This argument would make a modicum of sense, if they weren't breaking the law to start with. 'Changing the Rules' here means, obeying the 34 Act. This is so bizarre, you have to step back and realize what has happened. They have made the unseemly de riguer. Look at this from an economic standard. A Company goes through an underwriting process, issues a set number of shares. But when it comes to shorting, that number is meaningless. See if you can understand the argument: Published: July 23 2008 03:00 | Last updated: July 23 2008 03:00 From Mr John Welborn. Sir, I read with concern Michael Mackenzieâs piece on the Securities and Exchange Commissionâs emergency action to require a pre-borrow for 19 stocks (âOn Wall St: Let the free market be the judgeâ, FT.com, July 18). As the equity settlement system currently functions, the issue of naked short-selling cannot be resolved by âfree marketsâ. Why not? As all economists know, scarcity is an important component of efficient price discovery. Naked shorting and the failed trades that can result distort supply. In a perfect world, all failed trades in an equity issue would be disclosed daily. But the SEC does not disclose such failures to the public until one fiscal quarter after the settlement date. Furthermore, only a select group of large institutional investors has the ability to naked short and fail to deliver. The information asymmetries that result distort prices and take us away from a true, first-best free market. On March 31 2008, aggregate failures to deliver in US equity markets were $8.5bn, with $6.1bn of that in threshold securities â that is, stocks with a high level of fails. Since the SEC enacted Regulation SHO in early 2005, more than 7,000 unique issues have appeared on threshold lists. In a free society, government has a limited yet vital task to protect citizens from force and fraud. Naked short-selling is fraud. The SEC should extend the emergency order to all issuers and permanently impose a pre-borrow requirement for short sales. Only then, when supply of an issue is fixed, can the free market achieve true price discovery in the stock loan and equity markets. The SEC â or Congress â has a duty to fix our equity settlement institutions once and for all. John Welborn, Economist, The Haverford Group, Park City, UT 84098, US Copyright The Financial Times Limited 2008 "As all economists know, scarcity is an important component of efficient price discovery. Naked shorting and the failed trades that can result distort supply." Pretty basic, isn't it. All you have to do is "settle the trades", and it all goes away. Even HedgeFunds. Because they won't be able to get outsized returns if they have to wait for their shorts to work. BTW, Freddie and Fannie up 6% this morning. Cox has told acquaintences this rule will apply to all stocks (I just hope in my llifetime.) Should that happen, how would you monetize it? You can already see what happens when the law is obeyed.
I don't deal much with stocks anymore so I am wondering.....Back when I did and I wanted to short a stock most often, if it was a company of any size, I simply did. How does it work now? What happens if you just try to send the order?
You get a picture of Patrick Byrne crying about the evil short sellers and your order gets rejected because there is no stock borrow.
Does anyone understand (why) the uptick rule was abolished a year ago? At a time when subprime was unwinding? What was logic behind the timing?
There are academic studies (ie: Owen Lamont) that document stocks with high short interest result in below average returns. It is beyond me why people would "invest in stocks that are on reg sho" or may have a naked short issue. Perhaps these issues attract the same types of investor (DD 101, hello). Bennie Graham book makes a nice door stop. Basically, they ought to issue an emergency order to stay away from equities with warts. Quite the opposite.
Owen Lamont is a shill. So, with this logic, anyone who comes public who doesn't meet Chanos' approval should be whipped. Gee. Wonder why we're losing listings.
What the SEC's restriction managed to do was to increase the cost of allocating the stock, to such an extend that most fully clothed short sellers can't short the stock anymore. The guy's who had FTD's before the SEC"s measure, still have FTD's. While the day traders [who cannot fail to deliver as they are flat by EOD] are no longer able to short the stocks... The SEC should just enforce delivery/buy in's for all FTD's... that way Bush & friends would have their bull market... ! [or a huge death spike...]
How can the SECs actions be legal? Who regulates the regulators in the US? Surely by creating a regulatory short squeeze in an arbitrary list of stocks, they have created an unfair market. Isn't that contrary to their mandate? I can't see that the SEC would have gone down the route of openly manipulating the market if enforcment of existing regulations would have done the job. I can only conclude that stopping naked shorts in these stocks wouldn't have had any effect and the administration needed to squeeze legitimate shorts out in order to prop up the share price of the ailing banks.
Gee. How did Overstock get back on the SHO list. Let's see. bear raid Friday, 4.2mm shares, huge put volume, a STIFEL downgrade............ MMMMMM Friday, Monday, Tuesday, Settlement would have been yesterday.... Uh, T+3, and what happens the day after settlement. Sure. This is fair. Cox oughta be shot. Today he says he's going to enforce the law on the hole market. How many years of fraud? How many companies, jobs.........???