June 8, 2007
Mr. Chairman,
I strongly urge that the SEC reconsider Item 2 of the agenda slated for June 13. To re-propose the Options market making exemption would be in direct conflict with the data the Commission has already gathered and disseminated to the public as part of your prior extension to this rule change.
According to the NYSE, 5 companies have been nested on the SHO threshold list for extensive periods of time based solely on the use of the options market making exemption. To make matters worse, it was a single options market maker that had taken the exemption to such a degree as to become abusive. I would therefore surmise that the remaining options market makers do not need such exemptions to operate their business and thus the exemption, as presently drafted, is not a critical part of the market itself.
Similarly, the NASD identified similar patterns of possible abuses using the options exemption as the catalyst.
If abuses exist in our public markets it is the responsibility of the SEC to address such abuses swiftly and firmly in order to maintain market integrity and investor confidence. Rule making should be done in a fashion that insures investors are provided the safety to invest what is necessary to secure their futures. Where caution is to be made, the SEC is obligated to throw caution on the side of the investing public and not on the side of a market members ability to financially succeed.
Public companies fail every year and they fail due to a business models created that are inefficient relative to competitors. Clearly by what has been provided to date, the extent of the present options market making exemption is not critical to the success of all options market makers but more likely to the success of a smaller subset. This smaller subset has no legal standing for success that could otherwise impact the financial stability of the investor or the corporation that could be abused in the process.
This charade has gone on long enough. When the SEC drafted SHO originally the proposal never contained a grandfather clause for public comment. The clause, now deemed a failure, is under public comment to be eliminated and will most likely be granted on June 13, 2007.
The public is not stupid and the public recognizes that the clause was a temporary stopgap to addressing this issue but to address it slowly over time to protect the financial well being of the financial industry despite what level of collateral damage is caught in the wake. The re-proposal of the options exemption is simply another stopgap measure to delay what will ultimately be rule changes required down the road. Such delays, and the acceptance of abuse in the interim, are in violation of the SEC mission and a violation of federal law.
The SEC is not empowered to create a federal bail out plan for corrupt and unethical financial services members. Only the President of the US can create such a bail out plan and such plan must be Congressionally approved. The SEC is not authorized to steal from the savings accounts of the investing public to pay off the financial debts and liabilities of poorly operated financial institutions. The SEC is not authorized to destroy the growth potential of American corporations to bail out from the illegal acts of others.
Mr. Chairman, to approve Item 2 of the June 13 agenda would be to commit an act of criminal proportions to the public for which you serve. I urge you and the remainder of the Commission staff to seriously reconsider such actions. While each of your terms may be short in duration, the legacy you leave will be based on the decisions you make while in office. The legacy you are about to create is one that some may call treasonous. To have sold out the general population to protect the business model of a company who has violated the trust and confidence of the people.
Your own data provided supports the arguments I have made above. To deny that data has meaning would imply that the SEC was not transparent with the information necessary for the public to make an informed decision. If not, Congress must consider why the agency responsible for increasing transparency of our Capital markets fails to disclose the necessary information for the public to adequately respond to rule changes as required under federal law.
David Patch
www.investigatethesec.com