SEC Shorting Restrictions: Are Some Banks Being Set Up?

While pondering SEC Restricts Shorting 19 Financial Stocks I could not help but notice the financial institutions conspicuously absent from the ruling.

With that in mind let's recap the list of shorting curbs placed by the SEC.

Shorting Curbs

BNP Paribas Securities Corp (BNPQY.PK)
Bank of America Corp (BAC)
Barclays PLC (BCS)
Citigroup Inc (C)
Credit Suisse Group (CS)
Daiwa Securities Group Inc (DSECY)
Deutsche Bank Group AG (DB)
Allianz SE (AZ)
Goldman Sachs Group Inc (GS)
Royal Bank ADS (RBS)
HSBC Holdings Plc ADS (HBC)
JPMorgan Chase & Co (JPM)
Lehman Brothers Holdings Inc (LEH)
Merrill Lynch & Co Inc (MER)
Mizuho Financial Group Inc
Morgan Stanley (MS)
UBS AG (UBS)
Freddie Mac (FRE)
Fannie Mae (FNM)

Who Is Missing?

Where is Washington Mutual (WM)? Wachovia (WB)? Were they tossed to the dogs?

What about Corus Bank (CORS), Bank United (BKUNA), National City Corporation (NCC)?

It is beyond all belief that naked short selling is affecting Goldman Sachs more than Washington Mutual, Wachovia, Corus Bank, Bank United, and National City Corporation.

Is this a hint of the banks and brokers the Fed and SEC want to protect at all costs? Or is this some kind of setup play, an open invitation to short the others before the same stunt is pulled again.

The only problem I have with the latter kind of thinking is that it gives these bureaucrats credit for thinking and executing a plan. Of course whatever it is they are doing is going to blow sky high anyway because that is the nature of all such market manipulations.

Comments

[User 227727:]

Finally the SEC realized the destructive nature of speculative naked short selling (= self-fulfilling prophecy?)
Better late than never.
When will other agencies apply similar braking to oil and other commodity trading? Why have they sat on their hands so far? Is it due to the 'influence' of the trading 'mafia'?

2008 Jul 17 01:05 PM

[muley101:]

Thanks for this article. Now I know why my usual day trading strategy for WM was not working today. They were not moving with the rest of the pack as indicated by the RKH and XLF ETFs.

2008 Jul 17 04:39 PM

[morgan77:]

How will the earnings report affect the financials on Monday?
www.greenfaucet.com/tr...

2008 Jul 17 04:57 PM

[Kinabalu:]

"Who is missing?"

This is a typical SEC use of "moral suasion" rather than attacking a problem with prosecutorial zeal. The big financial institutions aren't where the problem short sellers are making their money. Those institutions have way too much float for the common short seller to move the market significantly. The big institutions just have more friends in high places to listen to their complaints and rationalizations about their stock prices.

The real problem is with the smaller financial institutions. Anyone with a short position can come on Seeking Alpha and publish an article replete with factual errors and poor research and find a big enough following to make a dent in the smaller institutions stock price. If the SEC would quit telling everyone they don't have enough manpower to police naked shorts and just do it they could eliminate most of the problem. A substantial portion of the stock shorted today is either naked or the same shares borrowed two or three times over.

Please note: Selling short by itself is not the problem. The problem is: 1) the people who propagate false information and rumors in order to profit from short sales; 2) selling short stock without having legitimately borrowed it first; and 3) investors who are long a stock held in a broker name need to realize that its not in their best interest to allow the broker to lend that stock to short sellers.

2008 Jul 17 06:00 PM

[fxtrader07:]

As I pointed out elsewhere after that weird SEC-announcement: naked shorts ON Goldman get banned - but naked shorts BY Goldman do not.
This is by far the most stunning display of financial apartheid ever displayed by the sec. they should abolish that institution alltogether as it is only catering to wallstreet's needs anyway.

2008 Jul 18 06:05 AM

[Prudent Man...:]

What is interesting is that ten of the nineteen or 53% are Foreign Banks!

Then you have the GSE's so actually 60% of the Commercial Banks protected by The SEC are controlled Foreign Bank shareholders.

How blatantly bias can the SEC be? If they did their job for the past ten years instead of being controlled by the "Street", which actually they always have been but not so blatantly, none of this would be necessary.

For your readers who are not aware of this, the Federal Reserve Board does not examine banks. The Comptroller of the Currency (Treasury), FDIC (which is a government corporation financed by bank insurance premiums, and the various state regulators. So when you see the media and politicians complaining about the Fed's audit of banks (banks do have "independent" auditors, which is a farce) they patently do not know of what they speak.

2008 Jul 18 09:19 AM

[tipalia:]

financials institutions do not want you to make money period. their buy signals means please buy it because we have lots of it and we would like to make sure than we meet expectations this quarter and their sell signals mean we just started to short these stocks. if you follow their advice they may sent you a nice bottle of scotch,funny that people still listen to their recommendations and act on it. a sucker is borned every second is so true

2008 Jul 18 09:33 AM

[jerrystroud:]

Thje advice has alway been "buy low, sell high" but these analyst had strong buys when bank stocks were at $60 and now that they bottomed out at $6, they issued strong sells. At the same time, you see buy orders from someone for a million shares at a time. Obviously my old aunt Mable? Couldn't possibly be these hugh institutions accumulating.

2008 Jul 23 08:31 AM