Action: Securities Trading

Immediate action must be taken on three issues related to security trading on our domestic markets and on shares of our domestic companies trading on foreign exchanges or bourses to prevent market manipulations by investment pools that may be operating in concert or alone to manipulate markets. Specifically they are:

I. Reinstate the uptick rule immediately and require foreign exchanges to follow these rules with domestic securities If the foreign burses do not comply de-list all domestic stocks from those exchanges.
II. Outlaw "Naked Shorting" and punish violators by levying severe penalties, disgorging all profits from illegal transactions and possible suspensions from trading against all participants including broker dealers, exchanges and fund managers.
III. Require volume equivocation on short sales to prevent "painting the Tape" which is an illegal form of manipulation whereby the market participants buy a few shares to "create" an uptick and then short massive volumes. Whereby, if IBM for example, had cumulative upticks of 15000 shares that would be the maximum no of short sales that could be made until the next uptick. Also the uptick change in market price should be the greater of $.05 per share or .075% of share price. This is in response to the elimination of fractionalization and the implementation of decimalization of pricing mechanisms.

The so-called uptick rule, established in 1938 but repealed by the Securities and Exchange Commission on July 6, 2007 had required traders to wait for a stock’s price to make an upward move before it could be sold short.

Short selling is a trading strategy designed to profit from a stock’s downward movement. It involves borrowing shares from a brokerage firm, then immediately selling them and waiting for the stock price to decline before buying the shares back at a lower price and returning them to the brokerage lender.

"Naked shorting" is technique whereby institutions and investment pools may represent that they will deliver stock by settlement date(3days) when indeed they do not have access to the shares they have sold..

Shorting by itself provides useful balance to the investment markets as speculation by the short operators can be enormously profitable and oftentimes provides analysis and protection against the frauds perpetrated by the Enron’s, World Com’s and AIG’s of the world and the misrepresentations perpetrated by the dishonest managements of these companies.. However when speculation leads to stock price manipulation certain safeguards must be instituted. Due to the development of arcane derivatives and computer generated trading, it is more important than ever to be vigilant.

Please contact your elected officials and tell them to:

1) Reinstate the uptick rule immediately and require foreign exchanges to follow these rules with domestic securities.
2) Outlaw "Naked Shorting" and punish violators by levying severe penalties.
3) Require volume equivocation on short sales to prevent "painting the Tape" which is an illegal form of manipulation.

White House
Senator Voinovich
Senator Brown
Congressman LaTourette

Hank Spain