Originally posted on 2/26/2009 by Mark Mitchell
Following is a very partial list of people who have said abusive short selling must be stopped.
Then Secretary of Treasury Paulson
Former Chairman of SEC Harvey Pitt
Then SEC Chair Christopher Cox
Then Senator Hillary Clinton
Presidential Candidate John McCain
The members of the American Chamber of Commerce
Charlie Munger, Vice Chairman Berkshire Hathaway
John Mack, CEO Morgan Stanley
Dick Fuld, then CEO Lehman Brothers
Members of the North American Securities Administrators Association
Robert Shapiro, former Undersecretary of Commerce
Harvey McGrath, former chairman of Man Group, world’s biggest listed hedge fund
Following is a partial list of mainstream media outlets that have yet to deliver a single comprehensive story about abusive short selling:
The Wall Street Journal
The New York Times
The Columbia Journalism Review
The Chicago Tribune
The Los Angeles Times
The Washington Post
This week, Eddie Lampert, the hedge fund manager and Chairman of Sears, became the latest to speak out against the problem. Here’s what he had to say…
“…the level of “naked” short selling of our shares was significant. The activity can be measured by the number of shares sold short as disclosed twice monthly by the NYSE and Nasdaq as well as by the reported number of instances of failure to deliver securities by short sellers to purchasers of Sears Holdings stock….
…the SEC has taken further actions to enforce “naked” short selling rules that had been in place, but not enforced, for a significant period of time. This is an important protection for shareholders and for property rights. The sale of property (shares in a corporation) that a seller does not own and can’t deliver (naked short selling) is an affront to property owners, and a destroyer of confidence and trust. Much of the commentary around short selling ignores this simple fact.
While I understand (and often appreciate) the urge to critically evaluate possible regulation, it is interesting that there has been protest by those on the short side with regard to some of the rules that have been suggested. For example, the reinstatement of the uptick rule, which would require any short sale to occur at or above the last sale price on the stock exchange. Such a rule had been in place for over 70 years (to prevent “bear raids” in which short sellers aggressively sold stock at ever lower levels, undermining confidence) until it was repealed in 2007. It has been suggested that, because stocks are now traded in decimals rather than in 1/8 point increments, such a rule is obsolete or unnecessarily difficult to implement. However, what the opponents fail to point out is that companies who repurchase their own shares are advised to adhere to a rule that forbids those companies from initiating a plus tick when repurchasing shares. Why policymakers would favor an asymmetric application of a rule like this in favor of short sales and against company repurchases is a mystery.
Similarly, the SEC has required short sales of securities to be reported periodically beginning in the second half of 2008. Short sellers have prevailed on the SEC to allow this disclosure to be done privately on the basis of a claimed need to protect their investment strategies. While I respect this privacy right, investors who purchase and own stocks, however, are afforded no such privacy in their holdings. In fact, holders of securities are required to publicly file their holdings on a quarterly basis. Such public disclosures have been known to attract the interest of short sellers when institutional investors and hedge funds have found themselves under performance or redemption pressures. Again, it is a mystery as to why those who are owners of publicly traded companies are required to disclose their holdings while those who sell short those very same securities are permitted to keep their positions private…”