"The SEC has zero tolerance for abusive naked short-selling," said SEC Chairman Christopher Cox announcing several co-ordinated actions to strengthen investor protections against "naked" short-selling.
The SEC took several co-ordinated actions to strengthen investor protections against "naked" short-selling. The Commission's actions will apply to the securities of all public companies, including all companies in the financial sector. The actions are effective at 12:01 a.m. ET on Thursday, Sept. 18, 2008.
In parallel, the Commission provides “tips” for broker-dealers on avoiding failures to deliver securities. These “tips” are intended to assist broker-dealer firms in establishing policies and procedures and controls to avoid failures to deliver.
"The SEC has zero tolerance for abusive naked short-selling," said SEC Chairman Christopher Cox. "The Enforcement Division, the Office of Compliance Inspections and Examinations, and the Division of Trading and Markets will now have these weapons in their arsenal in their continuing battle to stop unlawful manipulation."
In an ordinary short sale, the short-seller borrows a stock and sells it, with the understanding that the loan must be repaid by buying the stock in the market (hopefully at a lower price). But in an abusive naked short transaction, the seller doesn't actually borrow the stock, and fails to deliver it to the buyer. For this reason, naked shorting can allow manipulators to force prices down far lower than would be possible in legitimate short-selling conditions.
Today's Commission actions go beyond its previously issued emergency order, which was limited to the securities of financial firms with access to the Federal Reserve's Primary Dealer Credit Facility.
The Commission's actions are attached in the Press release.
Press release
New short selling rules
“Tips” for broker-dealers
© SEC
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