In an email to the chairperson and comissioners of the Securities & Exchange Commission (SEC), on Wednesday an un-named investor has cried foul over the new T+5 credit rules saying it’s unfair for investors to change the rules overnight.
The letter said:
“Investors should be given at least six months’ notice. Why? The law-abiding true investor buys and sells shares by taking decisions following the current rules. The rule changes should not affect the past. If the SEC says credit should be cleared next month or in the next five days the investor will sell the shares within this month or week adhering to your rule. If you change the rule in the middle of the month after the investor sells his shares you have deliberately made the investor lose money. You have forced the investor to sell the shares with a loss. If the investor kept his shares he could have made a profit when you have changed the rules.
This is a violation of the fundamental rights of the law-abiding citizen. You cannot force a person to sell his ring he’s wearing at half the real price or the full price without his consent, without a reason. You cannot say I changed my mind one hour later. You have to repay the investor’s realized loss and the unrealized profit because your change of mind had cost him.
| Further relief for brokers |
The SEC on Thursday announced further relief in respect of the time granted to stock brokers to clear their remaining 50% of the debtor balance as follows: 25% of the above remaining debtors over T+3 days to be cleared by 30th September 2011; and the balance 25% to be cleared by 31st December 2011.
On this statement, the investor in an additional email to the regulator, said:
”What about the investors who sold their shares at a loss following the SEC laws. Is the SEC going to refund their losses too? The SEC told us to sell the shares before December 31 and we sold them at a loss.
Then they said the deadline is extended till June. Now you say it's extended again. What about the people who have sold their shares following the old and older laws last week, last month, last year. Isn’t this injustice? Are brokers and big sharks only the people the SEC cares about? The SEC changes the laws again and again, and again. This is downright stealing our money. Where is the justice? Where is the law?” |
E.g. - The investor buys ABC shares at 100 on November 1; SEC imposes the rule on November 10 to clear the credit by December 31.
The law-abiding intelligent investor calculates that the share price should go down more than 2.5% because of the realistic reason of executing the SEC rule where people have to force-sell shares. The investor hopes to buy the shares after the share price goes down so that he can recover the loss.
Stock prices go down rapidly. The investor sells the shares at the best current market price at 60 and makes a loss of 40% on November 25. The investor does not wait until the December 31 deadline because it will go down further.
High networth investors and institutions lose money. They request SEC to extend the credit clearing period through brokers who are losing commission through low turnover. SEC agrees to change the rule at a private meeting. Remember all the meeting decisions as well as company announcements and reports get leaked to high networth investors and brokers. They use the insider information in their buy and sell decisions.
The law abiding citizen takes the decisions solely on the published reports and the imposed SEC rules he or she sees.
SEC changes the rule on November 30 evening by extending the credit clearing date to June 30. The share prices go up again to 100 and settle at 80 and remains at that level. If the law-abiding investor kept his shares he could have sold at a minimum 80 with a loss of only 20% compared 40% real loss. But the investor had to sell them at 60 because the SEC imposed the rule on November saying that credit will be cleared on December 31. But then SEC changed the rule later.
So you cannot change the rules overnight. Stop changing any rules now. Stick to your decisions right or wrong. Give at least six months’ notice for any further changes of rules. Law-abiding citizens follow the existing laws when making decisions. T+5 or price bands or whatever.
The investors who made losses because of the sudden changes in the rules have the right to sue the SEC to recover the realized loss and the unrealized profit by filing a case in the Supreme Court for deliberately forcing the investor to sell the investment at a low value violating the investors’ fundamental rights. Unfortunately justice is not free. You have to pay lots of money to get justice. And the law abiding citizens don't have that luxury although high networth traders, working on inside tips, and the ones you're protecting have that. God bless the law-abiding investors. |
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