SEC Extends Short-Selling Rules (But Only to 12 Aug 08)

The Securities and Exchange Commission voted to extend the temporary rules it put in place to restrict short-selling of a handful of financial stocks.

The SEC commissioners didn't take additional steps opposed by Wall Street to expand the number of stocks affected by the rules or make them permanent.

The temporary rules were set to expire Tuesday, and the SEC extended the order on the 19 stocks until Aug. 12. It won't be extended beyond then.

In a short sale, a trader sells borrowed stock in a bet the price will decline and the stock can be profitably repurchased at a lower price. The new rules require specific arrangements to borrow shares in short sales rather than the existing rules, which allow a looser assurance the shares can be located.

So far, the rules have had mixed results. Shares of the 19 financial firms targeted by the SEC soared after the rules were announced, but some, such as Merrill Lynch & Co., Fannie Mae and Lehman Brothers Holdings Inc., have fallen again, approaching their previous lows. That undercuts the arguments that short-sellers drove the decline of the shares. SEC economists are studying the effects of the emergency action on those stocks.

There seems to be alot of misunderstanding about what they are doing. All the SEC is saying is you have to follow the rules that are already in effect. Why they would limit the "rules" to only 19 stocks is crazy. Shorting a stock without actually borrowing the shares is bad for business. It allows the big boys to force their bet to be correct. If you have the money and the determination, you could force almost any company down if you can short without borrowing the stock.

The Overstock.com CEO made this practice famous awhile back. The street hated his company so bad, they would short more shares than his float. He complained and sued, but it didn't seem to make a difference. If you remember back when Taser was new, His stock was manipulated daily by the same method. He had maybe a $5 stock company, but it would swing $50 one way and the other because the shorts were trying to force the stock down but would run when squeezed with even a hint of good news. I really don't have an opinion on the down tick rule. I don't see any benefit from it. Selling naked shorts is a whole nuther kettle of fish. Shouldn't be allowed on ANY stock, let alone a financial stock in a bad market. It stops the Soros's of the world from forcing the stock down when they are the only ones trying to force it down. Soros made his money by forcing the Pound down relentlessly. If Soros decided to put FoxNews out of business, he could just short it, and short it some more, and then again, even if he was the only one that wanted to short the stock. If you are forced to actually borrow the shares to short it, he would run out of shorts sooner or later and his bet would be made wrong. If he didn't have to borrow the stock first, then he could just destroy the value of the company with no fear of a short squeeze. Also, why not do this practice if you are a whale looking to buy a company? Take a $50 stock down to $20, and then offer them $30 for a takeover.

Forbes - SEC Extends Naked Short-Sale Ban
Hedge fund trade groups have furiously lobbied the SEC to "lift the order, saying it makes short-selling in the 19 stocks, which include favorite targets like Merrill Lynch (nyse: MER - news - people ) and Lehman Brothers (nyse: LEH - news - people ), too expensive and cumbersome."

The whining hedge fund trade group? We know who is running the SEC. Americans overwhelming support domestic oil drilling and exploration but what do we all get??? Pelosi flips us the bird, refuses even a simple vote up or down, and tells us to suck it up....but nooooo....when the bazillion dollar hedge fund dudes whine, everyone bend over backwards for them...

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