Posted on 07/15/2008 5:13:09 PM PDT by TigerLikesRooster
U.S. SEC Emergency Rule to Curb 'Naked' Short Sales
Reuters
Tuesday, July 15, 2008; 2:40 PM
WASHINGTON - The U.S. Securities and Exchange Commission will issue an emergency rule later Tuesday to stop "naked" short selling in major financial firms, including Fannie Mae and Freddie Mac, the SEC said.
Short sellers borrow shares they consider overvalued and sell them. If the price drops, they repurchase the shares, return them and pocket the difference.
In a naked short sale, the investor sells stock that has not yet been borrowed. Sellers sometimes deliberately fail to deliver securities as part of a scheme to manipulate the stock price.
The emergency rule would require any person making a short sale in the listed securities to borrow the securities before the short sale is effected and deliver the securities on the settlement date.
(Excerpt) Read more at washingtonpost.com ...
Ping!
I thought naked short selling was already illegal.
Drill or get off the Hill. ... call Nancy Pelosi @ 202 - 225 - 0100
SEE POST 5.
Yeah. What I said!
“I thought naked short selling was already illegal.”
That’s what Cramer said this evening(I don’t follow his advice)and added that it’s a problem because the govt won’t enforce the existing laws against naked shorting.
The entire practice of short selling, naked or otherwise, as described in that article, sounds immoral and shady at best, and downright fraudulent at worst.
How can you sell something you “borrow”? Even better, how can you sell something you haven’t even “borrowed” in the first place?
I tell you what, how about some of those traders let me “borrow” their Mercedes SEL..
Short selling is not immoral or wrong in the least... You are obligated to return the borrowed shares at some point in the future,, the shares you are selling are borrowed from someone elses margin account and it is the brokers responsibility to verify that there are sufficient shares available to be borrowed, although they usually defer checking until their compliance officer starts riding the trading desk... as we have seen the brokers have been ignoring the rules for a long time...
/johnny
These hedge funds are snakes. They all deserve to die a harsh death. Likewise for the greedy, over-paid managers, advisers and key personnel. ‘Off with their heads!,’ shout the peanut gallery.
“Note that they are only enforcing to protect their buddies, the investment banks, not the small and mid cap companies that have been killed by this practice for years.”
My thoughts exactly.
You can sell borrowed securities in just the same way you can use borrowed money from the bank. So long as you come up with the securities (or the loan payments) at the agreed-upon times, it's all good. In the short sale, the borrower bets that the share price will go down, while the lender bets that the share price will go up.
Your analogy to the Mercedes SEL automobile doesn't work because cars generally depreciate in value. Securities can go up and down in value.
Now, naked short selling is a bit questionable...I'll agree with you on that.
What a joke. The SEC for two years has denied naked short selling even occurs. Now they are going to tackle the problem. The lies out of Washington are coming hard and fast as they look for scapegoats. All the beaurocrats are starting to cover their ass.
Economist Nouriel Roubini had been complaining about the financial markets for over three years. Greedy sheisters used to laugh at him. No one is laughing now. Instead, they are trying to hide millions (or billions) in overseas bank accounts. But those corrupt banks may fail, too. That is the problem with creating debt crisis. Crooks get often get caught in the avalanche . . .
All those bastards who were launching hacking attacks on me deserve to suffer, too.
Naked short selling is “legal” within parameters. The SEC has provisions that allow naked short selling as long as it is done because the clearing brokerage needs a couple/three days to cover the shares.
The problem is that the SEC has stubbornly refused to enforce the rule that the naked shorts be covered within the time periods that regulations require trades to be covered within, ie, three days. (eg, you buy stock, there isn’t sufficient capital in your account to cover the purchase - your broker will float you for three days, after which they’ll sell your position or charge you margin interest).
The SEC refusal to enforce rules on covering naked shorts has resulted in some absurd situations - small companies where the short interest exceeds the number of shares in circulation.
In the old days, owners of companies would demand delivery of certificates (ie, physical, paper certificates) so that their shares were no longer “held in street name.” When this was done, the short sellers would be forced out of their positions. Since the advent of completely electronic exchanges, this hasn’t worked as well.
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