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From today's Market Dispatches
Market Dispatches - MSN Money
Remember that old adage, "a day late and a dollar short?" Well the Securities and Exchange Commission's new rules for short-selling come about a billion dollars short.
The SEC this morning issued three new rules to help curb so-called "naked" short-selling, a controversial practice that has been blamed for the downfall of many financial stocks. Earlier this summer, the SEC announced an order that protected 19 financial companies from "naked" short-selling; these new rules, however, cover all companies.
The SEC explained the difference between an ordinary short sale and a "naked" one: 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 a 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.
"These several actions today make it crystal clear that the SEC has zero tolerance for abusive naked short selling," SEC Chairman Christopher Cox said in a statement.
The SEC had been under pressure from financial companies, as well as other groups. But Sen. Christopher Dodd (D-Conn.) on Tuesday said the SEC moved too slowly.
The SEC's new rules go into effect at 12:01 a.m. ET Thursday. The SEC did not address the "uptick rule," which it got rid of last summer. That rule prevented short sales unless they were made at a higher price than the previous trade of the shares.
Market Dispatches - MSN Money
Remember that old adage, "a day late and a dollar short?" Well the Securities and Exchange Commission's new rules for short-selling come about a billion dollars short.
The SEC this morning issued three new rules to help curb so-called "naked" short-selling, a controversial practice that has been blamed for the downfall of many financial stocks. Earlier this summer, the SEC announced an order that protected 19 financial companies from "naked" short-selling; these new rules, however, cover all companies.
The SEC explained the difference between an ordinary short sale and a "naked" one: 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 a 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.
"These several actions today make it crystal clear that the SEC has zero tolerance for abusive naked short selling," SEC Chairman Christopher Cox said in a statement.
The SEC had been under pressure from financial companies, as well as other groups. But Sen. Christopher Dodd (D-Conn.) on Tuesday said the SEC moved too slowly.
The SEC's new rules go into effect at 12:01 a.m. ET Thursday. The SEC did not address the "uptick rule," which it got rid of last summer. That rule prevented short sales unless they were made at a higher price than the previous trade of the shares.
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