The rules were not approved yet. They are in what they call a comment period. Supposedly it should be soon.
FYI, these are rules not laws and there is a distinct difference, but that is a story for another day.
As far as shorting the stock you can through Canada but they require a 2 for 1 margin. If you short 1 share of a $3 stock they want $6 in the account. If the stock moves against you, the requirement is the same, 2 for 1, although not heavily enforced, they will let the stock move quite a bit before they call for more money.
The thing that this will really stop is the following:
First there have already been rule changes in the last year. Before when public companies (fully reporting ones) wanted to raise money they needed to go through a full blown registration statement and a comment period. When the public saw the shares coming and saw obvious dilution, the share prices fell. So a loop hole was created. An exemption to the registration rules under the Securities Act called Regulation S. Regulation S simply stated that if the buyer was a foreign entity it could be issued to him, with a restricted legend but the legend could come off in 45 days. The Reg S buyer to protect himself against the potential downfall of the stock, would put a clause in the stock purchase document that said, if the stock falls in price that the company would have to issue more shares to cover the difference. What did that do, well here goes. First though, the Reg S offering was not disclosed to the public so they never knew what hit them.
I the Reg S holder bought the stock at $5. I start shorting the stock down to $3, I then try to cover my position. If I cover I made $2, If i couldn't cover I tell the company issue me more shares. So they had no downside. They good indefinitely bang the stock with no downside, make the money trading the stock and make the company cough up more shares. This was the death of many companies and destroyed unsuspecting investors. Examples of Reg S stocks, TIRE, CCEE, JAVC, SYQT, forget it there are hundreds. So the SEC put new rules in last year that if the company did a Reg S, they had to file an information statement 8K within 15 days to notify the public and in conjunction with the new rules changed the holding period on Reg S to one year and shortened the holding period on 144 stock to one year. So out the window went that abuse.
So left was the abuse of the non-reporting company who's only requirement is to file an annual financial statement with the state in which it is incorporated. In the meantime, there is an exemption under the SEcurities Act under Regulation D, Rule 504 which allows a non reporting company to raise up to $1 million in an offering and can issue as many shares as they want for that $1 million, and guess what they don't need to tell you. So when you see the shares go from 10 to 18 million and you don't hear it from the company, that is one of the perils of buying non-reporting BB stocks, that is why the SEC intends to stop this last loop hole for non reporting.
So hopefully the abuses will be limited after the new rules come into effect, although there are dozens of other underhanded ways that these BB companies and promoters skate around the rules. |
