEC has under study to limit the destruction caused by shorting.

I have witnessed over the past year the terrible destruction of American’s retirement plans by the outright greed among those in power who manipulate the world financial systems. Over the years, our government has made it attractive for Americans to invest their hard earned savings in the “market”, by approving various instruments like 401Ks, IRAs, and mutual funds.

A speech by the former president in 2004 further encouraged all Americans to invest their retirement money in such a manner. Skyrocketing indices lured the unsuspecting investors. Inflation after the turn of the century, although not officially reported, again pushed people to find greater and greater returns. Sadly, all of the investments by the misled American public were fodder for the market manipulators, the very people that the SEC was set up protect the American public from.

The SEC has failed to fulfill its duties to this country and should by shut down. It is as if the SEC is protecting the information about the abuses from the people of this once great nation. If the public understood what really goes on, a second great revolution would surely be on the table.

This SEC has the chance to reverse the catastrophe caused by the inaction of the previous administration’s appointees and “stand” with the People of the United States and not against it. It must move aggressively to prevent the pillage of American wealth by a few powerful people, who have influence, lack of regard for rule of law, and privileged positions of great wealth and power.

The following are ways that the SEC can level the playing field for all Americans:

• Those that short must account for theirs shares within three days period. Counterfeiting shares (naked shorting) is a crime. It is so obvious every day that the SEC is “blind” to this. Look at shares of LDK and EGLE to name just two obvious examples.

• If shorting is used to manipulate, it must be stopped. A strong uptick rule is necessary.

• ETFs like the SKF must be banned. Proshares TripleX ETFs which allow triple leverage must be banned. They skirt the margin rules and drive company values down just for profit.

• Pre and post market is where most of the damage is done – such trading should be eliminated. Trading by the privileged before pre-market opens allows even greater manipulation.

The current SEC is the last great hope to right a terrible wrong brought on the American people. The clock is ticking. Soon the retirement of the “baby boomer” generation will weigh on this economy. If their retirement portfolios are not brought back to whole, the unemployment of the young will only increase and bring great unrest to this country.

This kind of unrest leads to violence and revolution. We have seen this many times in history. Do not play the “Marie Antoinette” card. Do the right thing no matter how unpopular it is with those who have power. It is time to re-enact some protection rules and enforce rules that you already have.

Disclosure: Author is long LDK, EGLE

Comments

[Nazbuster:]

I agree that shorting naked is an abuse, but if you are so fond of an uptick rule for shorts, why are you not advocating a "downtick" rule for longs? Or alternatively, why not have ALL sales, including the unloading of long shares, be required to have an uptick prior to being able to sell the shares? Why not go even further and only allow sales of shares at prices above their purchase only if not held for one year or more? That would guarantee that prices only go UP unless there are strong reasons to unload a stock. Would you be happy with those rules as well?

Rigging the market to favor one direction over the other is still rigging.

May 10 12:00 PM

[frflyer:]

I agree with all your points.

After hours trading is particularly onerous when companies report earnings after the bell, then the big players make their moves while the rest of us watch from the sidelines. Waking up the next day to find that your stock has had a huge move during off hours is disheartening.

May 10 12:07 PM

[Market Sniper:]

Partly correct and partly incorrect, Frank. Totally agree with you on the failure to deliver (FTD) naked shorting. It is already banned but rules are rarely enforced. The hole in the regulations is due to the very nature of the specialist/market maker function. When everyone is buying, it is often impossible for them not to be naked short (often for periods far in excess of the 3 day settlement period) in order to keep an orderly market. If you have a fund that employs programmed shorting, it is not too difficult to set up a market maker arm for your operation and thus escape the 3 day settlement rule. How do we handle that? Perhaps we should look at not allowing such an incestuous relationship to exist in the first place. As for the uptick rule. I am not convinced that reinstitution of the up tick rule is a very good idea. Look at the Shanghai market. Shorting of ANY kind has never been allowed. The previous sell off there dwarfs what we have seen here. Legal shorts are captive buyers and add liquidity to markets. Indeed, making short selling more difficult may drive more traders to the ETFs and further remove market liquidity. Also, it is minor annoyance for the short seller. As you can create your own uptick. Want to short 20,000 shares of IBM? Buy 100 shares at the market and then sell short 20,100 shares. Also, we now trade in pennies and not 1/8ths. How much of an uptick? 1 cent? 5 cents? Two upticks in a row? Reinstate the uptick rule? Be careful of what you ask for, you just may get it.

May 10 12:08 PM

[dcb:]

there is nothing wrong with shorting. there is something wrong with one firm that has the trading firepower to bring the whole market down. when the market can be flooded with more than the total shares outstanding 9or something like that). I don't know the answer. I guess you could always buy puts instead of shorting. but buying puts, selling your holdings, and shorting at the same time can bring too much firpower to the market,. esp when you add leverage to the mix. I'd just prefer to get rid of leverage all together. if you look at one of tyler durden's posts you will see that goldman was by far the principle trader on the nyse for the run down from Jan to march, and for the run up. they still use program trading at key points in the day to influence markets a inflection points. huge money flow with no buying spkes. this is a real crime. perhaps limiting any one company as a percent of volume on the exchanges at any one time. nobody should be moving over 10%.
goldman is moving well re than double the next highest principle trader. But NYSE head is a goldman guy so what do you expect. in fact the NYSE is going out of its way to allow goldman to manipulate the market (of course it is for our benefit in order to provide liquidity)

May 10 12:24 PM

[dcb:]

note, the same way you should not be able to force the market down, you should not be able to force it up. When a ceo makes false statements about the health of his company, or releases announcements of earnings at certain points (pandit at citi, or wells) that is upwards manipulation and just as bed. Let's add dark pools to the mix too. that is a crime. manipulation is encouraged and the people who do it pay handsomely for the right to do so. (lobby money, elections, higher a hirer staffer with access, having industry choose the head of NY fed) it goes on and on. when you see who picked geitner to run NY fed then you will understand why things happen. Hell, head of fed was a former goldman guy and he had to resign when he bought stock he shouldn't have. he got permission (after the fact). But the fact that he even did so, and doesn't think there was anything wrong with that shows you the mentality of what is going on. i.e. it is Ok to do anything illegal or immoral as long as you aren't caught. If you want to do something that would be illegal lobby and spend enough money that it becomes legal. As for bribes, it happens in the United States. We do not call them bribes, and legal action is avoided because they all know the pay off happens after. You think the guy at AIG (former goldman) isn't going to get paid off in the long run for handing the company 20 billion at face value. He knows he will. Rubin got paid by Citi for removing regulations, and Summers got his money too. we just pay the bride after. This way it is legal. There is truly no difference between us and russia. all crony capitalism designed to benefit the few at the expense of many.


On May 10 12:24 PM dcb wrote:

> there is nothing wrong with shorting. there is something wrong with
> one firm that has the trading firepower to bring the whole market
> down. when the market can be flooded with more than the total shares
> outstanding 9or something like that). I don't know the answer. I
> guess you could always buy puts instead of shorting. but buying puts,
> selling your holdings, and shorting at the same time can bring too
> much firpower to the market,. esp when you add leverage to the mix.
> I'd just prefer to get rid of leverage all together. if you look
> at one of tyler durden's posts you will see that goldman was by far
> the principle trader on the nyse for the run down from Jan to march,
> and for the run up. they still use program trading at key points
> in the day to influence markets a inflection points. huge money flow
> with no buying spkes. this is a real crime. perhaps limiting any
> one company as a percent of volume on the exchanges at any one time.
> nobody should be moving over 10%.
> goldman is moving well re than double the next highest principle
> trader. But NYSE head is a goldman guy so what do you expect. in
> fact the NYSE is going out of its way to allow goldman to manipulate
> the market (of course it is for our benefit in order to provide liquidity)

May 10 12:39 PM

[dcb:]

"This kind of unrest leads to violence and revolution. We have seen this many times in history. Do not play the “Marie Antoinette” card. Do the right thing no matter how unpopular it is with those who have power. It is time to re-enact some protection rules and enforce rules that you already have."

It is my view that the second amendment was designed to allow us to overthrow exactly what is happening now. I would never encourage such action but would gladly be part of a popular uprising against our government should it happen. I believe this is the idea behind the tea party movement, and it is not a vehicle of the far right. it represents people who are so frustrated with the system that we believe it must be overthrown. taxation without representation. we have elections, yet we still have no representation.

May 10 12:44 PM

[Market Sniper:]

Dead nuts on about Goldman Sacks, dcd! But what do you expect? They are the Treasury and the Fed's broker! The PPT at hard at work.

May 10 12:45 PM

[THofler:]

Thanks Market Sniper for the insight. I wish I understood the market-maker exceptions better. Here is my 2 cents worth.

We must focus on the near elimination of naked shorts. The old regs. (mid 2008) allowed non-delivery of a short sale for as long as 60 days, and even then penalties were rare. Whole bear raids & buy-to-covers can be executed in a month; why bother to actually borrow?

If market makers need to be naked short for more than a few days, then these operations need to be separated entirely from firms that run investment funds of any kind.

Shorting is an absolute necessity, but I do NOT agree that shorting needs to be completely symmetric with going long. My solution to naked shorts is a 1 hour settlement for a short sale, with mandatory fines for failures. If you've really borrowed, then prove it with a delivery.

Why is symmetry not necessary? Because panic is massively stronger (or at least quicker) than greed. Most animals are genetically hard wired to favor flight in the fight-or-flight situation. We are now living in the midst (or end) of the greatest bull rally most of us have ever seen. But objectively, the power of this rally is quite tame compared to the panic sell-offs we've seen over the last 9 months.

I do think the up-tick rule is mostly pointless, and worse, might actually favor the big operators.

The problem here is massive volatility. Why not look at the markets that have dealt with massive volatility for a century? The commodity and futures markets have implemented circuit breakers for a very long time. If my memory is correct, the CBOT circuit breakers are symmetric on both the up-side and down-side. It is not a pretty solution, but it is an obvious, simple, and effective solution.

May 10 02:36 PM

[Market Sniper:]

C! You actually made sense to a point though I believe your conclusion is erroneous! As basically a day trader, I do not care which way it moves as long as it moves. As to the shorts in this rally, many have taken a lot of heat. Depends on from what price they are short. This rally, so far, has been a massive distribution rally with market makers/specialists squaring their books off the march lows and almost unprecedented insider net selling. This works well as a lot of money is still uncommitted on the sidelines. That gets sucked in at even higher prices. We have YEARS of overhead price resistance (people waiting to get even) above where we are. Well, Abbey Cohen of Goldman Sacks (THE prime fund driver of this rally) has called for a Spooz of 1050. So it is written. So it shall be. Meanwhile, we evil day traders continue to coin money. No recession for us! When it goes down (and it will), we will just make money faster. LOL

May 10 06:58 PM

[night:]

Let each security have a unique id # that is "printed" with each transaction... that way no need to wait 3 days for a locate... either you have borrowed it and are free to sell, or you have not.... nano second sell buy computer bots could not utilize to same locate for multiple transactions.... just print the unique security id with each transaction. End counterfeiting NOW!

May 10 11:02 PM

[socrateazz:]

Interesting: You expect a lot from an control mechanism. I would like to see a fairness in everything. But things are inheritantly unfair. If you fix one thing another usually goes wrong. Control makes things unfair and lack of control makes things unfair! People tend to react more to their own beliefs than to reality. Can such really be fair? Do you really believe by restoring the retirement wealth to those who had it, we will be treating all fairly? Does that wealth not come from some where? Does that really cause fairness or favortism? Wealth can be increased by production. Can it be increased by giving it to those who want or need it? we are near the end of a cycle where wealth goes to people who are not really creating it. when wealth starts to go to thwe real producers then a cycle similar to 1940's will emerge. Until then I expect a period of money but not real wealth creation. we will see if I am right!

May 11 07:02 AM

[twitee:]

Let us blame the short sellers for everything! I wished it were that easy.
The current turmoil in the market is based on human greed and desire to maintain control and power in a capitalistic world.

Going back 5000 years, from Persian to Greeks to Roman empires ...to American empire today, they all have one thing in common and that is “GREED”.

They used their strength to rule the world to get more. Today that power is financial power. In the last few centuries, no other country has taken over another country militarily. Today’s war is a financial type. We are in the center of making a new history and the FED will do anything to achieve their goal.

The ultimate goal is to Crash the dollar for many good reasons and they are achieving that. This is a free market and there should be no restriction on shorting/uptick rules, etc. The short sellers cannot harm the market to make a permanent dent into the outcome permanently, only for a short period.

May 12 01:42 PM

[lloyd:]

unless it goes up?


On May 10 12:07 PM frflyer wrote:

> I agree with all your points.
>
> After hours trading is particularly onerous when companies report
> earnings after the bell, then the big players make their moves while
> the rest of us watch from the sidelines. Waking up the next day
> to find that your stock has had a huge move during off hours is disheartening.
>
>
>
>
>
>
>
>
>

May 12 09:05 PM

[Just Askin:]

By your logic, the SEC should sanction naked long buying instead (or in addition).


On May 10 12:00 PM Nazbuster wrote:

> I agree that shorting naked is an abuse, but if you are so fond of
> an uptick rule for shorts, why are you not advocating a "downtick"
> rule for longs? Or alternatively, why not have ALL sales, including
> the unloading of long shares, be required to have an uptick prior
> to being able to sell the shares? Why not go even further and only
> allow sales of shares at prices above their purchase only if not
> held for one year or more? That would guarantee that prices only
> go UP unless there are strong reasons to unload a stock. Would you
> be happy with those rules as well?
>
> Rigging the market to favor one direction over the other is still
> rigging.

May 13 09:37 AM

[User 426021:]

PREMARKET Trading before premarket. I have reported prior to pre market trading to bring the price of the stock up or down by > 1.00, The SEC has responded that they are aware of this illegal practice and of short selling. They are currently doing alot of investigating and one day soon this will come to a head with alot of arrests and lawsuits, including against employees of the Sec who are violating the law. If this happens at least the crooks will be cooked and shorting legally will be fine. You are so right about EGLE but MA is the worse I feel. Same with GS abd C. I await the day these crooks are arrested because I will be in line to sue them. MIke

Jun 04 10:55 PM