Phil Anthropy

What the SEC Really Accomplished with Its New 'Short-Sell' Rule

There is nothing wrong with short selling. However, one must begin to ask where short selling stops and market manipulation begins. Orderly short selling is simply a bet against a stock, which is just as legitimate as buying a put option. However, if there is a sudden "run" on short sales which drives the price down, this is as suspicious as a sudden run which drives the price up.

The difference is that as prices rise, there is resistance, but as they fall, there is often less of a bottom, particularly in a bad economy. Therefore, non-orderly short selling, which destroys market cap (and therefore credit and business opportunity) in a hurry, must be limited by regulations.

It should come as no surprise to anyone that naked short selling is illegal. The surprise is that there is little or no enforcement, and one must wonder why.

There is nothing that stops brokers from programming their back office computers to match short sales requests with specific shares of that stock in margin accounts in street name. If this is not being done, and if naked shorts and "failures to deliver" are ordinary business practices, then the culprit is a much the SEC as the violators.

The limitation of enforcement protection to the Wall Street financial heavies is a travesty -- among other travesties in various markets which would not have come to pass if our regulators were doing their jobs of enforcement.