Short Sale Restrictions
A short sale is generally a sale of stock by an investor who does not actually own the stock.
The SEC, the New York Stock Exchange, and the National Association of Securities Dealers, Inc. (NASD) place restrictions when investors want to sell short. Their rules prevent investors from selling short unless the last trade of the stock is at the same or higher price—in other words, investors can’t sell short in a declining market. These restrictions aim to stop continuous short selling that would exacerbate a falling stock price. The SEC also has a rule that prohibits short-sellers from manipulating a securities offering.
The rules investors must follow are:
Exchange-Listed Stocks
Rule 10a-1 of the Securities Exchange Act, known as the uptick rule, seeks to limit short selling in a declining market. The rule prohibits investors from selling an exchange-listed stock short unless the stock's last trade was at the same price or higher than the previous trade. New York Stock Exchange applies a similar rule—Rule 440B—to its member brokerage firms and to its specialists.
In addition, Rule 10a-2 of the Securities Exchange Act requires brokerage firms that sell a stock short or allow their customers to sell short to first make sure that the shares can be borrowed or that delivery of the securities can be made to the purchaser by the settlement date.
Nasdaq Stock Market Stocks
NASD Rule 3350 prohibits NASD members from short selling in Nasdaq Stock Market stocks at or below the inside best bid when the best bid is below the previous inside best bid for that stock. The inside best bid is the highest bid by all market makers quoting a particular stock.
Stocks in a Securities Offering
Rule 105 of Regulation M seeks to prevent short sellers from manipulating securities offerings. The Rule prohibits the covering of short sales with securities obtained from an underwriter, broker, or dealer that is participating in the securities offering.
Thus look what petition addresses. It is exactly what the SEC wants addressed:
Remember File No. S7-24-99 & its questions:
Q37. Are the objectives of Rule 10a-1 legitimate concerns in today's markets?
Q38. Are the provisions of Rule 10a-1 necessary in the securities markets?
My opinion is YES! If removed who would want to buy the market at all. Short it to nothing and then buy. Their would no faith by investors (not short sellers) in the efficiencies of our markets!
Q39. Does Rule 10a-1 continue to serve a valid purpose in a declining market by preventing short sellers from accelerating declines in securities prices, or "depressing" the market?
YES! But the check and balances come into question that this is being complied with 100% If this protection is removed why would anyone buy until say ZERO.
Q40. Does Rule 10a-1 prevent efficient pricing or slow the incorporation of negative perceptions into an efficient price? Does the need for more efficient pricing, if there is a need, outweigh the protective benefits of Rule 10a-1?
NO! on both counts because without protections the market would be more manipulated than it is now. Where is the efficiency in manipulation? Especially by those that use investors property paid for with the investor’s hard earned money are actually fronting the borrowing of short sellers and they don't even have a option or right of refusal.
Q41. Is Rule 10a-1 effective in preventing manipulative short selling?
To a degree YES! But regardless short selling manipulative and the distortion of information should be dealt with in the same rules as Pump & Dumps.
Q43. Does Rule 10a-1 limit price volatility in the securities that it covers?
ABSOLUTELY! it needs to stay in place..
Q44. Would investors avoid securities, or classes of securities, that they perceive to be vulnerable to abusive short selling? If so, would this result be exacerbated by deregulation of short selling?
ABSOLUTELY! on both counts. What is wrong with rightful owners selling what they own and paid for instead of allowing short selling to damage the market more than they do. More investors are harmed by their very own position paid for with their hard earned money and they get nothing for it.
Q46. If we rescind Rule 10a-1, should we reconsider a recordkeeping and/or disclosure requirement for significant short positions? Q47. Would dissemination of aggregate open short positions on a daily basis decrease the necessity of Rule 10a-1? What costs would be associated with such a program?
ABSOLUTELY! All recordkeeping and disclosure requirements should be REQUIRED for transparency with checks and balances, and further like the 5% rule of reporting thus should short selling have to report by this same measure if not by a lower percentage..
Q48. If we rescind Rule 10a-1, should we consider adopting a rule that requires a seller to identify a source of borrowable shares prior to executing a short sale?
ABSOLUTELY! Presently, since there is not transparency most short sales are shown as a plain sell. People who are buying the stock should be informed they are buying stock from someone other than the rightful owner.
No Own No sell is the only way investors will get a decent level playing field. But this is not even touching on the offshore. This is just dealing with the regulated shorting.
So don;t give me this the petition is off topic to what the SEC wants to hear.
P2BAAAT & DSAS
Gary |
