What should the sec do? Should the uptick be reinstated, an enhanced uptick, where it has tobe + for a minute before anybody could short, circuit breaker approach, where the stock has to fall 25 percent before you can short, or is there an alternative you would prefer http://www.forbes.com/2009/06/04/naked-short-selling-business-wall-street-sec.html
No. All they need to do is stop naked shorting. The stock to be shorted should be borrowed before you short, not deliver within 3 days. It should be same day delivery, or there should be a substantial financial penalty immediately incurred. I'd prefer they make shorting where there is a failure to deliver fraud. There is a problem only because we now have an imbalance of consequences. If the penalty was steep enough, the naked shorting would stop.
I think that's a "Chit Chat" topic. http://www.instantrimshot.com But seriously folks........ A "hard borrow" is, you locate and pay for you 1000 shares of xyz. No one else can borrow those shares. They are yours for the day. Even if you don't pull the trigger. They can be sold only once. As it is now, you call stock locate, borrow 100,000 Frpt. Then I call, they lend it me, and nutmeg, and Reardon, and 777, and so on. Wink wink nod nod. The same 100 is loaned 100 times. Parcel that in with fake news, Stock Lemon, Arsensio, class action attorneys, fake research, you end up with what we had in September. And that has the lawmakers nervous. This time, they pay the price.
Or maybe you have idiotic companies who made idiotic overleveraged bets and deserve to be out of business.
Perhaps. But for every Enron Chanos found, how many legit companies did he put out of business? And if he's so righteous, why did he email reporters and analysts and set up Fairfax? What if your neighbor thinks your an asshole? He might be right. But what if pulls out an automatic, and comes over to express his opinion? You need an ethics class - badly.
Circuit Breakers are useless and sophisticated manipulators will find ways around them. Circuit breakers automatically accept a certain degree of abuse before they even kick in. The Hard Borrow - no shorting until posession is in hand - is clearly the easiest to impose and the best for regulators auditing problems. The hard borrow would automatically reduce the level of FTD's in teh system and therefore allow regulators to focus in on the remaining to determine whether there was legitimacy for that FTD. The hard borrow would also reduce the number of mismarked trades as there would be no confusion on whether this was a short or not. Clearly the SEC is ill-equipped to audit and detect fraud so why not make it easier for them instead of more difficult. Hard Close after a fail first accepts fails and then forces auditors to review each FTD to determine whether the hard close was enforced. Hard Borrow makes it exacting.
Take two steps back, and survey the landscape. It's all the reality check you need. Then, factor in Chanos and the "Managed Fund Association" don't want any rule changes. They think everything is fine. I guess they won't be happy until America looks like Dresden circa 1944. No, I don't need a reality check. I need fair markets for everybody. We're in the soup for quite a while. As the Democrats say, "don't waste a good crisis." At least, let's emerge with something of value.