Tuesday, August 19, 2008

The SEC 'Naked' Short Selling Order Turned Out To Be A Joke

NYT's Floyd Norris publishes some interesting data from Sungard Astec about stock borrowing actiivity for short sales during the period of the SEC order for 19 stocks with regard to 'naked' short selling.

The data indicates that the strongest reaction in the markets to the SEC order came from market makers, who borrowed stock they didn't need to, because of the poor wording of the order.

Wrote Norris:

What is really interesting is that most of these shares were not hard to borrow before the announcement came. In other words, there was not much indication that these stocks were subject to abusive shorting — or a lot of shorting of any kind — before the commission acted. Had the S.E.C. put out a clear rule when it first acted, some of the additional borrowing might not have happened.

Norris concluded:

But the evidence that these stocks were not hard to borrow before the order was announced makes it seem more likely that the S.E.C. move did not have a lot to do with real worries about the then-current state of the market. Instead, it looks like an effort to do something, and to be part of a government effort to support the major financial companies and to send the signal that the government would not allow them to fail. If that was the goal, it has yet to show much success.

In short, as we sad from day one, a useless order, PR stunt.

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