Jury isnt out, it hasnt even been seated, as to whether the systems control mechanisms are complicit in allowing for the breach of contract occurring between shareholders and IPO rules governing stock issuance.
Fox Report; naked short selling, Commissioner Paul Atkins joined FOX Business to talk about its effectiveness.
“I think the jury is still out,” Atkins said of the ban that expires tomorrow. He also said the SEC would report its findings on the ban later today.
It has been one week since the SEC enacted a temporary ban on naked short selling, the act of selling a stock short without first borrowing the share, but Atkins said it may be reinstated and expanded to include more financial institutions.
Since the ban, Fannie Mae shares are up by close to 75%, and shares of Freddie Mac are up approximately 60%. Lehman Brothers is also up about 35%, all outperforming the S&P 500. However, Atkins said it’s questionable whether or not the ban caused this.
“I’m not sure that’s necessarily what we wanted to have happen, and whether it’s that all attributable to the emergency order,” said Atkins. “I think that is cautionable.”
He said the market itself was changing during the time the stocks of Fannie Mae and others soared and that steps taken by the president and Congress had also boosted conditions.
Because naked short selling can manipulate the market by artificially driving down a stock’s value, it is partially blamed for the fall of Bear Stearns. Atkins said the SEC was also taking steps to stop rumor mongering, and was conducting investigations.
When asked if the ban would be extended to include the 19 other financial institutions that were in a delicate situation following the credit crunch, Atkins said that a lot of people had requested an extension.
“I, for one think we need more data before we can extend it more broadly,” said Atkins. “There are a lot of costs incurred by market participants to try to deal with these 19 stocks with the particular requirements of this rule.”
Atkins said a good cost/benefit analysis was needed, as were other structural options. One particular “structural option,” would require shortsellers to disclose their positions. This would particularly affect hedge fund managers, and Atkins said the SEC would have to see if it was even permissible under the statute.
“You have to remember there are a lot of ways people can shortsell outright, but there are a lot of synthetic ways of doing it as well in the options markets and the derivative markets, and how you would define all of this would be one of the questions,” said Atkins.
Atkins said the current market situation was “yet another twist” in what has historically been a market with many ups and downs. He said that we were in a “tumultuous time” with regard to the credit markets, but that people should keep in mind that the market itself works.
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