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Microcap & Penny Stocks : Naked Shorting-Hedge Fund & Market Maker manipulation?
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From: The Ox7/25/2008 8:52:22 AM
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Message 24780055

Equity Quantitative Analysis P. Patel(CS)
Naked Short Selling
• The Securities and Exchange Commission (SEC) issued an emergency order limiting naked short selling on Fannie Mae,
Freddie Mac and 17 other financial companies as a part of its strategy to limit the impact of disruptive rumors and stop price
manipulation. The order requires short sellers in the 19 securities to first borrow or have an agreement to borrow before the
sale. This effectively raise the cost of borrow for these securities and deters additional short sellers. The SEC felt it had to act,
as the number of securities on the NYSE's threshold list has been increasing over the past two years and recent downward
pressure in the financial sector due to aggressive shorting.
• In a naked short sale, the seller does not borrow or have an arrangement to borrow the security before the sale, which can
lead to a failure to deliver the security three days later on the settlement date. The SEC is considering implementing similar
rules across the entire market. If the emergency order was extended to the entire market, securities with large amount of short
interest would be impacted the most as the increase in borrowing cost would deter additional short sellers.
• Short interest has increased dramatically over the past two years as short selling become more prevalent and available to
previously long-only managers. Increase in hedge fund trading and recent interest in short extension strategy, aggregate short
interest for the NYSE and NASDAQ increased rapidly and has reached historic levels.
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