Oct 2, 2008

More on the SEC and Short selling ban

I came across an article on Yahoo finance which discusses the effect of SEC's sudden ban on (non market maker) short selling. Instead of reducing manipulation or preventing naked short selling, the SEC's ban has more effects than the required stability. Plus, the ban is only on financial and somehow related company stocks.
An excerpt:
From www.ETFguide.com
Ignoring SKF Tipping-Point, SEC Slams Free Market
Monday September 29, 12:05 pm ET
By Max Rottersman

HANOVER,NH (ETFguide.com) - In nine short months, investors rushed $3.3 billion into UltraShort Financials ProShares (AMEX: SKF - News). Any reader of the best-selling non-fiction book The Tipping Point would have come to a natural conclusion. Investors saw trouble.
But not the SEC. They so badly regulated the financials that rumors sent volatility off a cliff. Injuring long-term confidence in free markets, the SEC banned the short-selling of 799 stocks. The government decided who would win and who would lose on September 19th.

Unforseen effects began to ripple through the ETF market. There were failures to maintain a small spread between ETF prices and NAVs. There were liquidity problems; shares could be redeemed by APs, but not created. Counter-party risk raised its ugly head. Read more at


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