Chris Cox Earns His Pay as SEC Chair

Chris Cox today earned his pay as SEC chairman -- proving that he is exceeded only by his predecessor from the 1990s, Arthur Levitt, at making grand gestures that actually mean little.

Today he told the Senate Banking Committee that he is instituting a "pre-borrow" requirement for short-selling Fannie Mae and Freddie Mac. The Wall Street Journal says this afternoon that this "will likely limit short-selling for the two mortgage entities." I beg to differ.

No, what it will do is limit naked short selling of the securities -- and, as Bob Pisani points out today, there's no evidence that this great phantom menace is actually taking place in the mortgage stocks.

The SEC is imposing a "pre-borrow" requirement. What that does, as described (in a different context) in a famously indifferent SEC rulemaking called Regulation SHO, is bar short sales "without borrowing, or entering into a bona-fide arrangement to borrow [the shares]. . ."

Since shorts already have to borrow or arrange to borrow shares before shorting, this doesn't do much of anything.

The market greeted Cox's bright idea by pushing down the prices of Fannie and Freddie stocks 27%.

CNBC today asked me to appear today on the air to discuss this totally useless bit of rulemaking. I declined. My feeling is, why contribute to what is plainly a publicity stunt?

UPDATE: The SEC issued at day's end an "emergency order" and made it effective June 21 (must be one heck of an"emergency"). The order extends to all "substantial financial firms." I guess insubstantial financial firms, or substantial non-financial firms, are not worthy of inclusion in this meaningless gesture.

As Joe Nocera puts it, "this is about chasing bogeymen, not getting to the root of any real problem."

Comments

[LateMesozoic]

C'mon, The order will be in effect for a WHOLE WEEK. That's certainly enough time to clear out all those nasty, naked short selling scallywags!

[fxtrader07]

oh my, you are the guy who kept telling every day that naked shorting didn't even exist? you have been bashing and attacking Mr Byrne from overstock all the time who demonstrated time and again the huge and growing amount of illegal naked shorting?
Of course, you refused to participate in CNBC (which was a wise decision on yopu part) simply because you didn't like to get embarassed in public for your continuous denial of the existence of naked shorting.

And true, Mr cox earns his pay - by wallstreet. all of a sudden an already illegal practise gets banned - but just for a limited period of time and for a few selected wall street darlings and wallstreet firms. what a joke. one could well argue the sec is banning naked shorting of naked shorters... while still looking the other way for all other companies that fall victim to your naked shorting friends...

[fxtrader07]

the truth about naked shorting: deepcapture.com

with highly informatiove and interesting documentations regarding the role of Gary Weiss in perpetuing the sam and attacking anyone who tries to tell the truth about it

[wpdragon]

Yesterday's announcement was a disgrace. The SEC has been looking the other way for many years while countless thousands and thousands of small investors got badly hurt by naked shorting... but now, suddenly, the institutions and the governments private bankers are getting hurt and here comes the SEC riding to the rescue. If and when the crisis is over it'll be business as usual and the targets will be on the little guy's back and Mr Cox will be the Invisible Man once again.