Allstocks.com's Bulletin Board Post New Topic  New Poll  Post A Reply
my profile login | register | search | faq | forum home

  next oldest topic   next newest topic
» Allstocks.com's Bulletin Board » General Investing Topics » SEC Votes To End Short-Selling 'Grandfather' Protections

 - UBBFriend: Email this page to someone!    
Author Topic: SEC Votes To End Short-Selling 'Grandfather' Protections
Happy Valley
Member


Icon 1 posted      Profile for Happy Valley     Send New Private Message       Edit/Delete Post   Reply With Quote 
SEC Votes To End Short-Selling 'Grandfather' Protections


By Judith Burns, Of DOW JONES NEWSWIRES

WASHINGTON -(Dow Jones)- The Securities and Exchange Commission voted Wednesday to approve a change to tighten rules intended to curb manipulative short sales, including so-called "naked" short sales.

The change eliminates a controversial exception that shielded existing short positions from requirements to deliver hard-to-borrow shares within 13 days of settlement. Once the change takes effect, short positions previously protected by the grandfather clause must be closed out within 35 days.

SEC Chairman Christopher Cox said persistent failures to deliver shares sold short seem to be due to the grandfather protections, which the SEC included in 2004 to prevent stock-market volatility. Critics complained the protections undermined efforts to clean up abuses involving "naked" short sales.

Short selling involves sales of borrowed securities, producing profits when prices decline. The practice is legal, but the SEC's Regulation SHO sought to prevent "naked" short sales, in which short sellers don't borrow securities they sell.

SEC officials said delivery failures have declined about 35% overall since Regulation SHO took effect and have fallen about 53% for hard-to-borrow stocks defined as "threshold" securities.

-By Judith Burns, Dow Jones Newswires, 202-862-6692; Judith.Burns* dowjones.com


(END) Dow Jones Newswires
06-13-071138ET
Copyright (c) 2007 Dow Jones & Company, Inc.

Posts: 2377 | Registered: Apr 2006  |  IP: Logged | Report this post to a Moderator
PCola77
Member


Member Rated:
4
Icon 1 posted      Profile for PCola77     Send New Private Message       Edit/Delete Post   Reply With Quote 
Wonder how this will actually impact anything. Seems like Overstock would be a big beneficiary, but will new shorts just take the place of old? Will there be appeals or loopholes?

Something to watch though, for sure.

Posts: 5508 | From: Southeastern PA | Registered: Jan 2006  |  IP: Logged | Report this post to a Moderator
Happy Valley
Member


Icon 1 posted      Profile for Happy Valley     Send New Private Message       Edit/Delete Post   Reply With Quote 
quote:
Originally posted by PCola77:
Seems like Overstock would be a big beneficiary

Overstock.com is the first company I thought of after initially reading the PR...As per shortsqueeze.com, over 52% of their float is currently being shorted...Even if these numbers are a bit misconstrued, it will certainly be interesting to see how they change (if at all) over the next couple of months...

OSTK $ 18.46
Overstock.com Inc. 0.25
Shares Short 4,713,200
Days to Cover (Short Ratio) 14.7
Short % of Float 52.19 %
Shares Short - Prior 4,754,600
Short % Increase / Decrease -0.87 %
Squeeze Ranking™ -102
% from 52-Wk HIGH ( 24.14 ) -30.77 %
% from 52-Wk LOW ( 13.40 ) 27.41 %
% from 200-Day MA ( 16.92 ) 8.34 %
% from 50-Day MA ( 18.15 )
1.68 %
Price % Change (52-Wk) -13.30 %
Trading Volume - Today 105,738
Trading Volume - Average 320,800
Trading Volume Vs. Avg. 32.96 %
Total Shares - Float 9,030,000
Total Shares - Outstanding 23,683,531
% Held by Insiders 30.32 %
% Held by Institutions 35.20 %
Market Cap 437,197,961
EPS -5.08
PE Ratio
Sector: Services
Industry: Specialty Retail Other
SI Record Date 2007-May

http://www.shortsqueeze.com/index.php?symbol=ostk

Posts: 2377 | Registered: Apr 2006  |  IP: Logged | Report this post to a Moderator
PCola77
Member


Member Rated:
4
Icon 1 posted      Profile for PCola77     Send New Private Message       Edit/Delete Post   Reply With Quote 
Seems like the math *should* work out like this (simplified):

$18 per share x 12million shares "out there" (float + shorts) = value of $216million

If those "extra" 4million shares need to be "covered and retired", PPS should be $216million/8million or $27.

If momentum comes in it could be higher. Not sure why it wouldn't work that way, but I am pretty sure it won't work that way [Smile]

Posts: 5508 | From: Southeastern PA | Registered: Jan 2006  |  IP: Logged | Report this post to a Moderator
Happy Valley
Member


Icon 1 posted      Profile for Happy Valley     Send New Private Message       Edit/Delete Post   Reply With Quote 
Trading Rule Reprieve
Liz Moyer, 06.13.07, 4:56 PM ET

Wall Street got a reprieve from more restrictive trading rules Wednesday as the Securities and Exchange Commission voted to put off any decision on whether to take away certain exemptions for options market makers.

But the SEC did eliminate a controversial "grandfather" rule that many critics have said allowed rogue traders to manipulate certain stocks through naked short sales. It also eliminated the prohibition on selling short on a downward tick in price.

At a hearing Wednesday on proposed amendments to a 2004 regulation on short sales, SEC Chairman Christopher Cox said the tightened rules "are aimed squarely at abusive short selling and market manipulation and promoting fair, efficient and orderly markets."

The SEC has been considering amendments to its 2004 Regulation SHO to close loopholes that encourage manipulation, but the proposed amendments have not been without controversy.

More than 900 letters poured into the agency since July from a wide assortment of commentators, including broker/dealers, hedge fund managers, ordinary investors and state securities regulators. One vocal critic of the rules is Overstock.com (nasdaq: OSTK - news - people ) Chief Executive Patrick Byrne, who has been waging a self-described "crusade" to stamp out abuses on Wall Street.

"This is an encouraging development and the SEC is to be commended for taking this step," Byrne said in an e-mail Wednesday.

The grandfather exemption, repealed by a unanimous vote Wednesday though the date for implementation has yet to be set, made an exception to the 2004 Regulation SHO that hard-to-borrow securities sold short had to be delivered within 13 days of the settlement date. Reg SHO exempted trade failures that existed before the rule was implemented in January 2005, and it exempted failures that occured in a five-day window before a stock is added to threshold lists kept by the major stock exchanges.

Those exemptions are now eliminated though the close-out requirement was reset to 35 days from 13, giving short sellers more time to find shares to cover their open positions.

Cox has said Reg SHO helped reduce trade delivery failures, but hasn't been as effective as hoped, as evidenced by stocks that have languished on the threshold lists for months and years. (Overstock.com, for example, has been on Nasdaq's threshold list for over 500 days.)

These longstanding delivery failures are linked to the grandfather exemption for trades and by the options market maker exemption, which allows an options market maker to maintain an open short position to hedge his options position. High and persistent trade delivery failures can be a sign of deliberate naked short selling, "and that can be used as a tool to drive down a company's share price," Cox said.

The grandfather exemption was put in the 2004 regulation out of concerns that forcing the close out in hard-to-borrow stocks would lead to a short squeeze--a trading term to describe what happens to short sellers when a stock rises instead of the hoped-for decline, and the short seller has to cover by buying more expensive shares.

But the SEC commissioners acknowledged Wednesday that concerns about extra volatility and short-squeezes were overblown and that the benefits of eliminating the grandfather exemption outweighed the downside.

Also part of the changes proposed Wednesday was a plan to publish two-month delayed trade delivery failure data on individual stocks that appear on the threshold lists. That data comes from the Depositary Trust Co. The SEC is also going to increase the frequency of short-interest reporting to twice a month from once a month. That change is slated to go into effect by September.

But the matter of the exemption for options market makers is left open for now, something that is bound to cause consternation for those who wanted all the loopholes shut. The SEC will open a new comment period on amendments to market maker rules.

"We look forward to a comparable reform closing the market maker exemption loophole, which is currently an avenue of great abuse," said Overstock's Byrne. "There is a bank being robbed in two ways: some crooks snatch a teller's cash drawer and sprint out the front, some saunter in the back door and loot the vault. What the SEC did today was put bars up in the tellers' windows. I applaud that. But tomorrow there will be twice as many crooks going around back."

http://www.forbes.com/2007/06/13/sec-cox-options-biz-wall-cx_lm_0613rules.html?p artner=yahootix

Posts: 2377 | Registered: Apr 2006  |  IP: Logged | Report this post to a Moderator
Happy Valley
Member


Icon 1 posted      Profile for Happy Valley     Send New Private Message       Edit/Delete Post   Reply With Quote 
quote:
Originally posted by PCola77:
Seems like the math *should* work out like this (simplified):

$18 per share x 12million shares "out there" (float + shorts) = value of $216million

If those "extra" 4million shares need to be "covered and retired", PPS should be $216million/8million or $27.

If momentum comes in it could be higher. Not sure why it wouldn't work that way, but I am pretty sure it won't work that way [Smile]

You still following this PC...I Completely forgot about it until I saw it hit a 52 week high...Closed at $31.80 today...
Posts: 2377 | Registered: Apr 2006  |  IP: Logged | Report this post to a Moderator
BooDog
Member


Icon 1 posted      Profile for BooDog     Send New Private Message       Edit/Delete Post   Reply With Quote 
I know I'm just a kinda laid back swingtradder with only a couple positions here and there but.. and this is something I'm still learning...
The impact of short selling seems to have a "correcting" effect but if an overwhelming amount of short sellers attack the market would this not have an adverse overall reaction? Can this get so out of control that it could cause a total market correction? Seems to me this type of trading is on the rise and will be a type of marketplace that used to be imo once rarely advertised or at least people didn't openly say "hey Boo - I'm shorting the crap out of your pick- good luck!"


TheStreet.com
An Easier Way to Short Emerging Markets
Tuesday October 30, 10:37 am ET
ByLawrence Carrel, TheStreet.com Senior Writer
Stock market bears are getting some new tools.
ProShares, the only provider of exchange-traded funds that short the U.S. stock market, is rolling out a family of products that bet on declines in international equities.


The first two debuted on the American Stock Exchange last week: The Short MSCI EAFE is designed to produce the inverse of the daily return of the Morgan Stanley Capital Investment Europe Australasia Far East index, the most widely followed U.S. benchmark for tracking international equities, while the UltraShort MSCI EAFE returns two times the inverse of the index.

The Short MSCI EAFE began trading at $70.20, and the UltraShort MSCI EAFE started at $70.32 on Wednesday.

Next month, the Bethesda, Md., company expects to launch four more products that make more specialized bets: the Short MSCI Emerging Markets (EUM), Ultrashort MSCI Emerging Markets (EEV), UltraShort MSCI Japan (EWV) and the Ultrashort FTSE/Xinhua China 25 (FXP), which tracks the 25 largest companies by market-cap that operate in mainland China.

The MSCI EAFE is considered the granddaddy of international indices, and the short ETFs provide an efficient way to bet against stocks around the world. But the ability to short emerging markets stocks should be particularly appealing to investors who fear these markets are becoming overvalued.

China stocks have been surging over the past year and many investors fear the market is entering bubble territory. So far this year, world stock funds have returned 16.5%, according to Morningstar. However, the big gains have been in diversified emerging markets funds, up 43.5% year to date, and Pacific/Asia funds excluding Japan, the category China falls in. These have surged 64.6% this year.

"It's very difficult to put in short positions in emerging markets, so these ETFs will make it much easier to hedge," says Peter Schiff, president of Euro Pacific Capital, a Darien, Conn., brokerage, and author of Crash Proof: How to Profit in the Coming Economic Collapse.

He adds that making hedging easier is actually a bullish move for the emerging markets. That's because it lowers the investment's risk, making it more attractive. The ETFs offer insurance on the market going lower. Once there is a way to protect against declines, people should be more willing to take the risk of going long, which will push the market higher.

"I'm more interested in buying the pullbacks in emerging markets than going short," Schiff says.

Investors short stocks and futures when they think the market will go lower. Typically, when an investor shorts an individual stock he needs to set up a margin account, then borrow the shares in order to sell them. The short seller profits if the market falls so he can buy the shares to repay the loan at a lower price.

ProShares describes its products as ETFs that go up when the market goes down. Out of its family of 54 ETFs, 29 short the U.S. market. And of the 29 U.S. shorts, 22 are double shorts, giving twice the inverse move of the market.

While inverse funds can play a role in hedging the portfolios of ordinary investors, "the double inverse ETFs are strictly for traders," says David Fry, founder and publisher of ETF Digest.com, an online investment newsletter. "But I'm glad they are coming out, because when you need them, and who knows when that will be, it's good to know they will be there."

The expense ratio for all the ProShares funds is 0.95%, one of the highest expense ratios charged by any ETF company. That's partly a function of their design. The funds don't short individual stocks. Instead they short index futures contracts and buy swap agreements, which are contracts between two parties to exchange a revenue stream.

It's important to understand that the short ETFs are designed to produce the inverse performance of a given index on a daily basis. That means their performance can move out of line with their benchmarks over longer periods of time.

"On a market price basis, both sets of ETFs usually delivered 70% to 130% of their daily expected return. Over longer time periods, ProShares ETFs are unlikely to precisely double benchmark returns," Paul Mazzilli, the director of ETF research at Morgan Stanley, said in a report earlier this month. The interest income of inverse ETFs and fund expenses contribute to this discrepancy, he wrote.

--------------------
All post are my opinion. Do your own DD. Who's clicking your buy/sell button!?

Posts: 7754 | From: Virginia | Registered: May 2006  |  IP: Logged | Report this post to a Moderator
BooDog
Member


Icon 1 posted      Profile for BooDog     Send New Private Message       Edit/Delete Post   Reply With Quote 
Yes we are supposed to make picks that are have shown good signs of reversal and are starting to go up. I'm watching LSCC and GPCB for those signs. IMO shorts can over exceed their welcome so to speak pushing these things further and further than they should be able to killing off the bulls as they try and take over. Organized and populated groups as ProShares is advertising could make things even worse soaking up resources that would normally "correct" a diving stock. Just my theory that these exceeded resources then would not be available elsewhere so would suck further resources from successful markets.

Just a thought.

--------------------
All post are my opinion. Do your own DD. Who's clicking your buy/sell button!?

Posts: 7754 | From: Virginia | Registered: May 2006  |  IP: Logged | Report this post to a Moderator
BooDog
Member


Icon 1 posted      Profile for BooDog     Send New Private Message       Edit/Delete Post   Reply With Quote 
Okay so in the end, if we can follow these guys we could be part of some pretty heavy short squeezes.
imo

--------------------
All post are my opinion. Do your own DD. Who's clicking your buy/sell button!?

Posts: 7754 | From: Virginia | Registered: May 2006  |  IP: Logged | Report this post to a Moderator
BooDog
Member


Icon 1 posted      Profile for BooDog     Send New Private Message       Edit/Delete Post   Reply With Quote 
.

--------------------
All post are my opinion. Do your own DD. Who's clicking your buy/sell button!?

Posts: 7754 | From: Virginia | Registered: May 2006  |  IP: Logged | Report this post to a Moderator
BooDog
Member


Icon 1 posted      Profile for BooDog     Send New Private Message       Edit/Delete Post   Reply With Quote 
LSCC hits 3.99. Yep. this is getting the crap kicked out of it. Should have seen more signs of reversal by now imo. Coming soon. If it works right it could have one hell of a squeeze. Might even take some shorts out with it. LOL

--------------------
All post are my opinion. Do your own DD. Who's clicking your buy/sell button!?

Posts: 7754 | From: Virginia | Registered: May 2006  |  IP: Logged | Report this post to a Moderator
T e x
Member


Icon 1 posted      Profile for T e x     Send New Private Message       Edit/Delete Post   Reply With Quote 
time for an update...

--------------------
Nashoba Holba Chepulechi
Adventures in microcapitalism...

Posts: 21062 | From: Fort Worth | Registered: Apr 2005  |  IP: Logged | Report this post to a Moderator
   

Quick Reply
Message:

HTML is not enabled.
UBB Code™ is enabled.

Instant Graemlins
   


Post New Topic  New Poll  Post A Reply Close Topic   Feature Topic   Move Topic   Delete Topic next oldest topic   next newest topic
 - Printer-friendly view of this topic
Hop To:


Contact Us | Allstocks.com Message Board Home

© 1997 - 2013 Allstocks.com. All rights reserved.

Powered by Infopop Corporation
UBB.classic™ 6.7.2

Share