Newsflash: SEC May Slowly Start to Enforce the Law

From MarketWatch:

The Securities and Exchange Commission said Tuesday that it will try to limit so-called "naked" short selling of shares in Fannie Mae, Freddie Mac and big brokerage firms. The SEC will issue an emergency order stating that all short sales of shares in these companies will be subject to a "pre-borrow" requirement, said Christopher Cox, chairman of the SEC. This will last for 30 days, he said. The SEC is also planning more rule-making focused on short selling in the broader market, Cox said.

 

Is this some sort of joke? Naked short selling is illegal, and for good reason. Short selling involves borrowing shares from holders who are willing to lend them out, selling them, and promising to repay the shares at some point in the future. So called "naked" short selling, or selling shares without actually borrowing them, is illegal because it can result in constant selling pressure due to the sale of more shares than are available for sale.

Now the SEC is saying that "naked" shorting will be illegal for 30 days for certain financial stocks. Seriously? So they are admitting that "naked" shorting is running rampant (a position that has been claimed for years) and they have not been enforcing the law? Add that to the list of reasons why this market could be taking it on the chin. First the SEC eliminated the "up-tick" rule, and now they are allowing "naked" shorting. Shameful...

Comments

[To the point:]

hey don't be so sensible now, okay

2008 Jul 17 05:20 AM

[Truth be da...:]

Thank you for getting real information out on "naked" short selling. Looking at comments from various articles on this topic, it is clear that many people do not understand the difference between short selling (legal) and "naked" short selling (illegal but not enforced by SEC). A simple illustration would be a company with 1000 shares of stock outstanding. If I naked short 2000 shares (have not borrowed shares that really exist), I have artifically expanded the number of shares to 3000. When I go to cover my position by buying 2000 shares, they do not exist!!! How could this not be a problem. It's the same as printing money in your basement, which for some reason, Uncle Sam doesn't like. Naked shorting is a tool for market manipulation and increasing market volatility (which makes money for the big firms at the expense of the small investor).

Shameful is an understatement! This illegal practise must be enforced and prosecuted

2008 Jul 17 09:17 AM

[secmaven:]

Where the hell is Congressional oversight? Our solons have time for committee hearings on everything else, including a baseball pitcher's use or non use of steriods. How about doing something useful for a change, guys?

2008 Jul 17 10:15 AM

[X-terminator:]

We need to thrrow every single legislator out of office. If they are running for re-election simply check the other! That is what I have been doing here in california for many years. But, we the people keep electing the same morons over and over again. We complain but do the same. Stupied!

2008 Jul 17 10:42 AM

[glassbox:]

Short selling (naked or not) is a derivative. Its derived from the willingness of the shareholder to lend you the shares. Many forget this and even argue that its an essential part of the efficient market. Because its a derivative, like all derivatives, regulators must be very clear on the risks involved. Sadly, the current framework (even with this latest move) is just so sadly lacking in protecting the rights of the shareholders. I really hope SEC's investigation would extend into a comprehensive review of the real risks surrounding short selling.

2008 Jul 17 11:07 AM