Posted on 07/20/2008 3:46:35 PM PDT by shrinkermd
Tuesday’s action in amending Regulation Short Sales HO) listed 19 banks and financial companies for which naked shorting was effectively banned for 30 days. Such a limit was long overdue but why limit the restriction to just 19 companies and just 30 days?
Naked short selling (selling shares short that are not first borrowed, which is required to execute a legal short) is endemic and the SEC has turned a blind eye to it since the agency was created. This recent action is a knee-jerk reaction but a clear example of too little way too late. The question is will they have the stomach to do what it necessary and give all stocks the same naked short protection?
As you can see from the chart below, the ban and rally created one mother of a short squeeze this week with the 17 companies trading on the NYSE rallying nearly 20% in just three days. However, since May 1, 2008 this group is still down 24.8%. (Before this past week’s rocket ride, the group was down 37.2%.)
...We looked at their list of stocks that are fail to delivers [FTDs] (stocks shorted without first having to borrow the same number of shares, which is what you and I have to do before executing a short sale).
At the top of the list is Medis Technologies (MDTL), which has remained on the SEC’s fail to deliver threshold list for 742 days. In other words, it has been the target of naked short attacks and these shorts have not had to deliver shares that they have shorted for a total of 742 days! We counted a total of 244 stocks that have stocks that are classified as fail to delivers in excess of the maximum supposedly allowed by the SEC of 13 days.
(Excerpt) Read more at seekingalpha.com ...
To **really** make this effective (as long as SEC are doing ad hoc regulating instead of substantive and structured regulating...), SEC should prohibit all borrowing of the shares of these 19 financial firms for, say, 5-6 weeks.
The howling would be delicious (and I say this who am long a whole bunch of Lehman Brothers puts...)
Why arent admitted naked short crooks like Cramer in jail?
This would put a quick end to it.
Naked short selling has killed hundreds of small companies, and apparently with the complicity of the SEC.
A highly profitable tool of unethical brokers, naked short sells of company stock often amounted to far more stock than the company even issued. That is, the broker would sell stock he didn’t own, that didn’t even exist. And in doing so, it would drive down the price of the company’s real stock. Eventually, the broker could then buy back the stock he had sold at a high price, but at a much lower price, and make a huge profit.
There was no way a company could stop naked short selling, either.
About the only rule was that a naked short sale had to be made good in 14 days. But brokers figured out they could fool the system by shifting the naked sales back and forth between themselves, every two weeks, thus concealing their crime.
This could be seen in companies driven to bankruptcy by the naked short sells. Even when their stock was worthless, every 14 days, it would be sold between brokers, until millions of shares were worth less than a penny, and nobody cared that they were never delivered.
One company complained to the SEC about it, and was immediately placed under investigation for alleged unrelated violations. And whether or not it was a good company, it was forced into receivership.
The bottom line was that hundreds of small companies were illegally wiped out to boost the bottom line at the major brokerages, and those who were supposed to stop it, refused. This is very bad economic policy, and it severely hurts the economy in the long run.
I guess the SEC only cares about enforcing the law when it effects their buddies at the investment banks.
They're going to enforce laws that have been around for decades for the next 30 days.
Christopher Cox Chairman since 2005
Paul S. Atkins Commissioner since 2002
Kathleen L. Casey Commissioner since 2006
Elisse B. Walter Commissioner since to 2208
Naked short selling is endemic, and I agree that the SEC seems to be encouraging it.
It’s inconceivable to me how this can be happening on such a large scale, and so widely known. Either Bush is complicit, or once again he has fallen asleep at the wheel.
Not mentioned in this article, there has been major naked shorting of junior gold companies, and in some cases the number of outstanding shorts exceeds the number of shares issued by the companies.
And what does the SEC do about this? Nothing, zero, nada.
In fact, they suspended the uptick rule, which means that the shorting will get even worse. VERY peculiar when the markets are on the edge of a cliff like this.
As soon as they started flappin’ their yaps about this, I decided to cover my shorts on some of the regional banks. They’re not on the SEC list just issued, but I reckon that some of this short action has been done via ETF’s, and then they cover, it won’t be just the banks on the SEC list.
I covered ZION too soon...
It certainly does look that way, doesn’t it?
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.