Interesting article on Naked Shorts and Harvey Pitt launching a website, RegSHO.com, matching borrowers and lenders to facilitate non-naked shorting. It sounds like the effectiveness of the website will depend on the SEC enforcing the laws against naked shorting. For a more thorough explanation, read the Washington Post article which Michael sites: “CEOs Launch Web Site To Protect Short Sellers”. – Ilene
Harvey Pitt Comes Forth to Clothe Thy Naked Shorts
Courtesy of Michael Steinberg at Click Broker.
The Washington Post “CEOs Launch Web Site To Protect Short Sellers” reports former SEC Chairman Harvey Pitt (2001 to 2003) sees danger in naked short selling and has stepped forward as matchmaker. His new website RegSHO.com, paired with LocateStock.com and Buyins.net will match borrowers and lenders, as well as give compliance advice from Pitt. The monthly fee is $995 (plus a per share charge for locates) to access all three sites.
After a less than glorious stint as SEC chairman, Pitt seeks redemption by warning us that naked short selling is “a very serious problem, and it has led to a whole host of additional problems in the marketplace." "It’s definitely a vehicle that has and can be used by those who effectively want to push the price of the stock down and do it rapidly."
From the Post: “In naked short selling, the seller never borrows the shares but continues with the transaction as if he had. This results in fake, or phantom shares, critics say. Since the seller is not constrained by the number of available shares, he can sell an unlimited number of securities that may not even exist. Naked short selling, in large volumes, can depress a company’s stock, by creating sustained downward pressure, and ultimately destroy it, driving down the price until the stock is worthless, critics say.”
Regulation SHO requires short sellers either locate shares or have a reasonable belief that shares can be delivered by settlement. Oversight has been lax. Some companies have had large open naked short positions for long periods of time.
The SEC’s temporary restraint on naked short selling had added to the administrative burden and costs for hedge funds and other large shorters. An advocacy group for hedge funds said operation costs doubled for short trades in the 19 protected banks and GSEs. With the SEC leaning toward restraining naked shorts on the entire market, Pitt saw opportunity.
Reminder: Please continue to ignore the 48-hour delay box, if you see it. We’re hoping to be rid of it soon. Blogroll and comments (should say ability to write comments…) at the backup site. Thanks! – Ilene
