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Non-Tech : Auric Goldfinger's Short List
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To: El Canadiense who wrote (17995)7/13/2006 12:41:32 PM
From: afrayem onigwecher  Read Replies (1) of 19428
 
SEC Addresses Naked Short Sales

By a WALL STREET JOURNAL Staff Reporter
July 13, 2006; Page C3

WASHINGTON -- The Securities and Exchange Commission, as expected, responded to complaints that its rules on "naked" short-selling need to be tightened by taking a step toward closing some gaps left open by short-sale rules adopted in 2004.

The commission unanimously voted to seek public comment on changes to its regulations. Among the most significant proposals is eliminating a "grandfather" exception for some hard-to-borrow stocks.

"There are still persistent failures to deliver in the marketplace, and some of that is undoubtedly attributable to loopholes in our rules," SEC Chairman Christopher Cox said. "Today, what we're moving to do is to close those loopholes."

Short-selling is a legitimate practice that involves selling borrowed shares in a bet that prices will fall. Traders profit by buying back the shares at a lower price and pocketing the difference.

Naked short-selling is generally forbidden and occurs when a trader doesn't borrow or replace shares sold short. Regulation SHO, a collection of rules on short-selling, sought to curb the practice by requiring brokers to locate shares to borrow before executing customer short sales.

The regulation also established "threshold" securities that meet certain conditions, such as more than half of 1% of outstanding shares haven't been delivered on the date they were due for five consecutive days. Once a security is on the threshold list, a broker with short positions must close out any failed trades within 13 business days.

URL for this article:
online.wsj.com


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