SEC Moves to Curb Short Selling

[lilbit]

SEC Moves to Curb Short Selling

Controversial Step Comes Amid Claims That Financial Stocks Were Manipulated
By KARA SCANNELL - Wall Street Journal
Wednesday July 16, 2008

WASHINGTON -- The Securities and Exchange Commission took unprecedented aim at short sellers on Tuesday, acting on a widespread concern that negative bets against bank and brokerage stocks might be exacerbating the financial sector's woes.
In a dramatic emergency action, the SEC said it would immediately move to curb improper short selling in the stocks of struggling mortgage giants Fannie Mae (http://online.wsj.com/quotes/main.html?type=djn&symbol=FNM) and Freddie Mac (http://online.wsj.com/quotes/main.html?type=djn&symbol=FRE), as well as those of 17 financial firms, including Goldman Sachs Group (http://online.wsj.com/quotes/main.html?type=djn&symbol=GS) Inc., Lehman Brothers Holdings (http://online.wsj.com/quotes/main.html?type=djn&symbol=LEH) Inc., Morgan Stanley (http://online.wsj.com/quotes/main.html?type=djn&symbol=MS) and Merrill Lynch (http://online.wsj.com/quotes/main.html?type=djn&symbol=MER) & Co.
The plan, which is expected to go into effect on Monday, will expire in 30 days.

But the SEC will also begin considering whether to extend the new requirements to all stocks traded in the U.S.
The actions represent one of the most extensive attempts by a government agency in recent years to control short selling.



I would say YES, Financial Stocks Were Manipulated. And not only financial stocks.

IMO, SEC must regulate hedge funds, main source of the current problem.

[lilbit]

Street Gears Up for Short Changes
Street Gears Up for Short Changes
Brokerages Parse
New Rules' Details;
The 'Naked' No-No
By RANDALL SMITH, JENNY STRASBURG and KARA SCANNELL
July 17, 2008

The federal crackdown on short selling is causing a scramble on Wall Street, with brokerage firms racing to implement new controls before the rules take effect on Monday.
[Traders]
Brokerage firms and floor traders, here at the NYSE, are scrambling to prepare for new short-selling rules.

The unprecedented get-tough action by the Securities and Exchange Commission means that securities firms will have to fine-tune their back-office operations to comply with the requirements.

The biggest potential headache: Existing rules allow brokers to sell stock short as long as they reasonably believe they can locate the needed shares and deliver them on time. Under the new curbs, short sellers will need to make formal arrangements to borrow the shares before selling them.

"You need to have certainty that you have the stock," one Wall Street executive said Wednesday.

The mechanics of such arrangements, as well as the charges likely to be levied for the extra legwork, are still being discussed. Wall Street brokerage executives held a conference call Wednesday morning with the Securities Industry and Financial Markets Association, a trade group, to discuss how to respond to the SEC's new rules and seek clarification from the agency.

SEC Chairman Christopher Cox acknowledged that the crackdown will create additional work for brokerage firms, though he said he sees "no obstacles to implementation." Agency officials delayed the effective date of the stricter short-selling requirements to "provide appropriate operational relief to the exchanges," he added.
[Short Fix]

In a sign that the plan already is throwing sand in the gears of short sellers, the stock prices of most of the 19 financial companies affected by the new rule soared Wednesday, rising an average of 12%. Fannie Maejumped 31%, or $2.18, to $9.25, while Freddie Mac was up 30%, or $1.57, to $6.83 in 4 p.m. New York Stock Exchange composite trading. Lehman Brothers Holdings Inc. surged 26%, or $3.43, to $16.65. All three stocks had been thrashed for weeks by nearly relentless selling pressure.

In a short sale, a trader borrows stock and then sells it, in hopes that it will later fall in price so it can be repurchased at a profit. Mr. Cox has insisted he isn't opposed to legitimate short selling -- only "unlawful manipulation through 'naked' short selling that threatens the stability of financial institutions."

While there wasn't an increase in naked short selling ahead of the emergency action, Mr. Cox said the move was "prophylactic" to "remove tools of mischief so that markets can operate efficiently." The 19 companies on the protected list are the same ones that have access to the Federal Reserve's lending facility, he noted.

The curbs -- which terminate on July 29 but can be extended as many as 30 calendar days from the July 15 date of the order if the SEC deems it necessary -- were announced Tuesday before Wall Street firms knew much about how they would work. The exact wording wasn't released until about 8 p.m. that day.

One open issue is whether firms that act as market makers and routinely sell stocks short to accommodate buyers will get an exemption. The SEC is working on "tailored provisions" to provide relief to both stock and options market makers, agency officials said.

In a statement, the SIFMA said it has reviewed the order with its members and "approached the SEC with questions about its scope and application," hoping to "ensure the market continues to operate smoothly and with the necessary liquidity."

One Wall Street executive of a prime brokerage, which caters to fast-trading hedge funds routinely engaging in short selling, said the new rules will prevent multiple brokerage firms "from looking at the same availability" of borrowable stocks from custodial banks such as State Street Corp. and Bank of New York Mellon Corp. Starting on Monday, brokers "actually need to make arrangements to borrow those securities."

Among the firms with the largest prime-brokerage services are Goldman Sachs Group Inc., Morgan Stanley, J.P. Morgan Chase & Co. and Deutsche Bank AG.

Hedge funds and other traders already have numerous alternatives to short selling, including "put" options carrying the right to sell at a preset price, which increase in value as the underlying stock price declines, or so-called "swaps" contracts, which can give the same economic effect as shorting. Traders also can trade with overseas brokers.
[Rising Tide]

But some of the alternatives have limitations. For example, market participants who take the other side of puts and swaps often hedge the exposure via an offsetting short sale. The seven U.S. options exchanges are preparing to ask for an exemption from the changes, people familiar with the effort said Wednesday. The rule disrupts options market makers' hedging strategies, they said. "This affects our book in a big way," said Andy Schwarz, founder of AGS Specialist Partners. His firm "makes a market in nearly every name on [the SEC's] list," he said.

Some hedge-fund experts predicted the new rules will make it more expensive for many hedge funds to borrow stocks. The law firm Schulte Roth & Zabel LLP, which has numerous hedge-fund clients, said the new order "will likely make short selling the specified securities more difficult and more expensive."

Stock-location specialist John Tabacco said the new rules may level the playing field because some big funds get preferential access to borrow scarce shares. "There's been no transparency, which is a tremendous competitive advantage for the larger firms," said Mr. Tabacco, founder and chief executive of LocateStock.com, which helps hedge funds and small brokerages locate hard-to-borrow shares.

Another question is whether the order will be broadened and extended after its initial period, when it applies only to 19 financial stocks. Some companies may prefer to avoid the stigma of appearing to need government protection, some experts said. "There will be issuers who want to be included and some who don't," said Barry Goldsmith, a partner at law firm Gibson, Dunn & Crutcher LLP.

[Shambles]

Eto ty takoy vitievatiy blog sebe otkryl, Lil???:D

[lilbit]

Eto ty takoy vitievatiy blog sebe otkryl, Lil???:D
net, eto chto b te, komu interesen stock market pochitali.

P.S. moi blog gde to na zadvorkah foruma. Nado ego reanimirovat' :D

[Africa]

и только jpm всё пофик. какие бы дропы не были, цена компании только растёт. в ьанке уже помоему надо упразднить corporate communications and media relations deartment iz-za nenadobnosti. vsyo ravno, rinok schitaet ego kakim-to nerushimim titanom

сорри что немного не в тему.

[lilbit]

и только jpm всё пофик. какие бы дропы не были, цена компании только растёт. в ьанке уже помоему надо упразднить corporate communications and media relations deartment iz-za nenadobnosti. vsyo ravno, rinok schitaet ego kakim-to nerushimim titanom

сорри что немного не в тему.
dlya menya JPM=Federal Reserve. Interesno, kakoi bil short interest u banka v poslednee vremya?

[lilbit]

SEC Short-Sale Rule Gets Negative Reviews
Banks Not on List
Fear They're Now
Even Bigger Targets
By KARA SCANNELL
July 19, 2008

WASHINGTON -- The Securities and Exchange Commission's new rule designed to limit certain negative stock bets is set to start Monday. Already, a political backlash is brewing.

Last Tuesday, the SEC said it would tighten short-selling rules for 19 financial firms, including mortgage titans Fannie Mae and Freddie Mac, by requiring traders to "pre-borrow" stock before initiating a so-called short sale. The SEC said it had concluded "there now exists a substantial threat of sudden and excessive fluctuations of securities prices generally" that could affect orderly markets.

Shares in financial stocks on the list soared, in part because of the SEC's move, prompting a chorus of complaints from firms that weren't included, many of which have been equally battered in recent weeks.
[Short]
Getty Images
SEC Chairman Christopher Cox

In a short sale, a trader borrows stock and then sells it, in hopes that it will later fall in price so it can be repurchased at a profit. SEC Chairman Christopher Cox has insisted he isn't opposed to legitimate short selling -- only "unlawful manipulation through 'naked' short selling that threatens the stability of financial institutions."

In a letter to Mr. Cox, the American Bankers Association, a trade group that represents the interests of 8,500 banks, said it fears short sellers will now focus on banks not covered by the new rules, many of which are already big targets of short sellers.

"The emergency order could further exacerbate a loss of confidence in the safety and soundness of this country's banking industry," the ABA wrote, as it called for an expansion of the order to including stocks of banks and bank holding companies.

The Financial Services Roundtable, an organization that represents 100 of the largest U.S. financial companies, also asked the SEC to extend the order. It wants to have all financial-services companies covered in the second week.

A SEC spokesman said the agency doesn't comment on letters, but said it will collect all of the comments as it moves forward with its decision-making. Mr. Cox previously said the emergency order was a preventive step aimed at restoring market confidence, and stocks were chosen based on which firms had access to the Federal Reserve's lending facilities.

The SEC order can be in effect for as long as 30 days. It's unlikely it will make any amendments to the emergency order to include stock of these other firms, a person familiar with the matter says. However, the SEC said it is considering extending the protective measure to all stocks that trade in the U.S. at a future date.

The list includes major Wall Street brokerage firms, banking titans J.P. Morgan Chase & Co. and Citigroup Inc., as well as several non-U.S. banks.

The emergency order says traders need to lock up, or pre-borrow, stock for future delivery before they execute a short sale, or bet the stock will drop. The SEC says that will "eliminate any possibility" that the markets will be disrupted by naked short selling, which occurs when the trader never borrows the stock and then "fails to deliver" it to the buyer within three trading days.

On Friday, the SEC said market makers wouldn't have to pre-borrow the stock, but they would still need to deliver it within three days.

These "fails to deliver" can occur from clerical errors, and the SEC says they are often resolved within a few business days. But they can create downward pressure on a stock price, and when not covered over extended periods, could be a sign of abusive short selling.

In 2004, the SEC created a "threshold list" for stocks that fall into this category. A stock is included if such "failures to deliver" meet three criteria: They occur over five consecutive trading days; equal 10,000 shares or more; and at least 0.5% of the company's shares outstanding.

Only one company, Deutsche Bank AG, is on both the SEC's protected list and the NYSE Euronext's threshold list. Deutsche Bank has been on the threshold list for the past six trading days; however, that may have been triggered because of low U.S. trading volume, compared with its global trading volume. A Deutsche Bank spokesman declined to comment. Because these stocks are so widely traded, it's possible they are subject to abusive trading and the firms still wouldn't make the list.

Other companies that also have been under selling pressure didn't make the cut, including Wachovia Corp. and Washington Mutual Inc. Washington Mutual submitted a letter to the SEC asking that the rule include other financial companies, according to a person briefed on the matter. Wachovia declined to comment.

National City Corp., a regional bank that scrambled to raise capital earlier this year and isn't protected in the SEC order, has been on the threshold list nine of the first 12 trading days this month.

"The current universe of names is too narrow" and should include the largest U.S banks, said Kristen Baird Adams, a spokeswoman for Cleveland-based National City. She said the bank intends to contact the SEC.

Companies have long complained that nefarious traders were abusing short-selling rules to drive down their stock prices. And over the years, many of those complaints came from small, thinly traded companies. Some of those companies were vulnerable to manipulation, but some also had weak financials and were likely to attract legitimate short sellers trying to sniff out overpriced stocks or fraudulent companies.

Advisers to some of the large banks not covered by the rule say they are considering asking the SEC for relief, while others are concerned that being on the list could be akin to a scarlet letter.

Charles M. Jones, professor of finance and economics at Columbia Business School, says the SEC's move has some unhappy precedents. In 1932, the New York Stock Exchange announced that, effective April 1, brokers would need written authorization before lending an investor's shares. "This wreaked havoc on the securities lending market, but the effect was completely temporary," he said, because the move only added extra hoops, and didn't prevent people from taking bearish positions if they wanted.
How naked shorting can place us down to the cave

How bad is the problem? Listen to this story: On Feb. 3, a man named Robert Simpson filed a Schedule 13-D with the SEC describing his purchase of 1,158,209 shares of Global Links Corp. (OTCBB: GLKCE), "constituting 100 percent of the issued and outstanding common stock of the Issuer." As described in a story that ran on FinancialWire on March 4, Simpson stuck every single share of the company in his sock drawer -- and then watched as 60 million shares traded hands over the next two days.

In other words, every single outstanding share of the company somehow changed hands nearly 60 times in the course of two days, despite the fact that the company's entire float was located in Simpson's sock drawer. In fact, even as recently as last Friday, 930,872 shares of Global Links still traded hands. If Simpson's claim that he owns all shares is accurate, that is a staggering number of phantom shares being traded around by naked short sellers.

http://www.fool.com/investing/high-growth/2005/03/24/the-naked-truth-on-illegal-shorting.aspx

[SAMARKANDI!]

I would say YES, Financial Stocks Were Manipulated. And not only financial stocks.

IMO, SEC must regulate hedge funds, main source of the current problem.

Hehe sec is there for oversight, its fasb that has to come up with less corp infuenced statements and aicpa with better opions, or they have to be inforced against loopholes.:D

[abcd]

How bad is the problem? Listen to this story: On Feb. 3, a man named Robert Simpson filed a Schedule 13-D with the SEC describing his purchase of 1,158,209 shares of Global Links Corp. (OTCBB: GLKCE), "constituting 100 percent of the issued and outstanding common stock of the Issuer." As described in a story that ran on FinancialWire on March 4, Simpson stuck every single share of the company in his sock drawer -- and then watched as 60 million shares traded hands over the next two days.

In other words, every single outstanding share of the company somehow changed hands nearly 60 times in the course of two days, despite the fact that the company's entire float was located in Simpson's sock drawer. In fact, even as recently as last Friday, 930,872 shares of Global Links still traded hands. If Simpson's claim that he owns all shares is accurate, that is a staggering number of phantom shares being traded around by naked short sellers.
Generally non marginable stocks can not be shorted. GLCKE (which now trades under the symbol GLCP) trades in Bulletin Board and thus considered non marginable position. Now I don't know how market making works and whether they can sell short nonmarginable stocks, but there might some other explanations as to why there are still a lot of shares traded in the market.

[lilbit]

SEC is in charge of stock market, not FASB :). If the somebody manipulating markets it is the problem of SEC to take care of it.

U.S. Securities and Exchange Commission (commonly known as the SEC) is a United States government agency having primary responsibility for enforcing the federal securities laws and regulating the securities industry/stock market.

[abcd]

SEC is in charge of stock market, not FASB :). If the somebody manipulating markets it is the problem of SEC to take care of it.

U.S. Securities and Exchange Commission (commonly known as the SEC) is a United States government agency having primary responsibility for enforcing the federal securities laws and regulating the securities industry/stock market.
Since shorting and trading on margin are considered banking functions, they are actually governed by rules set by the Federal Reserve Board, not the SEC, although the SEC is the enforcement body.
http://siliconinvestor.advfn.com/readmsg.aspx?msgid=19555646 Link is not official one but helpful

[lilbit]

Since shorting and trading on margin are considered banking functions, they are actually governed by rules set by the Federal Reserve Board, not the SEC, although the SEC is the enforcement body.
http://siliconinvestor.advfn.com/readmsg.aspx?msgid=19555646 Link is not official one but helpful
but are they only banking functions? nobody's else's?


the Securities and Exchange Commission (SEC) has amended Regulation SHO to eliminate the “grandfather provision” effective October 15, 2007. Please refer to Regulatory Alert #2007-086 (http://www.nasdaqtrader.com/TraderNews.aspx?id=ra2007-086) for complete details.http://www.nasdaqtrader.com/trader.aspx?ID=RegSHO

On July 28, 2004, the Securities and Exchange Commission (the "Commission") approved new regulation SHO, implementing important changes to the manner in which short sales are regulated in the U.S. markets.


(d) If a Customer fails to comply with a margin call within a reasonable period of time (the member firm may deem one hour to be a reasonable period of time), the relevant member firm shall take the deduction required with respect to an undermargined account in computing its net capital under applicable CFTC and SEC Regulations. http://www.cbot.com/cbot/pub/cont_detail/0,3206,931+53387,00.html
Does it mean that SEC regulates?;)

[SAMARKANDI!]

SEC is in charge of stock market, not FASB :). If the somebody manipulating markets it is the problem of SEC to take care of it.

U.S. Securities and Exchange Commission (commonly known as the SEC) is a United States government agency having primary responsibility for enforcing the federal securities laws and regulating the securities industry/stock market.

Lilbit, FASB, AICPA and other bodies endorced by the Gov/SEC writes the rules (Statement, Opinions which creates U.S. GAAP) and SEC regulates and makes sure that r followed properly. Thus if GAAP is proper i.e. FASB does its job right, with less loopholes, then financial statements of businesses are more transperant and public is less likely to speculate to the extremes which makes the markets volatile and there will be clear rules on creation and implmentation of financial instruments such as hedging ot swaping or whatever it is. One thing I know for sure after five years of studying SEC, FASB, GASB, AICPA is that FASB and other GAAP producing institutions have to make solid statements and opinions with less corporate pressure, so that they wouldnt have such bubbles, drops and jumps and failed financial intruments..... .;)

p.s. hope u understand that SEC does regulate, but the key thing to grasp here is who writes the rules and how they are written for the SEC to regulate. There is a book called Accounting Theory: Conceptual Issues in a Political and Economic Environment , recommend it.

[lilbit]

SAMARKANDI, accounting, in particular financial, is backward looking, right? So how you gonna report short time position that expires in 1-3 months, and if that's a time between 10Q filings? Hedge fund may enter transaction deal and quit it right before any filings. Am I right? So, in theory, hedge fund may screw up Wall Street before it(street) even knows what has happened.
In order to control and regulate this issue, FASB and GAAP has nothing to do with stopping of this kind of institutions from this kind of transactions. Right? If not, elaborate please with some links to FASB, GAAP - it's very interesting for me.


after five years of studying SEC, FASB, GASB, AICPA is that FASB and other GAAP producing institutions have to make solid statements and opinions with less corporate pressure, so that they wouldnt have such bubbles, drops and jumps and failed financial intruments..... .;)I understand, that you are tired of this multitude of illogical rules that you must follow as accountant, but . . . dot com buble was because of less corporate pressure and less solid statments. The same is with current subprime crisis.

Thus if GAAP is proper i.e. FASB does its job right, with less loopholes, then financial statements of businesses are more transperant and public is less likely to speculate to the extremes which makes the markets volatileand there will be clear rules on creation and implmentation of financial instruments such as hedging ot swaping or whatever it is.
I agree that we need some rules on creation and implementation of financial instruments that use leverage, but I do not understand the role of GAAP and FASB. Current problem is not the problem araised because GAAP or FASB poor work, but because of poor work of SEC, because the main issue here is market manipulation


P.S. Thank you for reccomendation.

P.S.S. I am not an accounter, so treat me easy if there are some mistakes ;)

[uzbekcfa2]

Lilbit is right. FASB and AICPA has nothing to do here. SEC issues rules and regulates financial market. FASB writes accounting principles and AICPA - completely different animal than these two.

[uzbekcfa2]

I understand that short sellling may hurt shares of a company, however, I agree with investors being concerned with another issue: what if this rule extends to all the shares in the market. market will not be efficient anymore, i guess.

[lilbit]

I understand that short sellling may hurt shares of a company, however, I agree with investors being concerned with another issue: what if this rule extends to all the shares in the market. market will not be efficient anymore, i guess.
short selling is selling of what you just have borrowed and it was and is legal as its in core of investments. But the main issue of the current problem is naked short selling and that is a real evil.

Naked short selling is a practice of improperly appropriating a security and arranging an immediate sale of the security. The sale is conducted before the seller has proper ownership or has been authorized to sell the security by the current owner. Naked short selling is conducted with the anticipation of being able to buy back the security at a lower price in short order, thus covering the original sale and managing to make a profit from the venture.
While the strategy of selling a stock short is considered ethical and legal in many parts of the world, naked short selling is considered to be highly unethical in most markets. In many countries, federal laws now prohibit the process of selling stocks short when the seller does not have full and verifiable ownership of the stocks. Even some countries that provide some degree of exemption on the practice of naked short selling will only allow the practice as a strategy to stabilize given market.
The laws governing naked short selling in the United States are fairly representative of the restrictions placed on the practice in many countries around the world. The Securities and Exchange Commission declared general naked shorting illegal in 1934. This effectively abolished the practice in most circumstances. However, the SEC did include a provision allowing market makers to employ the use of naked short selling when the anticipated result was to increase the liquidity of the investment market and help to restore some balance to an unstable situation. Even within the context of this exemption, a 2004 regulation sought to limit the potential for abuse of even this limited utilization of a naked short list.
Legal issues aside, naked short selling carries a relatively high degree of risk. A short sale conducted under these circumstances could easily go sour, leaving the seller in a position of not only failing to realize a profit but to actually incur a substantial loss if the security fails to decrease in value.

http://www.wisegeek.com/what-is-naked-short-selling.

[lilbit]

RICO, Racketeering Influenced Corruption Organizations Act, the law Rudy Guiliani used to bring down Michael Milken, and other Wall Street crooks, could be revisited in the SEC's struggle to clean up Wall Street's growing threat to the financial markets.

The SEC's crackdown against illegal naked short selling and rumor-mongering resulted in more than 50 hedge funds being slapped with subpoenas last week, according to the Wall Street Journal. Conspiracy theorist and CEO of Overstock.com (OSTK), Patrick Byrne, has embarked on a crusade to expose the nefarious hedge funds that practice illegal short selling. Byrne's web site, Deep Capture.com, has compiled a plethora of facts documenting, names, dates, times and videos of the players and their schemes.

Mark Mitchell, of DeepCapture.com, believes there exist a "hedge fund-orchestrated campaign to cover-up the crime of naked short selling." Depending on how deep the SEC probes, and what insidious facts they discover, we could see hedge fund managers, traders, and other employees facing scandalous, unprecedented charges under the infamous racketeering law, RICO. There is growing pressure for whistle-blowers to sound off or risk becoming the next scapegoat.

Clusterstock.com, reported, "the SEC is demanding both trading records and email correspondences" from subpoenaed firms. The inclusion of cell phone and text messaging records will undoubtedly be scrutinized. Concurrently, the NYSE Regulation Inc. is also investigating how some of its largest firms comply with false and misleading rumors that could undermine a stock's price. This is going to intensify.

Motley Fool, published an article on March 24, 2008, titled "The Naked Truth on Illegal Shorting," in which 100% of a company's shares were purchased by one individual, and were not available for shorting. Nevertheless, 60 million phantom shares were traded, according to owner. Subsequently, he filed a SEC 13-D compliant form.

Dick Fuld, CEO of Lehman Brothers (LEH), told market regulators that he has information that short-selling hedge funds colluded to bring down Bear Sterns (BSC). If Fulds's "information" is of evidentiary value, these hedge fund managers, and their cast of cohorts, could find themselves behind bars.

If the SEC diligently investigates the facts, we could see RICO indictments against illegal short sellers as early as Labor Day. Anyone charged under the RICO statue, even if they are found "not guilty," will become permanently damaged.

After observing the demise of Fannie Mae (FNM), and Freddie Mac (FRE) last week, it is expedient that the SEC move quickly to abolish the practice of naked short selling for all stocks. Short selling should only be allowed after the short seller has successfully borrowed the shares. The practice of selling shares that cannot be borrowed is a crime!http://seekingalpha.com/article/87653-illegal-short-sellers-may-face-rico-indictments

[lilbit]

Smith Barney VP letter to the SEC posted on the SEC site:

Subject: File No. S7-19-07
From: Gary D Markoff
Affiliation: Senior Vice President Citi/Smith Barney

July 29, 2008

Dear Sirs,
I've been participating in the financial markets for nearly 30 years advising clients on both the long and short sides of the market. I'm deeply concerned over the imbalances created since the 'uptick rule' was removed 12 months ago,the subsequent explosion of short interest and the Bear Market that has followed.
It's either unusually coincidental or more probably causal with the broader market meltdown we've been experiencing since the rule change. I have no objection with shorting, but I do have an objection to hedge funds (or anyone else) manipulating the process and the price of securities by selling shares that haven't at least been borrowed first and then slamming the bid with short sales on rapid downticks. I am not allowed to do that for clients at my firm, and can't understand why anyone else should be allowed. Returning to the Uptick rule and requiring prior authorization on a Borrow need to appply and be enforced for ALL publicly traded companies and not just FRE, FNM and the primary dealers.
The ability to sell 'market on close' for a short seller is major unintended consequence of the 'uptick' removal, especially in smaller cap (say under $5 bill but more significantly on market caps below $1 billion). This has enabled shorts to dominate the end of day trading and 'mark' the closing price (daily, weekly, monthly, quarterly) which is illegal for both shorts and long side players. The difference is that longs must identify themselves in filings to the SEC at least once per quarter and anytime positions go up or down thru 5, 10 or 15% thresholds. Short sellers DO NOT have this requirement and because of this ability to be anonymous, the SEC does not have effective control of surveillance nor do the shareholders and the company itself know who is short.
My request and recommendation is that for transparency purposes, ALL positions both long and short be filed equally and size restrictions be implemented on shorts the way they are on longs. As a shareholder, I should be able to know in the proxy statements who the short sellers are that are short more than 5% of a company just the same way I can see who is long greater than 5%.
I also can't understand why stocks that are showing up on the Reg SHO lists aren't subject to immediate buy-ins after a minimum grace period. It's the SEC's job to enforce this and hasn't. Why have a rule if it is not going to be enforced?
I also take issue with short interest getting up to over 50% in some companies. Again, without transparency as to WHO is short, it's possible that one player can corner the market (short) in a declining environment. Position limits apply in commodities for a reason, they should apply in equities,too.
All of these factors have gone on to raise the cost of capital for companies unnecessarily, and to bring about a broad disengagement from public participation. It's time to turn those factors around before we create another Depression.
Thank you for your consideration, Gary Markoff
Senior Vice President, Smith Barney- Boston

[lilbit]

War on the Short-Sellers?


by Karyn McCormack
BW Exclusives

The past week's madness in the financial markets kicked off with the Lehman Brothers (LEH) bankruptcy. Then came the AIG (AIG) bailout. Now there's an apparent war against short-sellers.

After tense lobbying by financial company CEOs who blamed short-sellers for the massive drops in their stock prices, Christopher Cox, chairman of the Securities & Exchange Commission (SEC), announced on Sept. 17 new rules to curb "naked short-selling," which involves selling a stock without first borrowing it and is illegal. (A short sale is a bet that a stock price will fall by selling borrowed stock and then repurchasing it later at a lower price for a profit.) The same day, Morgan Stanley (MS) CEO John Mack sent a memo to employees: "We're in the midst of a market controlled by fear and rumors, and short-sellers are driving our stock down. You should know that the Management Committee and I are taking every step possible to stop this irresponsible action in the market."

Under the SEC's new rules, investors are prohibited from "naked shorting" by requiring shorted securities to be backed by borrowed securities. And for options traders, the SEC is "making it illegal for a customer to mislead a broker about having located stocks and then failing to deliver them," according to The Wall Street Journal. Lastly, hedge funds and large investors are now required to publish their short positions daily. The rules went into effect Sept. 18. That same day, New York State Attorney General Andrew Cuomo said he had begun a "wide-ranging investigation into short-selling in the financial market" related to companies under pressure over the past week, such as Lehman Brothers, American International Group, Morgan Stanley, and Goldman Sachs Group (GS). Cuomo said the SEC should temporarily freeze short-selling of financial stocks. "Short-selling is not illegal, but when combined with the spread of wrong information, that is illegal," he said in a conference call with reporters.
Urging the Return of the Uptick Rule

The battle against short-sellers spanned across the seas after Britain's markets regulator imposed a ban on short-selling of financial shares for the rest of the year and will require daily disclosure of existing short positions of more than 0.25% in financial companies.

Some pros cheered the SEC's move against naked short sales, but say it didn't do enough. They're urging the SEC to reinstate the "uptick rule," which said traders could place short sales only at a price that is higher than the price of the previous trade. This rule, which was eliminated by the SEC on July 6, 2007, is meant to prevent short-sellers from adding to the downward momentum when a stock is already falling. http://www.businessweek.com/bwdaily/dnflash/content/sep2008/db20080918_205621.htm?chan=top+news_top+news+index +-+temp_investing

[lilbit]

bull's party


http://biz.yahoo.com/ap/080919/wall_street.html
Stocks head for rally on word of gov't rescue plan
Friday September 19, 9:25 am ET
By Madlen Read, AP Business Writer
Stocks head for big rally on bank rescue hopes, temporary ban on short sales of financials

NEW YORK (AP) -- Wall Street headed for a huge rally Friday after the U.S. government said it is creating a plan to rescue the nation's troubled banks from their souring debts.

If a plan is put in place to help the banking industry, it could help alleviate the uncertainty that has been sending the markets into tumult over the past week. Lending has grinded to a virtual standstill in the wake of the bankruptcy of Lehman Brothers Holdings Inc.

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The government made some other big moves on Friday to prop up the stock market.

To help limit the freefall in financial stocks, the Securities and Exchange Commission announced it is temporarily banning the short-selling of nearly 800 financial stocks. Short-selling is the common practice of betting against company stocks by borrowing its shares, selling them, and pocketing the difference when they fall.

The Federal Reserve said Friday it will expand its emergency lending and let commercial banks finance purchases of asset-backed paper from money market funds. The Fed will also buy short-term debt obligations issued by Fannie Mae, Freddie Mac and the Federal Home Loan Banks.

And to help calm investors' anxieties, the Treasury Department has decided to use a Depression-era fund to provide guarantees for U.S. money market mutual funds. Money market mutual funds are typically considered safe, but many investors have been fleeing them due to worries about the funds' exposure to the embattled financial industry.

Ahead of the market's open Friday, Dow Jones industrial futures rose 553, or 5.04 percent, to 11,535. Standard & Poor's 500 index futures rose 64.80, or 5.39 percent, to 1,268.00. Nasdaq 100 index futures rose 69.50, or 4.07 percent, to 1,778.00.

Overseas stock markets soared.

Japan's Nikkei stock average jumped 3.8 percent, and Hong Kong's Hang Seng index surged 9.61 percent. In Europe, Britain's FTSE 100 was up 8.20 percent, Germany's DAX index was up 5.58 percent, and France's CAC-40 was up 8.06 percent.

In early trading Friday, Treasury prices dropped. The yield on the 3-month Treasury bill -- a safe investment to which investors have rushed -- rose to 0.98 percent from 0.07 percent late Thursday. Yields move opposite price. The yield on the benchmark 10-year Treasury note shot up to 3.79 percent from 3.53 percent late Thursday.

On Thursday, the Fed and other major central banks around the world joined forces to inject as much as $180 billion into global money markets in an attempt to keep the credit crisis from worsening. But with worries swirling about the financial health of such major companies as as thrift bank Washington Mutual Inc. and investment bank Morgan Stanley, the cash infusion was not enough to alleviate the tension on Wall Street.

An afternoon report, however, that the government was in the midst of crafting a plan to assume banks' bad debt led to a late-day surge in stocks. The Dow rose 410.03, or 3.86 percent, to 11,019.69, in the biggest percentage point gain since October 2002. The index is still down about 400 points for the week.

"If a solid plan is put in place, it's definitely going to be a positive in easing the pain," said Stephen Carl, principal and head of equity trading at The Williams Capital Group. He added, though, that "it depends on how it's structured."

Wall Street's whipsaw week saw a massive loss Monday, a rebound on Tuesday, another drop Wednesday, and the rally on Thursday.

The dollar rose against most other major currencies in Friday trading. Gold prices fell.

Light, sweet crude for October delivery rose $4.28 to $102.16 a barrel in premarket electronic trading on the New York Mercantile Exchange.

New York Stock Exchange: http://www.nyse.com

Nasdaq Stock Market: http://www.nasdaq.com

[Prenomad]

The SEC in the US ( for two weeks), the Financial Services Authority in the UK (until 16th January for 29 financial company shares), the Financial Regulator in Ireland and the Australian Securities and Investments Commission put restrictions new short positions.

Well, banning short-selling will have temporary positive effect on financial markets; it does not solve the problem. The stocks of certain financial companies are being shorted, because those companies are in trouble, and the market knows it and wants to get rid off their stocks.

The market may stop shorting financials for the moment, but hedge funds will start short-selling the retail sector in the future. Or they just start shorting financials through options trading.

[Royal]

I would say YES, Financial Stocks Were Manipulated. And not only financial stocks.

IMO, SEC must regulate hedge funds, main source of the current problem.

here is L catch 22..

how to regulate short sales...they gonna have big problem with this.

[abcd]

here is L catch 22..

how to regulate short sales...they gonna have big problem with this.

What do you mean by regulate short sales? When government decided to ban short selling on financial stocks, they just revealed the names of 799 stocks and all brokerage houses banned shorting of those stocks. If you shorted before, you fine for now to keep it.

[Royal]

Short-sale ban list expanded to include GE, GM

American Express also added; NYSE expands roster by another 30 stocks
By Ruth Mantell, MarketWatch

Pushing on to shore up the markets, the list of banned short-sale stocks has been expanded to include the likes of General Electric Co., General Motors Corp. and American Express Co.
The three companies' shares are all part of the 30-stock Dow Jones Industrial Average.

GM 11.58, -1.50, -11.5%) may not be the most obvious firms to be picked out as financials.
However, GM has a 49% stake in GMAC Financial Services, noted David Healy, an auto-industry analyst.
Meanwhile, GE's commercial finance operations accounted for nearly 20% of revenue for second-quarter continuing operations, while the company's GE Money operations accounted for 14%.
Monday morning, the New York Stock Exchange issued a list of 30 new companies on the short sale ban list. The list is being updated throughout Monday, and possibly through the week, said Scott Peterson, an exchange spokesman.
"Being that we had no easy and quick way to determine if a company met the [SEC's] criteria, we sent a blast email to all of our members asking them to self-certify if they met the criteria," Peterson said.
Late last week, the Securities and Exchange Commission ordered a ban on short selling in shares of 799 U.S. financial institutions until Oct. 2. Short sales -- in which investors take a position in a stock in the belief that the stock's price will go down -- will continue to be prohibited in listings covered by the SEC's prior order.
However, the SEC that said difficulties with classifications led to an incomplete list and that it's now up to exchanges to publish changes.
"We believe that these amendments are necessary in the public interest and for the protection of investors to maintain fair and orderly securities markets, and to prevent substantial disruption to securities markets," according to a statement from the SEC.
Issuers can opt out of being included in their exchange's list, according to the SEC. The order can be extended for up to a total of 30 calendar days. (http://www.marketwatch.com/news/story/short-sale-ban-list-expanded-include/story.aspx?guid={EED2326E-9A2E-4729-86B6-E4EFEDBCDE07}&dist=msr_4)

[Prenomad]

AQSH va Evropa hukumatlari "banklarning qulashiga sabab bulayapti" singari bahonalar bilan short-sellingga cheklov quyib tashlashgandi, mana yana bir kunda adashmasam 7ta davlatda birdaniga navbatdagi banklar qulashi, moliyaviy bozorlarning alg'ov-dalg'ovi yuz berayapti.

Yirik investorlar va odamlar oldi-ketiga qaramay bank stocklarini sotishayapti, ayrim bank stocklari urtacha 10-25 foizdan tushdi bir kunda. Bu tizim bilan bog'liq muammoni short-sellingga aloqasi yuq ekanligini yana bir bor kursatadi.