SEC bans shorting finance stocks

[DJofSD]

Here's (http://sec.gov/rules/other/2008/34-58592.pdf) a watch list for later this year. See the appendix.

[DJofSD]

This list will probably grow by 1 to 800 with the likely addition of GE.

[Valuist]

While SOMETHING had to be done, I don't agree with a lot about this. And I personally benefitted, having bought GS on Wednesday. GS was getting hammered by shorts on Thursday until the news came out about the government bailout, which was later followed by the no-short rule.

Enforce the rules against naked shorting and reinstate the uptick rule. But by all means, do not outlaw all shorting. Shorts provide liquidity to the market, as well as a hedge for a portfolio in a market downturn. They also help companies mind their P's and Qs. Check out Macke tonight on Fast Money. He really was tearing into the government on the news.

[DJofSD]

Three of the regular CNBC contributors will be on Meet the Press on Sunday.

[barn32]

Three of the regular CNBC contributors will be on Meet the Press on Sunday.I disagree with this. Being able to short is a necessary element of stock trading.

I remember when they changed the rules in the silver market to put the screws to the Hunt brothers.

The best description of that episode was in a book called God in the Pits. (http://www.amazon.com/God-Pits-Confessions-Commodities-Trader/dp/0964695227)Here's a quote from an online article (http://The%20most%20interesting%20thing%20about%20this%20 episode%20that%20emerged%20in%20its%20wake%20was%2 0that%20members%20of%20the%20two%20commodities%20e xchanges%20had%20just%20as%20much%20at%20stake%20a s%20the%20Hunts,%20because%20they%20were%20short%2 0the%20futures%20contracts.%20If%20the%20corner%20 had%20succeeded,%20these%20were%20the%20guys%20tha t%20would%20have%20been%20financially%20killed.%20 Was%20there%20a%20conflict%20of%20interest%20when% 20they%20formulated%20the%20rules%20changes%20that %20eventually%20killed%20the%20Hunts%27%20silver%2 0corner?%20The%20answer%20is%20very%20clear.%20Oft en%20people%20take%20the%20moral%20high%20ground%2 0with%20a%20secret%20agenda.) I found.

When the market realized that the financial authorities would resort to drastic measures to stop any silver cornering attempts, the price began to slide.

Then in January 1980 the other exchange, the COMEX, changed their rules to only allow 10 million oz. of contracts per trader; excess to be liquidated. The Federal Reserve supported the rules modification of the two exchanges. It was analogous to a casino telling the professional gambler that only a certain portion of his chips were now exchangeable for cash.

The most interesting thing about this episode that emerged in its wake was that members of the two commodities exchanges had just as much at stake as the Hunts, because they were short the futures contracts. If the corner had succeeded, these were the guys that would have been financially killed. Was there a conflict of interest when they formulated the rules changes that eventually killed the Hunts' silver corner? The answer is very clear. Often people take the moral high ground with a secret agenda.

[Cangamble]

I haven't heard if they brought the rule into Canada too. But could today's big gain have something to do with forced short covering?

[Cangamble]

Canada just announced this:
OSC Issues Temporary Order Prohibiting Short Selling of Certain Financial Sector Issuers

TORONTO, Sept. 19 /CNW/ - The Ontario Securities Commission (OSC) today
issued a Temporary Order under Section 127 (5) of the Securities Act
prohibiting short selling of securities of certain financial sector issuers
that are listed on the Toronto Stock Exchange (TSX) and are also interlisted
in the United States (with the exception of one issuer whose shares are
interchangeable).
"We want to make it clear that we will take the appropriate steps
necessary to protect our markets and ensure that they are not used for
purposes of regulatory arbitrage," said OSC Chair David Wilson. "We will
monitor trading in securities of other Canadian financial issuers and take
action if necessary."
This Order is being issued as a precautionary matter with respect to
short selling of the securities of financial sector issuers subject to the
U.S. Securities and Exchange Commission (SEC) short selling order.
The OSC took the action in its capacity as lead regulator of the TSX. The
action taken by the OSC today supports the action taken by the SEC earlier
today. The U.K. Financial Services Authority took similar action this week.
The issuers affected are: Aberdeen Asia-Pacific Income Investment Company
Ltd., Bank of Montreal, The Bank of Nova Scotia, Canadian Imperial Bank of
Commerce, Fairfax Financial Holdings Limited, Kingsway Financial Services
Inc., Manulife Financial Corporation, Quest Capital Corp., Royal Bank of
Canada, Sun Life Financial Inc., Thomas Weisel Partners Group Inc., The
Toronto-Dominion Bank, and Merrill Lynch & Co., Canada Ltd.
This Order will be in effect until October 3, 2008, unless extended by
Order of the Commission. The Order is available on the OSC website at
www.osc.gov.on.ca (http://www.osc.gov.on.ca/).

[Valuist]

I haven't heard if they brought the rule into Canada too. But could today's big gain have something to do with forced short covering?

That's basically ALL the move was. The move by the Treasury department was part of it but big moves by the financials was mostly due to the no-short rule for the finacials.

[PaceAdvantage]

Did this new rule actually force those who were ALREADY short to cover, or did it just prevent NEW shorts from being initiated? I assumed it was the latter. Obviously, there are other considerations when short selling is eliminated on a whole class of stock (that whole complex arbitrage thingy between short selling and options, short selling and market makers, etc. etc....basically, this ruling is an abomination and should NEVER have been brought about...).

Market manipulation at its FINEST, brought to you by the very agency instructed to COMBAT market manipulation! What a joke!

[DJofSD]

I believe the answer is no, they don't have to cover.

[cj]

This all seems like a very slippery slope. Are we becoming socialists?

[Tom]

Becoming?

[lamboguy]

on a prior thread that i started called "bush is a socialist", this is what its all about. it really is as sick as it gets. they probably did this short selling deal to try to make the banks stronger financially. all that is happening is the insiders in these institutions are running to the exits like oj simpson was running thru the airports for hertz rent a car. in the mean time the honest citizens in this country that trust their president and leaders get screwed.

just remember this george bush will bust you every single time

thank you george bush

and thank you mr. akavano

[Cangamble]

I believe the answer is no, they don't have to cover.
Probably right. Or Magna Entertainment would have shot up to 80 bucks a share.:D

[DJofSD]

MECA - what a thinly traded stock. 3.8 days to cover the outstanding short interest based upon normal trading volume but that could change with just on trade. From what I saw based upon the issues I follow, all of the covering that took place on Friday after the SEC's action took place right at the start of the trading day -- in fact it was so bad, there were a lot of delays in the first 30 minutes or so of the trading day.

[Valuist]

I think Chris Cox must think the shorts have no memories......all that was happening on Thursday morning will be forgotten. But if one takes a look at the next support levels for the death spiral stocks, we are talking about huge possible gapdowns as soon as the ban is lifted. Not only will the prior shorts be back, but a whole new wave of short sellers will be on board.

I think Cramer hit the nail on the head: Chris Cox has never been a trader and is in now position to run the SEC. The current proposal is nothing more than a band aid.

[DJofSD]

If the plan currently being developed will allow the sheding of bad paper then the holding institutions will have to be re-evaluated. How that'll be done is any one's guess but at least the overhang of the bad investments and the need to mark to market will no long be present.

As far as Cox's goes, I believe his already demonstrated lack of enforcement of existing SEC rules is enough for me to say 'fire his ass'.

[robert99]

The "rules" against such scams seem to be completely unenforceable in practice and appear to be only only there in cases where someone has been stupid enough to get caught and the authorities have been informed by effected insiders, long after the event.

What seems odd is that the London ban is far tougher and lasts until mid -January. Many arrests are reportedly pending final evidence gathering. The whole London shorting operations could then soon be focused on USA - double the trouble and market chaos at twice the speed, right through the election period

Is this GWB's parting revenge on USA?

[lamboguy]

if you think its bad in the united states, in canada where naked shorting is illegal, its done every single day. all you have to do is tell the broker that you are going to deliver the shares. 3 weeks go by and the shares don't get delivered the broker don't even ask for them.

this is happening repeatedly with the junior gold mining shares. i know guys that are going to leave the TVX and list their stocks in london as well as the amex.

[DJofSD]

if you think its bad in the united states, in canada where naked shorting is illegal, its done every single day. all you have to do is tell the broker that you are going to deliver the shares. 3 weeks go by and the shares don't get delivered the broker don't even ask for them.

Well lamboguy that's exactly what has been happening in the US. NASD publishes a list but the SEC does nothing.

[Tom]

Is this GWB's parting revenge on USA?

No, it is a trail balloon to see how much O'Bama and his group of thieves, all profiting from this at our expense, can go. Bush has little to do with this. This is a professional job - Democrats. Savings and Loan Part Duex.

[Valuist]

No, it is a trail balloon to see how much O'Bama and his group of thieves, all profiting from this at our expense, can go. Bush has little to do with this. This is a professional job - Democrats. Savings and Loan Part Duex.

The short sale (temporary) law has NOTHING to do with Obama or Democrats but the rich fatcats on Wall Street; specifically Morgan Stanley, Goldman Sachs, State Street and Northern Trust, who were the prime beneficiaries. In those banks I seriously doubt you would see a Democratic majority.

[Tom]

I'm talking about the housing market - Fannie and Freddy. I was still on the Bush is a socialist thought.

[DJofSD]

The short sale (temporary) law has NOTHING to do with Obama or Democrats but the rich fatcats on Wall Street; specifically Morgan Stanley, Goldman Sachs, State Street and Northern Trust, who were the prime beneficiaries. In those banks I seriously doubt you would see a Democratic majority.I didn't know that money had a political affliation.

[Valuist]

It really doesn't. But politics was injected into the thread. I was referring to the beneficiaries.

Away from those who work on Wall Street, I think both Republicans and Democrats would not be happy with the ban of short selling.

[lamboguy]

personally i think bush pulled this dumb stunt because he hates mccain deep down inside and didn't like it when mccain made a sharp move with his vp choice. i think bush wants to get obamas elected.

[Tom]

A mind is a terrible thing to waste.

[sammy the sage]

""When the market realized that the financial authorities would resort to drastic measures to stop any silver cornering attempts, the price began to slide""

Very well put!

Same thing will happen here w/our monetary system...DEPRESSION is VERY close!

[barn32]

""When the market realized that the financial authorities would resort to drastic measures to stop any silver cornering attempts, the price began to slide""

Very well put!

Same thing will happen here w/our monetary system...DEPRESSION is VERY close!If I remember correctly, in the book God in the Pits, the author said what they actually did was not allow anyone to buy silver--you could only sell.

I'm paraphrasing, but it was something to that effect.