Associated Press SEC OKs Changes to Short-Selling Rules Associated Press 06.13.07, 2:16 PM ET
The Securities and Exchange Commission voted Wednesday to abolish long-standing rules that restrict short sales in declining markets and approved another change to tighten rules intended to curb manipulative short sales, including so-called "naked" short sales.
The first change ends decades-long restrictions by the SEC and U.S. markets on selling short as prices are falling. An experiment in lifting the rules for select stocks showed there was little justification for retaining restrictions such as the New York Stock Exchange's "tick" test, SEC Chairman Christopher Cox said.
Elimination of SEC's short-sale price restrictions, and rules barring markets from using a "tick" or "bid" test to control short sales will take effect immediately after the rule change is published in the Federal Register, SEC staffers said.
A second change approved by the SEC modifies Regulation SHO, which the agency adopted in 2004 to curb abusive short sales. The change eliminates a controversial exception to the 2004 rule 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.
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 percent overall since Regulation SHO took effect and have fallen about 53 percent for hard-to-borrow stocks defined as "threshold" securities.
Long-standing, persistent delivery failures seem to be due to the grandfather protections and a shield for short positions held by option market makers, Cox said. He said delivery failures hurt investors and companies, and may be a sign of naked short selling.
"It continues to be a problem, particularly in the microcap space," Cox told reporters after the SEC meeting.
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Posts: 1872 | From: right here | Registered: Apr 2004
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SEC Votes on Regulation SHO Amendments and Proposals; Also Votes to Eliminate "Tick" Test FOR IMMEDIATE RELEASE 2007-114 Washington, D.C., June 13, 2007 - The Securities and Exchange Commission today voted to take additional steps to better safeguard investors and protect the integrity of the markets during short selling transactions by closing loopholes in Regulation SHO and further reducing persistent failures to deliver stock by the end of the standard three-day settlement period for trades.
Erik Sirri, Director of the SEC's Division of Market Regulation, said, "Today the Commission voted on steps to streamline and tighten short selling provisions so that markets and investors are better served by our rules."
1. Final Amendments to Rules 200 and 203 of Regulation SHO The Securities and Exchange Commission voted to adopt final amendments to Rules 200 and 203 of Regulation SHO (17 CFR 242.200 and 242.203). The amendments will further reduce fails to deliver in certain equity securities by eliminating the grandfather provision. The amendments also modify the close-out requirement for fails to deliver resulting from sales of threshold securities pursuant to Rule 144 of the Securities Act of 1933 (Securities Act). In addition, the amendments update the market decline limitation referenced in Regulation SHO. The amendments will be effective 60 days from the date of publication of the amendments in the Federal Register.
Regulation SHO, which became fully effective in January 2005, provides a regulatory framework governing short sales of securities and, among other things, includes the following:...
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thanx for the update, im really surprised they passed it. I was following this.. its good news for people like us, bad news for shorts.. we'll see how it affects penny market..not sure?
Posts: 6397 | Registered: Jan 2006
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Thanks, KC. It sure is good to have you around here. You're like an automatic information vending machine.
So basically, I've got 60 days (from the date of publication of the amendments in the Federal Register) to buy shares of all the companies on the SHO list. (Hey, would anyone here loan me some money?) Actually, if I were a MM who was short, I'd start covering now to avoid the rush.
Seriously, this could really change everything...
Posts: 1872 | From: right here | Registered: Apr 2004
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"The amendments will further reduce fails to deliver in certain equity securities" -- this line bothers me, with our luck most pinkies will end up being excluded for whatever reason!
Posts: 2503 | From: connecticut | Registered: Mar 2005
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S.E.C. Ends Decades-Old Price Limits on Short Selling
By FLOYD NORRIS Published: June 14, 2007
The Securities and Exchange Commission voted yesterday to end price restrictions on short selling, meaning that investors seeking to sell a share that they do not own will no longer be barred from doing so because the price of the stock is falling.
The 5-to-0 vote, ending a rule that had been in place since 1938, when short sellers were blamed by some critics for having caused the 1929 market crash and the Depression that followed, came as the commission also voted to make it harder to engage in naked shorting, the practice of selling shares that have not been purchased or borrowed.
Christopher Cox, the S.E.C. chairman, called naked short selling “a fraud that the commission is bound to prevent and to punish.”
When a naked short sale is made, it leads to a failure to deliver the stock when the trade settles three business days later. There are many other reasons for fails, but such sales are believed to be the primary one for many stocks.
The S.E.C. adopted a rule, known as Regulation SHO, in 2004 that was intended to reduce naked short selling by requiring the publication each day of a list of securities with heavy fails. Brokers are required to cure the fails within 13 days. But fails existing before the stock went on the list were grandfathered.
Yesterday’s vote will remove the grandfather provision, and the commission said it was also considering removing an exemption from the rule for options market makers who need to sell short to hedge an options position.
The new rule will take effect 60 days after it is published in the Federal Register, and traders will have 35 days after that to clear up fails that had been grandfathered.
The commission says naked short selling has been reduced by Regulation SHO, but some stocks have remained on the Regulation SHO list for many months. The leader in that regard is Overstock.com, which has appeared for 538 consecutive trading days. It has also been the leader in condemning such sales and has sued many Wall Street firms for facilitating such trades.
The commission does not regularly release the exact number of fails in stocks on the list, although figures can be obtained on a delayed basis through the Freedom of Information Act.
James A. Brigagliano, an associate director of the commission’s division of market regulation, said that the S.E.C. would release such numbers on a quarterly basis, with a delay, as soon as details were worked out.
The ban on selling short while a share price was declining, called the tick test since it barred selling unless the last change in price was an uptick, had come to seem irrelevant. A test that repealed the rule for many stocks seemed to make little difference in their trading, and that part of the rule change was adopted with little controversy.
The commission said that it was proposing for comment a rule to eliminate the exemption to Regulation SHO for options market makers, but it would also ask for comments on possible ways to narrow the exemption.
SEC ends uptick rule but vows crackdown on naked short selling Posted Jun 14th 2007 3:18PM by Zac Bissonnette Filed under: Internet, Scandals, Columns
The SEC has voted to end price restrictions on short-selling. Under the uptick rule which was instituted in 1938, shares could only be sold short on an uptick -- That is the price of the stock on the short-sale must be higher than the last trade. The SEC also said it would strengthen its "fight" against naked short selling.
This is a victory for investors: The much-maligned short sellers are the financial markets' first line of defense against fraud and ludicrous valuations. Rules making short-selling easier increase the incentives for market participants to police the markets themselves, and can prevent fraudulent or overvalued companies from running even higher.
The crackdown on naked short selling however, appears to be a concession designed to appease a very vocal group of conspiracy theorists. As long as shorts are eventually covered, there appears to be little harm in naked short selling. The requirement to borrow shares is cumbersome and unnecessary. I've discussed this issue with numerous anti-short selling people, and none have been able to provide an answer to this challenge:
Please provide the name of a legitimate, profitable business that has been harmed by naked short selling.
In spite of all the complaining and conspiracy theories, I've never seen a company take the action to deal with a poor valuation supposedly caused by short-selling: If Overstock (NASDAQ: OSTK) is so undervalued, why doesn't Patrick Byrne take it private? Why aren't suitors lining up to acquire it?
There are a number of mechanisms in the market to prevent stocks from receiving gross undervaluations: Private equity funds, strategic buyers, share buybacks, etc. By making life harder for short sellers, the SEC is weakening one of the only mechanisms in place to proactively stop fraud.
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[URL=http://www.B L O Ggingstocks.com/2007/06/14/sec-ends-uptick-rule-but-vows-crackdown-on-naked-shor t-selling/]http://www.B L O Ggingstocks.com/2007/06/14/sec-ends-uptick-rule-but-vow s-crackdown -on-naked-short-selling/[/URL]
posted
In spite of all the complaining and conspiracy theories, I've never seen a company take the action to deal with a poor valuation supposedly caused by short-selling: If Overstock (NASDAQ: OSTK) is so undervalued, why doesn't Patrick Byrne take it private? Why aren't suitors lining up to acquire it?
LOL... the issue is not whether a company is profitable and successful TODAY, but whether it will be in the future... NS'ing pretty much insures that "developing companies" won't develop...
might as well give people credit cards and tell them to not bother paying them back either...
-------------------- Don't envy the happiness of those who live in a fool's paradise. Posts: 36378 | From: USA | Registered: Sep 2003
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Shorting as first-line defense for hype: I can live with that...
At some point, they cover...either at a profit or not. Also allows for squeezes, when much covering occurs... kewl goose n gander, etc...
But to never have to pay back? That's just wrong, period.
In fact, I *still* can't picture specifically how/what mechanism is used whereby a "short" gets marked "long" ... I don't know how anybody would ever prove it's happening, ie, to the extent that someone could be forced to cover or get in trouble. I mean, I understand folks at the top of the food chain *can* mis-mark, but as in the credit card analogy, may as well let folks log in to their IRS accounts and enter what they want to pay in taxes...
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i've seen companies on the SHO list so long that there's no way the "shorters" are paying interest on the loans and making a profitable trade too... a legit short is BORROWING money (shares) from somebody that actually owns them, which entails interest payments, which eats into profits.... shorting pennies makes no sense whatsoever , unless they aren't paying interest, and aren't repaying the loans... this brings me to another question, if i lend my shares to someone so they can short? why don't i get paid interest? who is getting paid the interest? the brokers? it always seems to come back to the brokers, even if they aren't actually placing the short-sell order? they are obviously benefiting somehow...
-------------------- Don't envy the happiness of those who live in a fool's paradise. Posts: 36378 | From: USA | Registered: Sep 2003
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ya...remember the Schwab deal re -- lol, was it CSHD? I believe it was -- anyway, they basically offer margin-account holders "rent money." The "hotter" the need to borrow, the better the rate...
also from that same interview, I seem to recall the guy mentioning the fee they get...
quote:Originally posted by T e x: ya...remember the Schwab deal re -- lol, was it CSHD? I believe it was -- anyway, they basically offer margin-account holders "rent money." The "hotter" the need to borrow, the better the rate...
also from that same interview, I seem to recall the guy mentioning the fee they get...
yep, but, i still consider that a rumor... IMO?if it ain't in a SEC filing? it's a rumor...
i'm looking at a list of 20 companies right now that have been on the SHO list for 99 TRADING days or more... OSTK has been on since the list was started, the list shows 542 trading days...
at one point? global crossing ( a co. with lots of problems) had more short interest than there was float... that's not supposed to be possible....
another response to the article: In spite of all the complaining and conspiracy theories, I've never seen a company take the action to deal with a poor valuation supposedly caused by short-selling: If Overstock (NASDAQ: OSTK) is so undervalued, why doesn't Patrick Byrne take it private? Why aren't suitors lining up to acquire it? how do you take a company private if you can't even buy all the shares? i mean that. how can you buy all the shares if somebody (unknown) keeps selling more?
if you buy all the "legal" shares back? what happens to the people still holding the NS shares? what are they worth? can they be traded anymore? it's a sign that the system is broken...
there is no excuse for this behaviour. if somebody wants to legally short (anything)? more power to 'em... but not borrowing shares is (IMO) no different from counterfeiting cash. isn't that what stocks are supposed to be? "cash" issued by the company in return for a stake in the co?
so the company can't even raise more funds to "grow" their business, cuz the shorts will undercut them....
nah, there's no excuse for NS'ing unless it an MM doing bona fide trading in unusual volume activity, and even then? they need to be limited more strongly than they are now.... this whole "protecting widows and orphans" argument is a smoke screen to hide true criminal activity...
check kiters operate the same way...they go to jail for it...
-------------------- Don't envy the happiness of those who live in a fool's paradise. Posts: 36378 | From: USA | Registered: Sep 2003
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they claim that short-selling protects "widows and orphans" from buying overpriced stock.. it's an old old euphemism... the assumption is that widows and orphans are too stupid to trade
a rumor? lol, you think the number was mis-dialed and the guy who answered just "went with it"?
no, it's just that i'm skeptical about everything...
i already knew that short-selling of pennies was going on, but that was cuz of GVRP and AMTD... that was proof that AMTD was not taking delivery of shares before they allowed them to be sold...
i also contacted a couple TA's who flat out said that there's so much NS'ing going on that they can't understand how the market is holding up....
i also spoke with an MM that would trade direct for you: if you have the cash to put up, and they want alot... and no i never directly asked the MM if they would NS for me.. i prolly should have...
-------------------- Don't envy the happiness of those who live in a fool's paradise. Posts: 36378 | From: USA | Registered: Sep 2003
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well. legit short players are fine by me, forget the euphemsisms. If they can legit'lly put up their dough, no problem. Theoretically, there *should* be a way to "bet" against... And as mentioned, that adds the element of them being wrong: thus, I can "bet" 1) long (even if only for a few minutes) 2) short or 3) "anti-short," if you will, ie, play into a cover...
but when they can respond to rising pps by... shorting again! lol, is similar to coyotes getting their "inventory" returned
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