The SEC is currently mulling new rules each designed to make short selling harder. Here’s the gist of the three made public:
~The infamous uptick rule… regulators are considering reinstating a rule that requires a stock to be bid up before a short seller can sell the stock down
~Two of the proposed new rules would build what the SEC calls “circuit breakers.” Essentially, short selling could be halted on any stock that falls a certain percentage in a certain amount of time. Or as one proposal suggests, after falling a certain amount, a stock would have to pass a bid test -- meaning someone would have to buy a large portion of shares -- before short sellers could continue their evil “bear raids.”
~The infamous uptick rule… regulators are considering reinstating a rule that requires a stock to be bid up before a short seller can sell the stock down
~Two of the proposed new rules would build what the SEC calls “circuit breakers.” Essentially, short selling could be halted on any stock that falls a certain percentage in a certain amount of time. Or as one proposal suggests, after falling a certain amount, a stock would have to pass a bid test -- meaning someone would have to buy a large portion of shares -- before short sellers could continue their evil “bear raids.”
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“The SEC is making progress on efforts that should maintain the reputation of honest short selling,” writes our resident short side analyst, Dan Amoss. “Hopefully, it will dispel the myths and conspiracy theories about short selling -- myths promoted by people like Dick Fuld, former CEO of Lehman Bros. Fuld was busy attacking short sellers while he was overstating the value of the toxic assets on Lehman’s balance sheet by hundreds of billions of dollars. ‘Naked short selling’ and ‘bear raids’ are the most popular excuses for executive incompetence.
“The uptick rule will probably be reinstated, and that’s not necessarily a bad thing for short sellers. The uptick rule will probably increase transaction costs, but most short sellers have never relied on rapid-fire selling as part of their trading strategy; most are patient and wait for their short thesis to play out over months and years.”
“The SEC is making progress on efforts that should maintain the reputation of honest short selling,” writes our resident short side analyst, Dan Amoss. “Hopefully, it will dispel the myths and conspiracy theories about short selling -- myths promoted by people like Dick Fuld, former CEO of Lehman Bros. Fuld was busy attacking short sellers while he was overstating the value of the toxic assets on Lehman’s balance sheet by hundreds of billions of dollars. ‘Naked short selling’ and ‘bear raids’ are the most popular excuses for executive incompetence.
“The uptick rule will probably be reinstated, and that’s not necessarily a bad thing for short sellers. The uptick rule will probably increase transaction costs, but most short sellers have never relied on rapid-fire selling as part of their trading strategy; most are patient and wait for their short thesis to play out over months and years.”
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