Short Selling Ban: Ridiculous And Biased

A couple of interesting tidbits on the SEC’s new short-selling rule:

(From Infectious Greed): “…consider the practical consequences of making it impossible to short financials (and don’t even get me started about disallowing all shorting): What happens, for example, if you’re running a long/short quant fund with billions of dollars and hundreds of positions? Do you give the money back now that you can’t trade on the short side of your fund? Do you push all the short trades through ETFs? Do you abandon the entire financial sector? And who do you sue when your fund blows up because you’re not sector neutral? Short-only funds are, of course, now, turned into commercial real estate companies.

Absurd. Bad enough to have idiot financial services busting themselves and markets with 30x leverage built on a tissue of toxic CDOs, but now we have frantic and destructive rulemaking to prevent over-levered nitwits from crumbling. “

Better yet many of the over-levered nitwits who are blaming their problems on short-sellers run/own hedge funds that are shorting thousands of stocks, which means they’re asking the government to keep traders from shorting THEM whilst they go ahead and happily short the stocks of other sectors.

Ridiculous, no?

Speaking of ridiculous, here quick list of some of the stocks that have been banned from being sold short:

(From Infectious Greed): “Some SEC dyslexic likely meant MPB, which is Mid Penn Bancorp, and they blocked shorting of MBP instead, which is Metabolic Pharmaceuticals.

Lehman is on the list, which is hugely reassuring given its current bankruptcy status.

The SEC is blocking shorting of NAHC, which is Nigerian Aviation Holding Company. Damn Nigerians. It’s not enough they have all the best scams; they get shorts blocked too.

Silver State Bancorp is on the list. Recall, it’s a failed bank already seized by the FDIC.”

Like I said, ridiculous.

You can read WSJ coverage of the new short-selling rules here.

Sources:

Infectious Greed: “SEC Wants to do Half Pakistan: No Short Selling” — Paul Kedrosky, September 18, 2008.

Infectious Greed: “Details on the SEC’s New No-Shorting Rule” — Paul Kedrosky, September 19, 2008.

Disclosure: at the time of publishing the author didn’t own a position in any of the companies mentioned in this article; the ideas expressed are solely the opinions of the author and shouldn’t be viewed as financial or investment advice.

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