The SEC is going to bat for their buddies, using the old 'illiquid market' ruse. Nice, huh? You guys are all pieces of shit and don't matter. You deserve to be stepped on. You're just fodder in the eyes of the SEC. http://www.bloomberg.com/apps/news?pid=20601087&sid=a6vYdD7V5sB4&refer=home SEC Poised to Exempt Market-Makers From `Naked-Short' Sale Ban By Jesse Westbrook and Edgar Ortega July 18 (Bloomberg) -- The U.S. Securities and Exchange Commission is poised to exempt market makers in stocks from an emergency rule aimed at preventing manipulation in shares of Fannie Mae, Freddie Mac and 17 Wall Street firms. The agency's staff, after conference calls to discuss the rule that limits the ability of traders to use abusive tactics when betting on a drop in share prices, agreed to requests by exchanges and brokerages to modify the terms. Exchange officials had told regulators that without an exemption, market makers responsible for pairing off investor orders will struggle to keep transactions flowing and may raise costs for investors. ``The staff is recommending exceptions to the short-sale order for market makers of the 19 stocks and their derivatives from arranging to borrow in advance for short sales in their market-making and related hedging activities, to avoid constraining the market makers' provision of liquidity,'' SEC spokesman John Nester said in an e-mail from Washington. The full commission may vote as soon as today. SEC Commissioner Christopher Cox, who announced the order July 15, is seeking to make it harder for traders to illegally drive down stocks of the two mortgage buyers and Wall Street firms and prevent another collapse like Bear Stearns Cos. The rule takes effect July 21. Investors will be required to borrow stock that they plan to sell short as a bet on a decline in prices. Prior to the order, which applies to shares of Fannie Mae, Freddie Mac and 17 brokerages, investors were only required to locate shares that they had reason to believe were available for borrowing. Options Exchanges Options exchanges asked the SEC to ease the restriction for market makers, who rely on quickly shorting stocks to hedge their trades, said three people familiar with the matter who declined to be identified. Market makers must quote bids to buy and offers to sell contacts on their assigned stocks. ``Without a market-maker exemption, I could see this having a profoundly negative impact on the liquidity that would be provided in stock and derivatives,'' said Steve Sosnick, an equity risk manager in Greenwich, Connecticut, for Timber Hill LLC, one of the largest options market makers in the U.S. ``The SEC has to be very careful not to craft a rule that has undesirable impacts on liquidity in various sectors of the marketplace.'' In a short sale, an investor borrows and then sells the shares in anticipation of a price decline. If the trade works as planned, the investor is able to buy back the stock at a lower cost and return the shares to the lender, pocketing the difference as profit. `Naked' Short Sales Traders are sometimes unable to actually borrow the shares and complete a ``naked short-sale.'' If the loaned shares are never repaid, investors can sell more shares short than legally allowed and put pressure on a stocks' price. Freddie Mac and Fannie Mae shares, the two largest mortgage lenders in the U.S., and Lehman Brothers Holdings Inc., the No. 4 securities firm, have lost more than 70 percent of their market value this year. Citigroup Inc., the largest bank by assets, has lost 43 percent; Merrill Lynch & Co., the No. 3 securities firm by market value, has lost 39 percent. ``They are certainly on the political hot seat, but this is their response and you have to give them the benefit of the doubt for the time being,'' Bill Brodsky, chairman of the Chicago Board Options Exchange, the largest U.S. options market, said in an interview July 16. ``I'm hopeful that it won't be that bad. Right now it's limited both on scope and timeframe and we'll continue to work with the SEC.'' Costs Rise Options market makers engage in short selling to reduce the risk they assume when pairing off customer orders. Forcing them to pre-borrow the shorted shares could make it harder for them to trade, making it more expensive for investors, said Peter Bottini, a former CBOE market maker. ``The cost for customers to trade these products could go up dramatically,'' said Bottini, who is now executive vice president of Chicago-based online brokerage OptionsXpress Holdings Inc. ``Our customers are going to have a tougher time taking a bearish stance in these companies.''
Of course I do. Does it say anywhere that the SEC is barring market makers from shorting the specified equities naked, themselves, through their trading arms? No. Let the SEC go one step further and simply announce that, which is conspicuously absent from their statement and apparent proposed regulation. "The agency's staff, after conference calls to discuss the rule that limits the ability of traders to use abusive tactics when betting on a drop in share prices, agreed to requests by exchanges and brokerages to modify the terms. Exchange officials had told regulators that without an exemption, market makers responsible for pairing off investor orders will struggle to keep transactions flowing and may raise costs for investors. .... Options exchanges asked the SEC to ease the restriction for market makers, who rely on quickly shorting stocks to hedge their trades, said three people familiar with the matter who declined to be identified. Market makers must quote bids to buy and offers to sell contacts on their assigned stocks." So their noble purpose is to keep costs down for investors?
Dude, they are referring to option market makers. If a MM buys 1000 ATM calls, he needs to be able to sell 5k shares of stock to hedge his position. I don't understand what your beef is. You think any MM will make a market in call options if he can't hedge his position? Are you insane?
Before I respond further, let me ask you one simple question? Why was this restriction put into place on only 19 securities? Edit - Two questions. Is, say, Goldman Sachs a MM (rhetorical, I know)?
IT's NOT!!!!! It's illegal to naked short sale on ALL SECURITIES!!! Those 19 are getting close scrutiny because they believe those particular stocks were specifically targeted with the illegal naked short sales. It's about time the damn SEC starts enforcing this rule. That is where the outrage should be. They let clearing firms for years allow hedge funds to pay them off for commision business so they could drive down stock prices. That is what should piss you off. Get your priorities straight.
Naked short selling is NOT illegal. The SEC must be able to prove it's being done with the specific intent of driving down the share valuation of a particular company. Do you know what a nearly impossible task that is? Trying to decipher intent to drive down share price from a belief that the share price should fall? You really believe that Regulation SHO is preventing naked short selling en masse? Can you list one conviction - a single one - of anyone charged with 'illegal' naked short selling? You want to know what's real problem? FTDs. The SEC is a fraud. They pretend to care about naked short selling, enact 'talk' to appear to have the desire to stop it, while knowing the standard of proof they've set themselves is impossible to meet (having to prove naked short selling was done with the specific intent to drive share prices lower, rather than to profit from the belief that the share were bound to fall), and they do NOTHING about FTDs.
Naked short selling is illegal if you can't locate the shares within 3 days. The 3 day rule was the gray area. Hedge funds would sell the stock short in size, knowing there is no stock available, then bid the stock back inside the 3 day window and re-sell the stock again. Rinse and repeat...rinse and repeat. However, after 3 days, if they are still holding the short shares and they can't get a locate, the clearing firm BY LAW is required to buy them in. Well, the clearing firms were in cahoots with the hedge funds as they looked the other way and let the shares stay short. Yes, this practice is 100% illegal.
Maverick, c'mon. You can't be serious. I know there's no way that actually believe what you just wrote. http://www.sec.gov/spotlight/keyregshoissues.htm "Naked short selling is not necessarily a violation of the federal securities laws or the Commission's rules. Indeed, in certain circumstances, naked short selling contributes to market liquidity." All the SEC did with the passage of Regulation SHO is provide a clear cut list (The Threshold Security List) for those looking to jump on the bandwagon, and short the most vulnerable shares.
Just a quick Google search to back up what I'm saying about MMs BENEFITING from naked short selling: - from a Financial Times article TONIGHT: http://www.ft.com/cms/s/0/8919240e-543e-11dd-aa78-000077b07658.html?nclick_check=1 Shorting âmakes billionsâ for fund managers By Deborah Brewster in London Published: July 17 2008 22:16 | Last updated: July 17 2008 22:16 Even as short-sellers attract blame for driving big falls in financial stocks, financial services firms â including those targeted by short-sellers â are profiting from the investing strategy. US prime brokerage firms, most of which are owned by big Wall St banks, will reap revenue of $11bn (£5.5bn) this year, according to a recent study by Tabb Group, a research business. Prime brokerage units provide services to hedge funds. They do not reveal their financial results, but executives who work for the units say they make most of their money from lending to short-sellers.