Wednesday, July 16, 2008
SEC Moves to Curb Naked Short-Selling
This rule might hurt State Street's security lending business, instead of strengthening... Under current rules, a short seller must first locate shares to borrow, but does not have to enter into a contract with the share lender. Often, more than one trader is able to borrow the same shares, creating a multiplier effect in the size of the total short position. Under the emergency order, a short seller would be required to have an actual agreement to borrow the shares. The new move would effectively take shares out of the market for borrowing, which could reduce the amount of stock available for selling short. It's far from clear whether the move, which sparked a barrage of criticism, will curb the activity of short sellers. While its aim is to curb abuses, it also would add an additional layer of bureaucracy to legitimate transactions.