From: Pete Mason [pmason3@wi.rr.com]
Sent: Saturday, January 03, 2004 3:35 PM
To: rule-comments@sec.gov
Subject: Regulation SHO

Dear SEC,

Thank you for taking the time to consider improving the process of
short-selling. As the SEC in general seems to have a good appreciation for
the importance of having two sides in a market, i.e. it's best to have both
longs and shorts, I don't need to spend any time on that. Shorting is
important, and we're all in agreement.

There is, however, one aspect of Regulation SHO which concerns me greatly,
and that has to do with the proposed elimination of naked shorting. While
this seems fair on the face of it, and may even be appropriate for "normal"
exchanges such as the NYSE, it will have a perhaps unseen devastating impact
on the legitimacy of the OTC Bulletin Board, tenuous as its current
credibility may already be.

As you are no doubt somewhat aware, the OTC Bulletin Board is the playground
for rampaging stock promoters, scam artists, pump & dumpers--in short, the
dregs of the financial world. To my knowledge, there is only one force
fighting for truthfulness and honesty in that market, and that is the shorts
who stand to gain as scams are exposed. Every other market participant is
only interested in inflating these stocks as much as possible. The shorts
are the only voice of moderation. Remove the shorts, and suddenly the OTC
playground is left without any adult supervision whatsoever.

All well and good, you might say. But what does this have to do with
eliminating naked shorting? Simply put, I do not believe it will be possible
to have any meaningful amount of short-selling on the Bulletin Board without
naked shorting. The floats of so many of these scams are artificially
controlled, and a borrow can never be obtained. Floats on a lot of OTC
issues are manipulated enough as it is, with goofy 1 for 1.1 splits, "call
in your certs" campaigns, etc. And even in those rare instances where a
positive borrow can be obtained, you may be sure that the number of shares
available will be absolutely meaningless. If Regulation SHO goes through, I
know that personally, I won't even attempt to short any of these scams
because even if I could get a rare borrow, I'd probably be the only one, and
would end up getting steamrolled by the pump-artists.

If shorting on the OTC Bulletin board is no longer possible, i.e. if SHO
goes through as written, the only way to play that market will be on the
side of the dishonest pumpers and touts--that is to say, go long on the pump
and hope to exit before the inevitable cratering dump catches you. Trying to
do any shorting in such an environment would be tantamount to financial
suicide.

So please don't make naked shorting against the rules. To do so would be to
allow the pump & dump schemers to declare absolute victory-no one is going
to struggle against them just out of the goodness of their hearts. It
destroys any pretense of checks and balances. For the OTC Bulletin board,
Regulation SHO is just an accident waiting to happen: it would turn that
market into a nightmare. Except, of course, for the many con-artists and
promoters just chomping at the bit to get SHO started.

Respectfully,

Peter A Mason