SEC Issues New Rules to Protect Investors Against Naked Short Selling Abuses
FOR IMMEDIATE RELEASE
2008-204
Washington, D.C., Sept. 17, 2008 — The Securities and Exchange Commission today took several coordinated actions to strengthen investor protections against “naked” short selling. The Commission’s actions will apply to the securities of all public companies, including all companies in the financial sector. The actions are effective at 12:01 a.m. ET on Thursday, Sept. 18, 2008.
“These several actions today make it crystal clear that the SEC has zero tolerance for abusive naked short selling,” said SEC Chairman Christopher Cox. “The Enforcement Division, the Office of Compliance Inspections and Examinations, and the Division of Trading and Markets will now have these weapons in their arsenal in their continuing battle to stop unlawful manipulation.”
In an ordinary short sale, the short seller borrows a stock and sells it, with the understanding that the loan must be repaid by buying the stock in the market (hopefully at a lower price). But in an abusive naked short transaction, the seller doesn't actually borrow the stock, and fails to deliver it to the buyer. For this reason, naked shorting can allow manipulators to force prices down far lower than would be possible in legitimate short-selling conditions.
Today’s Commission actions, which are the result of formal rulemaking under the Administrative Procedure Act, go beyond its previously issued emergency order, which was limited to the securities of financial firms with access to the Federal Reserve’s Primary Dealer Credit Facility. Because the agency's exercise of its emergency authority is limited to 30 days, the previous order under Section 12(k)(2) of the Securities Exchange Act of 1934 expired on Aug. 12, 2008.
The Commission’s actions were as follows:
Hard T+3 Close-Out Requirement; Penalties for Violation Include Prohibition of Further Short Sales, Mandatory Pre-Borrow
The Commission adopted, on an interim final basis, a new rule requiring that short sellers and their broker-dealers deliver securities by the close of business on the settlement date (three days after the sale transaction date, or T+3) and imposing penalties for failure to do so.
If a short sale violates this close out requirement, then any broker-dealer acting on the short seller’s behalf will be prohibited from further short sales in the same security unless the shares are not only located but also pre-borrowed. The prohibition on the broker-dealer’s activity applies not only to short sales for the particular naked short seller, but to all short sales for any customer.
Although the rule will be effective immediately, the Commission is seeking comment during a period of 30 days on all aspects of the rule. The Commission expects to follow further rulemaking procedures at the expiration of the comment period.
Exception for Market Makers from Short Selling Close-Out Provisions in Reg SHO Repealed
The Commission approved a final rule to eliminate the options market maker exception from the close-out requirement of Rule 203(b)(3) in Regulation SHO. This rule change also becomes effective five days after publication in the Federal Register.
As a result, options market makers will be treated in the same way as all other market participants, and required to abide by the hard T+3 closeout requirements that effectively ban naked short selling.
Rule 10b-21 Short Selling Anti-Fraud Rule
The Commission adopted Rule 10b-21, which expressly targets fraudulent short selling transactions. The new rule covers short sellers who deceive broker-dealers or any other market participants. Specifically, the new rule makes clear that those who lie about their intention or ability to deliver securities in time for settlement are violating the law when they fail to deliver. This new rule is effective immediately.
Hey, you noble short sellers! Hang in there! Our idiot government is sowing the seeds of the market's destruction with this short selling witch hunt! Confidence will NOT return because Washington simpletons want it to! People are starting to realize that the stock or bond they are holding is actually a flaming bag of shit!
Anyone know of a good capitalistic country out there that I can move to? After they kill all the evil shorts, this one is gunna be TOAST!
Anyone know of a good capitalistic country out there that I can move to? After they kill all the evil shorts, this one is gumnna be TOAST!
Anyone know of a good capitalistic country out there that I can move to? This one is TOAST!
Naked short selling - A criminal act or not?
you can read my feelings here
http://investment-goldbug.blogspot.com/2008/09/naked-short-selling-criminal-act-or-not.html
I dont think Mr Cox joking when he said sec had zero tolerance for abusive.... Note the word abusive. As long as it isnt abusive. nothing wrong with naked short selling. Be liberal in a market place. If I happened to buy Lehman Bros at around $70 thinking that it would go to $100 but then it turned down and broke support, what should I do? How could I just lose money like a fool in a feudalistic world? Naturally I would cut loss at $49 plus selling another 10k naked short in order to get back all the losses plus profit. Dont you agree stop naked selling coud not stop companies like Lehman from going bankrupt? Losers must ask themselves why they lost money not blame Mr Cox, sec and so on.
Crash the Market and Monopolize It
"Our theory is a market crash has been orchestrated or organically allowed to happen. Read our story on the OTC market and you can clearly see how safeguards were prevented by the New York Fed.
Like a good 'ole Western shootout the hedge funds are the ranchers and the large banks are the money men. Some will be sacrificed, but the key families/banks will remain in play. You get the ranchers to kill each other off then snap up their property. Compare the stocks of JPM/MS and GS to the other financial players."
Read more:
http://www.gamingthemarket.com/2008/09/crash-market-and-monopolize-it.html
THIS WOULD BE GREAT IF IF IF
IT WILL BE ENFORCED WITH VIGOR
IT IS SO OUT OF CONTROL NOW THAT MARKETS HAVE NO BELIEVABILITY
ONE COULD HAVE BETTER LUCK AT VEGAS
NAKED SHORT SELLERS ARE CROOKS NOTHING ELSE
AND WE ALL KNOW WHERE CROOKS SHOULD BE
NOT IN CONGRESS
NOW LETS SEE WHAT TOMMOROW BRINGS
Good job! Now let's strive to get back to a norm!
This is total intervention in a free economy. What the hell if we apply the same criteria to all commodities, indexes, bonds etc..
Put it in another way, why we do not apply this rule to everything? This is not making sense at all !!
Besides of this, if we believe in a free market economy why we don't think the market will correct itself punishing the bad short sellers guys?
Good question Mike Landfair......
What about those stocks currently on the "threshold security" list....are the new rules retroactive to those stocks?
I've read many articles on the new rules today and they are all lacking in terms of comparing the merits of existing rules to the new rules.
If the new rules are applicable the "threshold security" list.....then this is quite significant and with opex on friday....there maybe some near term opportunities....don't think anyone in-the-know will be giving up the specifics on this one.
Its a total joke that Mr. Cox said "the SEC has zero tolerance for abusive naked short selling". Since they have allowed it to go on in order to give hedge funds and other financials with big bucks yet another way to advantage over everyone else. The financials are part of the globalization plan (New World Order) that has been going on since the early '60s. The U.S.A. is now one of the largest Socialist nations next to Korea in the wake of Fannie/ Freddie /AIG /Bear Stearns.
Will this also apply to the metals market, COMEX etc?
Will we see an end to the outrageous shorting of gold and silver?
Adam, what about the existing fails to deliver? Will the SEC force those trades to be delivered?
Hallelujah! How long have we been clamoring for this to be reinstated. How many portfolios have these short sellers obliterated??????? They should be prosecuted or, better yet, forced to give their profits back to the individuals whose accounts were dessimated.
i suggested that bill o'reilly have you or Cramer as a guest to tell the market story (shorting w/o th eup-tick rule...and naked shorting) behind the crisis in financial stocks...eg AIG...company more sound than stock price suggests !
I am ready. Give Fox a call and I will be happy to tell the real story behind the decimation of the stock market. Thanks for posting.
Adam
Woohoo, finally an SEC move that "the little" guy can benefit from! Adam, does enforcing this rule on options market makers mean it will be more difficult for them to "fix" the bid / ask spread?
Gosh, maybe there was a reason for the uptick rule!