The reason I don't build positions and hold positions, is, I know if a trader at SAC gets a bug up his ass, I'm toast. This is interesting, and it plays to my theme that Pandora's box is open. Dinallo is talking about a law from the 30's. Word on the Street is, from guys on the inside is, the only way this stops are arrests. Ok with me. Here's the essay: Dinallo on false rumours about insurance companies- Maybe a message in here to Ackman and pals. Tackle false rumours about insurance companies By Eric Dinallo Published: July 31 2008 15:52 | Last updated: July 31 2008 15:52 Rumours that can destroy the stock price of banks and investment banks have been the focus of the media and have now attracted the attention of regulators. But what about rumours that cast doubt on the solvency of insurance companies that are equally important to the New York economy and global capital markets? All financial services companies â banks, investment banks and insurance companies â rely on market confidence. Just as a depository institutionâs continued existence depends on the confidence of depositors, so an insurance companyâs existence depends on the confidence of policyholders. This is why New York State enacted a law in the 1930âs providing for civil and criminal sanctions for spreading false rumours or making statements âuntrue in factâ about an insurance companyâs solvency. This law recognises that insurance companies can be destroyed by false claims that they are insolvent â that is, unable to pay their claims. Because insurers provide long-term promises of protection, falsely attacking an insurance company undermines all those promises and the economic activities that depend on them. Thus, these attacks can produce systemic harm that may extend beyond the policyholders of that company to the economy as a whole. A prime example of the potential for widespread damage is the current case of the bond insurers, which are experiencing problems because of the subprime crisis. These companies guarantee that issuers will pay principal and interest on bonds, including municipal bonds, which are widely held by households and institutions. If the issuer of a bond cannot pay, the bond insurer steps in and pays the holder. Recently, some individuals have asserted that some of the bond insurers are insolvent â a far more serious, far reaching and risky allegation than claims that the insurerâs holding company stock is overvalued. Publicly questioning the solvency of these companies is of a completely different order. If the bond insurers, also known as financial guaranty companies, cannot pay claims, major US commercial and investment banks will likely suffer additional writedowns, the current credit crisis may get worse, and the current economic downturn could become deeper. Also, the cost of borrowing for some state and local governments may increase, resulting in reduced services or higher taxes. This is of particular importance to New York for two reasons. First, New York is home to most of the large commercial and investment banks. Further damage to them will hurt our local economy and runs contrary to Governor David Patersonâs efforts to protect New Yorkâs status as the financial center of the globe. Indeed, the financial sector downturn has already produced serious job-losses and other negative effects on the New York economy. Second, all of the major bond insurers and many other large insurance companies are located in New York State. The New York State Insurance Department has been working with the bond insurers to resolve their problems. Our goal is not to protect managers or stockholders of the these companies, but rather to promote a healthy competitive market, to ensure that bond insurance is available for municipalities that need it to lower borrowing costs, and to protect the policyholders of existing companies. To protect policyholders, we facilitated the injection of more than $7bn into existing bond insurers, licensed new entrants in record time, continue to facilitate additional capital infusions and are preparing for the rational wind-down, that is, run-off, of any impaired companies. We have been successful despite attacks on the stock prices of the insurance holding companies, which have made those tasks more complicated and challenging. Rumour mongering and inaccurately disparaging insurance company solvency, however, crosses a line. Indeed, solvency determination is one of the Insurance Departmentâs most important roles. For insurance, solvency is a regulatory concept that is complicated because premiums and claims are often paid over a long period of time. Insurance has its own system of Statutory Accounting Principles that differs from Generally Accepted Accounting Principles in meaningful and logical ways. Solvency essentially means that an insurance company can pay its claims when they become due. That is a determination generally made only by the regulator based on examinations or confidential insurance company filings. We take all these responsibilities very seriously. But our efforts could be stymied â and policy holders and all New Yorkers irreparably damaged â by false accusations as to an insurerâs solvency and that is why the law does not permit it. The author is superintendent of the New York State Insurance Department http://www.ft.com/cms/s/0/1b447e24-5f10-11dd-91c0-000077b07658.html?nclick_check=1
Naked shorting: Funds up in arms about short-selling ban Euromoney magazine by Helen Avery When the US SEC announced in July that it would impose a 30-day ban on illegal naked shorting in 19 stocks, some hedge funds were up in arms. They had a right to be confused. The proliferation of illegal naked short selling, whereby stocks sold short are deliberately not bought in and delivered within three days, to allow the seller to take advantage of further drops in price, had largely been played down by the SEC. Punishment for failing to deliver within the timeframe has been posting collateral- not a big enough incentive to prevent the practice. The ban implies therefore that the SEC has either misunderstood the damage that illegal naked shorting can inflict and has been inflicting, and suggests that it admits that the practice is rife in the industry. One trader says he is familiar with a large hedge fund manager that has been shorting large financial companies in the past few months with no intention of locating the actual stocks within the three-day period. His argument is that his firm has sufficient clout with the broker for the broker to turn a blind eye. The ban has received criticism from hedge fund industry representatives, fearing it might lead to longer-term regulation restricting short selling as a whole. The Managed Funds Association and Coalition of Private Investment Companies wrote a letter of complaint to the SEC. MFA president and chief executive Richard Baker says his firm believes "the difficulties are the result of poor fundamental conditions and not a mysterious conspiracy, or the inadequacy of current rules related to short selling". Jim Chanos, chairman of the CPIC, argues that restrictions on short sales undermine the integrity of prices because they remove liquidity and healthy sceptism from the marketplace Shorting stock without physical possession of the stock certainly keeps the market liquid but hedge funds' arguments that three days are not sufficient to locate stock and deliver it is only proof that the SEC's failure-to-deliver regulations have been ignored for years. http://www.euromoney.com/Article/19...Funds-up-in-arms-about-short-selling-ban.html
Been a real pain in the ass to short finnies with this going on - I trade short term and my brokers have been requiring a phone call followed by a locate - which often times the trade I'm looking for is gone. So things revert to "normal" come the 12th?
Looking at the press release, it would seem so. In the past, it'd take them 3 months to decide to ask for more comment letters. However, the Feds got a hand in this, and there's a lot going on behind the scenes. My guess is, it's extended to the markets as a whole very quickly. By law, you see, they can't extend the financials more short term protection. But political pressure is telling him to protect them.
This ban ends Wednesday. I haven't opened a trade with a buy in over 430 trading days, and I believe I have seen some trading changes that could be related to this short term ban. We will see how trading develops on Wednesday this week. As a short seller exclusively during the past two years, I have enjoyed the markets response to legislative "band-aids" on trading activity, in addition to the usual FED band-aids on interest rates. The longer term market action generally moves in the same direction as before the fix, and sometimes with an even greater capitulation. I have been paying the fee to play in the past 3 weeks with not a lot of profit, but my disposition is still short. I am interested to see how this pans out.
For you, "Oh yeah. Then Go fuck yourself you crybabies!!!" posters. I reference the above as an intelligent, well thought out and purposeful post. You might want to clip and paste as a study of how to make a point, and a contribution. Fromm the NYPost this morning. Don't say I didn't warn ya. It only gets tougher going forward. Thank you Piggies. . SEC PLOTS PROPOSAL TO DETER SHORT SELLERS By KAJA WHITEHOUSE August 12, 2008 -- The Securities and Exchange Commission is working furiously to unveil a proposal next month that would permanently tighten existing rules for short selling, according to people in talks with the agency. The details of the proposal are still being bandied about, but sources said one possibility the SEC's staff is discussing is expanding the controversial rules put in place last month that require short sellers to borrow shares before they short them. Another option being debated involves imposing fines on people who fail to deliver borrowed shares within the mandatory three-day period, these people said. Last month, the SEC imposed emergency rules requiring anyone who short the stocks of 19 companies, including beleaguered mortgage titans Fannie Mae and Freddie Mac, to borrow shares within a three-day window before they short them. The order, which was intended to shore up markets by preventing so-called "naked" short selling, ends at 11:59 p.m. tonight, and the agency has no plans to extend it. That has caused some to fret that the 19 stocks covered by the order could once again become vulnerable to rapid price declines. And while the SEC's proposal is slated to be unveiled mid-September, it could take months to finalize. "I think there's a little bit of risk in removing the emergency order," said former SEC commissioner Roel Campos, now a partner at law firm Cooley Godward Kronish. "If one of those stocks should run into trouble, I can't help but think the SEC will be criticized for not having done everything it could have done." kaja.whitehouse@nypost.com Home -------------------------------------------------------------------------------- NEW YORK POST is a registered trademark of NYP Holdings, Inc. NYPOST.COM, NYPOSTONLINE.COM, and NEWYORKPOST.COM are trademarks of NYP Holdings, Inc. Copyright 2008 NYP Holdings, Inc. All rights reserved.
http://money.cnn.com/news/newsfeeds/articles/djf500/200808121632DOWJONESDJONLINE000565_FORTUNE5.htm Stricter Short-Sale Rules Seen In Wake Of Emergency Order Dow Jones August 12, 2008: 04:32 PM EST WASHINGTON -(Dow Jones)- Although temporary restrictions on short sales in 19 stocks expire Tuesday, new measures to tighten up short sales in all publicly traded stocks could be in the offing soon. A Securities and Exchange Commission emergency order, which took effect July 21, required short sellers to borrow or make arrangements to borrow shares ahead of short sales in housing-finance giants Fannie Mae (FNM) and Freddie Mac (FRE), and Wall Street firms such as Lehman Brothers Holdings Inc. (LEH), Goldman Sachs Group Inc. (GS) and Merrill Lynch & Co. (MER). SEC Chairman Christopher Cox portrayed the restrictions as a precaution against rumor-driven market turmoil, and the SEC extended the order through Aug. 12. Once the order ends, former SEC Chairman Harvey Pitt, now chief executive of Kalorama Partners, a consulting firm based in Washington, D.C., expects the SEC will move to tackle "clear abuses" involving naked short selling. Short sellers borrow shares to sell, profiting if the price falls and they can replace borrowed shares at a lower price. Naked short sellers do not borrow shares before engaging in short sales, a powerful tool that can be used to pummel stocks. While the SEC has previously cracked down on naked short selling, critics say the effort hasn't been wholly effective, citing long-running failures to deliver some stocks after trades settle. Pitt said he wouldn't be surprised if the SEC proposes a number of different approaches, rather than limit itself to the preborrowing approach mandated by the emergency order. "There are several ways to skin this cat," said Pitt. One option would eliminate an exception for options market makers from requirements to close out delivery failures. The SEC has proposed that several times, arousing strong opposition from options market makers. The public comment period on the proposal closes Wednesday, and a final rule could come soon after, said John Welborn, an economist at Haverford Group, a Utah company owned by Overstock.com Inc. (OSTK) Chief Executive Patrick Byrne, an outspoken critic of short-sale abuses. "The SEC knows it needs to do something and knows it needs to do something quickly," said Welborn. "This is the loophole they drive the truck through." SEC economists estimate that a large number of delivery failures are due to the options market maker exception, and given that evidence, "I don't foresee the option market maker exception continuing in the future," said Julian Rainero, a partner with Bracewell & Giuliani in New York who heads its market regulation and broker-dealer practice. Rainero also expects the SEC to propose a new rule that would toughen short- sale rules for all securities, not just the 19 targeted by the emergency order. "Everything I've heard suggests they're going to tighten up the locate rule," he commented. Current SEC rules call for a reasonable assurance that shares can located for borrowing. Regulators could propose a stricter standard to preborrow shares, or require brokers to get representations from customers affirming they have preborrowed shares before placing a short sale order. Another option would allow brokers to rely on internal databases showing share availability for borrowing. Larry Bergmann, a former SEC attorney and now a special counsel with the law firm Willkie, Farr & Gallagher, in Washington, said a firm preborrowing rule would have the greatest impact on smaller, less liquid securities that may be hard to borrow - and easier to manipulate through naked short selling. Making the switch won't be easy. Brokerage firms that used manual systems and phone calls to comply with the emergency order would need to retool systems if that approach is applied to all stocks, so Bergmann said a three- to six-month phase-in might be needed. Despite such hurdles, Hazem Daouk, an associate professor at Cornell University who has written about short-selling restrictions, favors extending the emergency order marketwide. Daouk said "the risk of manipulation for smaller stocks is real" and could be reduced by stricter short-sale rules. Rainero said delivery failures were "exceedingly low" for the 19 stocks covered by the emergency order, but that many market participants had to lock up shares for intraday trading purposes. "A lot of efficiency was sacrificed," he commented. Since strict preborrowing requirements for short sales are cumbersome, potentially costly and could reduce market liquidity, some want the SEC to focus instead on firming up delivery requirements. David Hirschmann, president of the U.S. Chamber of Commerce's Center for Capital Markets Competitiveness in Washington, likes that idea, provided it carries some teeth. "Some folks have suggested a penalty for failing to deliver might be a smarter option," said Hirschmann. "If you're doing legitimate short sales, you'd never have to pay the fine." The chamber also would like the SEC to adopt a proposed anti-fraud rule for naked short selling, and require expanded disclosure of short positions. But it is less enthusiastic about reinstituting market-based restrictions on short sales when stock prices are falling. After scrapping such "tick test" restrictions, SEC Chairman Cox has said the agency will revisit the need for such limitations. Hirschmann said, "There are a lot of concerns about that approach, and we're still analyzing it." -By Judith Burns, Dow Jones Newswires; 202-862-6692; judith.burns@dowjones.com
I wonder if the S&P futs would trend a bit better and be less 'whippy' if the uptick rule along with short borrowing requirements were put in place. Just a thought.
It seems quite obvious to me that the naked shorters have not too much fear of what the SEC may soon do across the markets, and rather take advantage of windows of "opportunity" to rook people. I believe what happened to financials today is to a significant part a product of naked shorting.