SEC to Address Naked Shorts

Well it's taken catastrophe and carnage across Wall Street but maybe, just maybe the SEC plans on doing it's job. There appear to be plans to strengthen action against naked short selling - sadly there are already regulations against this on the books but they appear to be so loose and very few respect it. There are entire lists of stocks on each exchange filled with stocks that are targets of this ploy, but nothing is done about it. We'll see if there is any teeth to this new plan - but without regulation rules are meaningless.

Again, short selling is fine, dandy and fair. Naked short selling is supposed to be against the rules, but on Wall Street the rules are bent often. Only when it appears to bring down the system do "regulators" wake up.

• U.S. securities regulators plan to take action on abusive short selling of stock before the end of the week, a source briefed on the matter said on Monday.
• The Securities and Exchange Commission will likely adopt proposals to strengthen its short-selling rule, including one that deems it fraudulent for customers to deceive broker-dealers about their intention or ability to deliver securities in time for settlement.
• The SEC will also move forward with a plan that would shorten the time in which traders must buy back stock if they fail to deliver a security by the settlement date.
• A "naked" short sale occurs when an investor sells stock that has not yet been borrowed. Broker-dealers will sometimes accidentally fail to deliver stock to investors who have arranged to borrow it. If this is done intentionally, it is illegal. (it's amazing how many "accidents" happen on a daily basis over millions of shares)

WSJ take

• Securities and Exchange Commission Christopher Cox assured Wall Street chiefs amid a series of frantic weekend meetings over the fate of Lehman Brother Holdings Inc. that the SEC would institute protections soon, this person said.
• The SEC is expected to move up the timeline for finalizing two rules as soon as this week, up from late September. The rules, which require the approval of the SEC commission would stiffen requirements on certain players involved in short-sales and make it illegal for a trader to mislead his broker about locating stock to short and then failing to deliver it within three business days, this person said.
• The idea behind the rules is to rein in traders who borrow stock to short and then are late or never return it. Market participants say that can have a cascading effect on a company's stock.
• Many traders want the SEC to institute a rule that allows traders to short only on an uptick in the stock's price. The SEC removed that rule recently and traders blame it for recent volatility and record levels of shorting.

Again, if you are just a no name small cap stock who is being relentlessly naked short sold in this market - we don't care. But if you are a financial, you have the ear of every government official in D.C. - when you are targeted the same way.... then it matters. But even then, only after much of the damage has been done. The government at it's normal finest.

Comments

[john s. gordon:]

action against naked shorting cannot occur a moment too soon.
> jack

2008 Sep 16 08:11 AM

[Clavis:]

In principle, shorting is immoral, naked shorting is beyond the unmentionable.
Whatever the commodity, no company deserves these negative leveraged tools to knock back their positive creative potential.
'Many traders want the SEC to institute a rule that allows traders to short only on an uptick in the stock's price. The SEC removed that rule recently and traders blame it for recent volatility and record levels of shorting.'
Sharpen up SEC.

2008 Sep 16 08:14 AM

[eddie6442:]

What needs to be answered is
*WHY WAS THE UPTICK RULE ELIMINATED?
*WHO REQUESTED CHANGE? WHO BENEFITTED?
*WHY WAS BORROWING SHARES BEFORE CONFIRMATION CHANGED TO 3 DAYS? ALLOWED FOREVER?
*WHY IS THERE AN "SHO" REPORT?????????
*WHO IS ON THE "SHO" REPORT? HOW MANY MILLIONS OF PHANTOM SHARES EXIST BECAUSE OF NAKED SHORTS?
*IS THIS THE NEXT BIG SCANDAL WHICH BRINGS DOWN WALL STREET TRUST?
* WHY ARE ILLEGAL TRANSACTIONS ALLOWED BY SEC???????
* WHO IN CONGRESS CHAMPIONED THE CHANGES?
Many American investors have been descimated in their holdings. We have a right to know WHY?

2008 Sep 16 08:44 AM

[david roper:]

Clavis, I have to agree with you. Who in the hell dreamed up the scheme that we could sell each other's stocks by borrowing them for a few days or weeks? Hey, I wanna sell your house... with you living in it. Don't worry, I'll buy it back when the neighborhood is gone. Isn't that the same thing?

2008 Sep 16 09:14 AM

[Jimbo:]

I am a political conservative, but when Glass-Steagal was repealed, I questioned the wisdom of this. I believe naked shorting is a CRIMINAL offense and should be a felony with jail time.Brokers should also be required to get a notarized document from a stock owner before being allowed to "loan" a stock. Lacking this, brokers should do jail time as well.

2008 Sep 16 09:33 AM

[daytrading:]

If you trade stocks you dont want the uptick rule, if you invest which most people do and which means holding more times than not, you want the uptick rule.

2008 Sep 16 12:25 PM

[maeve3333:]

Jimbo;I believe the GS act was repealed in the late 1980's.I recall thinking at the time what you just wrote.How can a bank that is federally insured be allowed to take inordinate risk.It is an invitation for disaster and it is as plain as the nose on your face.It is so dumb and so obvious that it makes you question the IQ of our legislators and agency heads..The S&L fiasco.Greenspan and his no doc.,no regulation mortgage loans.Our country not having a sophisticated energy plan.Instead we ship our national wealth overseas as our country goes down the drain .I have come to the conclusion that we have to have term limits and get rid of the professional pols.Go get a real job.Also put a cap on campaign contributions.Make it very low.Give people who want to serve a few radio and tv stations,websites.You serve for a short time,not beholden to your campaign contributiors.

2008 Sep 16 05:43 PM

[HBWOW:]

Oil price manipulation, naked short selling, executive/director option back dating and non arm's length options granting, fat cat executive bail outs and severence packages (yes, even for poor performers), horrific market volatility, - - the average investor does not have a chance. And SEC, the FED, and Congress of little, too late help. YES, THE RICH GET RICHER AND THE MIDDLE CLASS LOSES.

2008 Sep 16 06:51 PM

[paul:]

We need the uptick rule put into effect with enforcement. We need the Glass-Steagle act renewed with a wall between the Investment side of the house and the banking side with separate book keeping. We need to ban naked short selling with penalties.

2008 Sep 18 04:53 PM