SEC Continues to Cut Shorts Off at Knee

The SEC today announced that it is temporarily prohibiting short selling in 799 “financial companies.”  The Financial Services Authority in the U.K. took a similar action yesterday.
The move is intended to preserve fair and orderly markets, and curb sudden and excessive artificial fluctuations in securities prices primarily driven by rumor, innuendo or collusion.  The new list of 799 “financial companies” is an expanded list of the original 19 companies that were restricted as part of an emergency orderannounced in July.
The SEC also has “concluded that it is necessary to require certain institutional investment managers to
report information concerning daily short sales of securities.” In effect, this requires Form 13(f) filers for the calendar quarter ended June 30, 2008 to file a new form – Form SH – on the first business day of every calendar week immediately following a week in which it effected short sales.  The filing must include: “disclosure of the number and value of securities sold short for each section 13(f) security, except for short sales in options, and the opening short position, closing short position, largest intraday short position, and the time of the largest intraday short position, for that security during each calendar day of the prior week.”  Exceptions to this exist and are discussed in the SEC order at the above link.
The new SEC order is effective at 12:01 a.m. EDT on September 22, 2008. The SEC requires the first Form SH to be filed on September 29, 2008.  The order is in effect until 11:59 p.m. on October 2, 2008 unless further extended by the Commission.
Not only will this begin to reveal to many companies who might be betting on their company’s demise, it also should keep their respective SEC legal counsel on their toes. And while the cost of being a public company continues to rise, gaining insights into who is shorting your stock may be priceless.



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