SEC extends curbs on 'naked shorting' of big financial stocks

No reason to mess with success: The Securities and Exchange Commission voted late Tuesday to extend through Aug. 12 its curbs on potentially abusive short selling of major financial stocks.

After six weeks of plummeting bank and brokerage share prices, the SEC on July 15 announced an unprecedented plan aimed at preventing "naked" shorting of 19 of the biggest stocks in the financial sector, including Bank of America Corp., Citigroup Inc., Merrill Lynch & Co. and Fannie Mae.

Maybe it was just a coincidence, but the stock market overall bottomed on July 15. And since then many financial issues have rebounded sharply.

SEC Chairman Christopher Cox has said the agency has no problem with legitimate short sellers -- bearish traders who borrow stock and sell it, betting the price will drop.

But the SEC, Cox said, wanted to prevent so-called naked shorting, which is selling stock without having the borrowed shares lined up. Naked shorting can lead to a "bear raid" on a stock, pummeling it mercilessly.

The temporary rule that took effect on July 21, and would have expired Tuesday if it wasn't extended, requires that "anyone effecting a short sale in these securities arrange beforehand to borrow the securities and deliver them at settlement."

That shouldn’t have been a big deal for legitimate short sellers. But it’s entirely possible the SEC’s targeting of the 19 financial issues has had a muffling effect even on the shorts who follow the rules. Why give the securities cops a reason to put you under the magnifying glass?

Or maybe the SEC was just very lucky with its timing -- assuming one of its unstated goals was to halt the market meltdown.

The agency said Tuesday that it won’t extend the rule for the 19 stocks beyond Aug. 12, but expects immediately thereafter to propose "additional protections against abusive naked short selling" for the entire market.

Photo: SEC Chairman Christopher Cox. Chip Somodevilla/Getty Images

Comments

[JDavison]

Why are they only protecting onl the financial stocks???

Naked shorting has been destroying some of the most traded stocks in the market for years???
This should not be allowed at all.

Its obvious some people are getting rich manipulating the market, and stealing from retail investors.

I guess it's OK for Financial institutions to naked short other stocks, but they don't like it when their tactics are used against them.

JD

[Anti_Financial_Terrorism]

What a crook.

Asking the fox, errr I'm mean Cox guarding our hens. What a briliant idea.

[Jim S.]

What ever happened to America. Naked shorting should be a crime! These are not the "Ideas" or the "American Way" that I put my life on the line for in Viet Nam. SEC should be ashamed for this kind of "legal stealing" of peoples'
hard earned money.

[mike]

I thought the practice of naked shorting was already illegal. This shows the SEC/Cox does not know their own rules, or they're deliberately trying to deceivce the general public and terrorists that they are going to start watching these issues specifically. We all know better. The SEC is incapable of watching the market closely enough to contol anything non-specific. So I guess this is a decent idea, if another outright falsehood. We are out manned and out teched by the raiders of our economy. Ask any investment strategist. They will tell you that the volatility of this market is incomprehensible. We've never seen this before.