Since the SEC rule was announced naked short sells without a locate are to be banned on 19 stocks.
A recent article in the NY Times, suggests that his will help the financials from getting unfairly crushed.
According to everything thing I have read a move was lobbied by a trillion dollar fund to exclude market makers from the process.
More importantly, as shorts are covered we are seeing buying as well in the sector. This allows for firms and market makers to have positions in house where a locate is not necessarily needed since the shares are on hand.
The 19 stocks selected were never deemed to be hard to borrow in the first place, so in effect this is really a net capitalization rule. If not implemented it would put the 19 stocks into a position to raise more capital. Raising capital has become harder as of late as the liquidity crunch unfolds new layers of losses.
IMO this new rule only provides more breathing room for the financials, but also new opportunity to go short the correct way. By having naked shorts cover we have gotten an incredible squeeze along with pundits on the idiot box stating once again a bottom has been reached.
Effectively, as the naked shorts get covered along with early speculative buyers firms and market makers get to rebuild long positions and have the position to short against with out a locate. What happens when those speculative longs and value positions get trimmed for profits? Well it would seem that you arise in a naked short once again.
So has anything really changed other than an opportunity to re short a troubled sector within the market place?
Also investors seeking to buy on the cheap may not get their dream price since this move is “clearing the field” of short positions. Short positions are a self regulating effect of the market place. So with less short positions out there pressure has been relieved robbing investors of prices they deem to good to pass up.
No matter what rule is put in place garbage will always find its way into the bin. As well the blame game continues siting mortgage lenders as the problem, but the banks were also involved. Uncle Sam himself should look to his behavior in this debacle instead of placing blame elsewhere. Rumor is not creating instability, fundamentals are creating instability.
http://online.wsj.com/public/article/SB121641296022866029.html?mod=2_1569_leftbox *Must Read*
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by GW
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