James L. Jensen Comment On Regulatory Notice 21-19

All short positions, including naked short positions created as part of bona fide market making activities, should be created on a lit exchange and reported in their entirety. The term "bona fide market making activity" should be defined by the regulator very specifically. The purpose of creating a naked short position in market making is to give an IOU for that share, and then to IMMEDIATELY search for and secure a real share to deliver to the buyer who paid the market maker for it, believing in good faith that they now hold in their account what they gave money for. Failing to deliver is NOT bona fide market making. A market maker who believes he will NOT be able to secure a real share for his client immediately is not creating that naked short position in good faith and is NOT performing a bona fide market making activity. In this instance, the market maker should acknowledge that the share requested for purchase is very difficult to find and should not sell it by creating a naked short position. Penalties for perpetuating failures to deliver need to be sufficient to dissuade the activity, and should include prison (as this activity is extremely harmful to other persons) and fines proportionate to the price of the transaction of at least a 1:1 ratio.