SEC Bans Short Sales….For Now

Yes, stock will rise but it is a bit like celebrating a touchdown when the other team is not allowed to play defense.

The SEC has banned short sales in 799 institutions from midnight Friday, until Oct. 2nd (unless extended).

Said the order:

As a result of these recent developments, the Commission has concluded that there continues to exist the potential of sudden and excessive fluctuations of securities prices generally and disruption in the functioning of the securities markets that could threaten fair and orderly markets. Based on this conclusion, the Commission is exercising its powers under Section 12(k)(2) of the Act.2 Pursuant to Section 12(k)(2), in appropriate circumstances the Commission may issue summarily an order to alter, supplement, suspend, or impose requirements or restrictions with respect to matters or actions subject to regulation by the Commission if the Commission determines such an order is necessary in the public interest and for the protection of investors to maintain or restore fair and orderly securities markets.

In these unusual and extraordinary circumstances, we have concluded that, to prevent substantial disruption in the securities markets, temporarily prohibiting any person from effecting a short sale in the publicly traded securities of certain financial firms, which entities are identified in Appendix A (“Included Financial Firms”), is in the public interest and for the protection of investors to maintain or restore fair and orderly securities markets.

Also, short sellers will have to now disclose their short positions. This is the same as if they were long a stock or security. This, is as it should be..

Now, the banning of short sales is just ridiculous. Short selling is not illegal, naked shorting is. Had the SEC done ANYTHING about naked shorting in the last few years, this would not be an issue. One could argue we would not be in the predicament we are in had the SEC done ANYTHING about naked shorting, ANYTHING.

Rather than issuing a string of memos and holding hearings about it, perhaps an action or two against those guilty of naked shorting would have actually curbed those guilty of the practice? Had we not had naked shorts in the market the oast 6 months, you could easily make the argument Lehman (LEH) would still be here and Merrill (MER) would not have had to sell.

It isn’t the act of shorting that is wrong, it is the abuse of it that is. SEC Commish Chris Cox and the SEC STILL have not done ANYTHING to actually eliminate the practice. All they have done is out it on hold for a couple weeks.

Disclosure (“none” means no position):
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