For those wondering how the SEC's crackdown on naked short selling has worked, the answer so far is pretty good. One of the tenets of the new rules was that brokers would be forced to close out trades where a counterparty failed to deliver securities on time. Based on this plan, we sent out a list to our Bespoke Premium subscribers highlighting the stocks in the S&P 1500 that have been on the Regulation SHO list of fails to deliver for at least 100 days. As shown by the list provided below, these stocks have averaged a return of over 6% since the time of the announcement. Over that same period, the S&P 500 declined by 3.3%.
No one can argue that the SEC deserves every bit of criticism for fiddling while Wall Street burned. However, it appears as though their recent actions, while not addressing the main issues that needed to be addressed, have had at least some impact. On short selling in general, we believe that it is fine to short a stock if you think a company will likely go out of business. What's not okay is to short something in order to make it go out of business.
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