The SEC's Campaign Against Short Sellers

Chairman Christopher Cox of the Security and Exchange Commission announced yesterday that the SEC will propose new rules which would be focused on restricting naked short selling and market manipulation. 

Chairman Cox told reporters in Washington that:

Our proposals will be designed to ensure the smooth functioning of markets and to support equally the important role of bets on the upside and the downside.

Previously, the SEC announced temporary measures to limit short selling on Freddie Mac (FRE), Fannie Mae (FMN), and 19 brokerage firms which expired one week ago yesterday on August 12.  During the four week period when the emergency ban was in place, the 19 financials gained 26%.  Since the temporary rules have expired the S&P 500 Financial Sector Index is down 10.8% and is down nearly 50% from its high in February of 2007. 

Chairman Cox stated that the SEC was examining the effects of requiring traders to actually arrange to borrow stock shares before selling them short.  The SEC is expected to announce new rules which will be aimed at curtailing naked short selling in all companies, not just the previously affected 19 companies. 

Disclosure: none

Comments

[neeb??:]

See the Fed get into a panic themselves. Does this mean that any legit short has to go through some hoops first? Or --a la Pravda of USSR fame--- the only legit forms will be those that pump it up for Mr Brown?

2008 Aug 20 08:53 AM

[mariposa:]

Thought was already prohibited??

2008 Aug 20 08:56 AM

[JJTERRITO:]

Naked short selling should be banned or require more transparency.The idea that unlimited funds can be used to drive the markets is unethical.Short sellers of greater than a small percentage of the float should be required to report their intentions prior to taking action.Naked short selling does not help the small investor.

2008 Aug 20 09:29 AM

[timfogl:]

Naked Short Sellers should be required to run Naked thru the streets Selling Shorts in Siberia.

2008 Aug 20 10:45 AM

[mangum:]

You know, either Christopher Cox is extremely, but extremely slow mentally or the naked shorts have him in their pocket. I'm guessing it's both. Honestly (whatever that is!), how can such a high-ranking official be so totally dense?

2008 Aug 20 12:20 PM

[sourceview:]

We are in full agreement with the SEC, should it block all naked shorting, including commodities.

2008 Aug 20 01:02 PM

[mdmrjsds:]

Naked short selling is fraud. The seller is misrepresenting themselves to the buyer. At the very least, they should have to inform the buyer that they are buying a promise, not the actual good, and the money shouldn't exchange until the actual good is proffered.

But the truth is, as sourceview says, this should be banned in all markets, including commodities. And please, let's have some teeth in the penalties.

2008 Aug 20 01:26 PM

[peytopolo:]

Naked shorting, not covered by borrowed shares is illegal. The Securities act of 1933 makes it illegal to sell shares not registered with the exchange. If they are not borrowed they are illegal. The SEC has been complicite in an illegal act for some time now.

2008 Aug 22 11:55 AM