Former SEC chairman on NPR
"Commentary"-Selling Short Selling Short
Tuesday, August 12, 2008
SUSIE GHARIB: Tonight's commentator says the recent crackdown on short selling should be just the beginning of better regulation. He's Harvey Pitt, former chairman of the Securities and Exchange Commission, and CEO of Kalorama Partners.
HARVEY PITT, CEO, KALORAMA PARTNERS: The SEC's emergency efforts to curb naked short selling foster critical market values of disclosure, transparency, fairness, and accountability. These efforts should be made permanent, and extended to all U.S.-traded stocks.
Efficient and fair markets require unfettered interaction of supply and demand. That means participants may circulate only truthful information and only sell what they actually can deliver.
Short sales add liquidity and help markets discover overvalued securities, but only if the short selling is appropriate, not naked. Naked shorting creates phantom shares, artificially increases supply, and unfairly drives down prices. The SEC is right to require short sellers actually to deliver when trades are settled.
Manipulating stock prices by rumor-mongering is already illegal. Until recently, we lacked the ability to track rumors to their sources. But regulators can now track e-mails, voice-mails and other electronic communications, and penalize those who spread false rumors to enhance their short positions. Once the malady is properly diagnosed, it's clear the SEC's stated willingness to outlaw all naked short selling and apply that ban to all U.S. stocks, combined with the SEC's pursuit of rumor-mongering, are just what will cure the evils caused by naked shorting. I'm Harvey Pitt.
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