SEC puts limits on Short Sellers for GSEs’ and investment brokerages

July 15, 2008 by · Leave a Comment
Filed under: Industry News 

Chris Cox’s of the Securities and Exchange Commission told the Senate Banking Committee that they are pushing through new rules that limit what short sellers can and can not do in regards to Government Sponsored Enterprises (GSE) like Freddie Mac and Fannie Mae or investment brokerages like Lehman Brothers.

This is there attempt to “crackdown” on internet based smear campaigns that they allege is being utilized to manipulate stocks to provide illegal profits off “fear mongering”.  One requirement will require traders to hold shares of the two mortgage buyers and the brokerages before they execute a short sale.  The rule will begin for 30 days to see if it gives the stability desired from the rule change.

In traditional short selling, traders borrow stock through a broker and hope to profit by selling shares at a higher price and later buying them back at lower prices to repay the loan.  Naked short selling, where you don’t borrow the share first before shorting isn’t necessarily illegal, unless authorities can prove fraud, such as a scheme to manipulate stock prices.

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