Today the SEC put a 30 day moratorium on naked short selling Fannie Mae and Freddie Mac stock. While this is great move for the SEC, it is woefully
SEC bans naked short sales of financial firms
Naked short selling is already prohibited by law. To say that they now plan to prohibit it for 30 days on a couple stocks is ridiculous. It is an
admission that they have not been enforcing the law and most likely plan to let it continue.
For reference, investors are allowed to sell stock they don't own in hopes that it will go down. This is called selling short. In order to short you
are required to borrow the shorted shares from someone who owns them. This is the law. Naked short selling occurs when those who short do not validly
borrow shares. In other words they sell counterfeit shares. This increases the number of shares available in the market and ultimately this makes the
stock fall due to false supply and demand.
In most cases the naked short selling occurs against companies who need financing and with naked short sellers driving down the stock, financing
becomes very hard to come by. If it does come, it comes at a very steep price, which in either event ends up forcing the company into Bankruptcy or a
very tough operating enviroment. Most often the loan sharks work in unison with the short sellers so that they can eventually own for themeselves the
valuable assets of the company.
Aiding the naked short sellers is the abolishment of the uptick rule. The uptick rule only allowed shorting on an uptick of the share price. This
prevented from large scale shorters to short a large number of shares at market prices thus driving down the price of the stock dramatically. The
abolishment of the uptick rule by the SEC has made it way to easy to maniplulate stock prices down, especially in an enviroment where there isn't
So while today's announcement sounds fine, it proves the point that naked short selling is rampant and that the SEC doesn't care and doesn't plan
to do anything about it, except on a temporary basis. Given the lack of regulation it would not surprise me if there are actually multiples of the
outstanding stock of each company trading in the markets. The brokerages are the ones required to enforce the rules so it is basically on their backs.
If they were forced to cover all these short shares the clients wouldn't have enough money and the brokerages would go bust. Thats why they don't
enforce it. Instead they let the little guy take it on the chin in their 401k's and IRA's.
I say screw the brokerages. Make them cover. Let them go bust for perpetrating such high fraud.
On a reported basis there are currently 370 stocks currently listed as having naked short positions.
Reg SHO List
I imagine the real numbers are much higher.
More info on Naked Short Selling
Sanity Check - Naked Short Selling
Check it out and ask your elected officials why Chairman Cox is not enforcing the naked short selling rules for all public companies. Tell them you
want the uptick rule reinstituted. Tell them you want some integrity restored to the US Markets. And while you are at it, tell them about all the
other things that are wrong with America.