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Over the weekend, the SEC announced plans to crack down on false rumors and said it is examining whether broker dealers and investment advisers have controls in place to prevent market manipulation.
The agency's rule change would prevent investors from making "naked" short sales of the biggest financial stocks. A "naked" short sale occurs when an investor sells stock that has not yet been borrowed.
Broker-dealers will sometimes accidentally fail to deliver stocks to investors who have arranged to borrow a stock. If it is done intentionally, it is illegal.
"Today's commission action aims to stop unlawful manipulation through naked short selling that threatens the stability of financial institutions," SEC Chairman Christopher Cox said in a statement.
The emergency rule would require a short seller to borrow the securities before executing the sale. It would also require the investor to deliver the securities on the settlement date.
"The new rule will benefit the investment community and help bring more stability to the market," said Dylan Wetherill, president and founder of short interest tracking service ShortSqueeze.com.
"This rule would help relieve the extreme downward pressure on stocks that has helped fuel the market down to these levels," he said.
As of June 30, short sellers held about 14 percent of Fannie's outstanding stock, up from around 3 percent last August. For the same period, shorts held almost 12 percent of Freddie's outstanding stock, up from about 2.7 percent. They also held about 10 percent of Lehman's stock, up from 4.5 percent.
Short sellers say they prevent stocks from becoming overvalued and are an essential feature of the market.
http://www.reuters.com/article/newsO...BrandChannel=0
The agency's rule change would prevent investors from making "naked" short sales of the biggest financial stocks. A "naked" short sale occurs when an investor sells stock that has not yet been borrowed.
Broker-dealers will sometimes accidentally fail to deliver stocks to investors who have arranged to borrow a stock. If it is done intentionally, it is illegal.
"Today's commission action aims to stop unlawful manipulation through naked short selling that threatens the stability of financial institutions," SEC Chairman Christopher Cox said in a statement.
The emergency rule would require a short seller to borrow the securities before executing the sale. It would also require the investor to deliver the securities on the settlement date.
"The new rule will benefit the investment community and help bring more stability to the market," said Dylan Wetherill, president and founder of short interest tracking service ShortSqueeze.com.
"This rule would help relieve the extreme downward pressure on stocks that has helped fuel the market down to these levels," he said.
As of June 30, short sellers held about 14 percent of Fannie's outstanding stock, up from around 3 percent last August. For the same period, shorts held almost 12 percent of Freddie's outstanding stock, up from about 2.7 percent. They also held about 10 percent of Lehman's stock, up from 4.5 percent.
Short sellers say they prevent stocks from becoming overvalued and are an essential feature of the market.
http://www.reuters.com/article/newsO...BrandChannel=0
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