Tag: short sale ban

The ban that won’t go away

The short selling ban has been extended to October 17th. It was supposed to end today, and the original intent was to extend it no further than November 2nd.

Does anyone want to bet an ’emergency action’ will rear its ugly head, pushing the ban into the new year?

At least Diamond Hill isn’t afraid of short sellers (UPDATED)

Via NASDAQ Regulatory Alert #2008-022:

NASDAQ issuer Diamond Hill Investment Group, Inc. (DHIL) has voluntarily opted-out of NASDAQ’s list of Covered Securities under the SEC’s Emergency Order, effective today, September 22, 2008. Diamond Hill Investment Group, Inc. will not be subject to the restrictions of the Emergency Order.

DHIL either has nothing to be afraid of from short sellers, or they are happy to pick up their own shares at a cheaper price. Nevertheless, shares of DHIL were up $0.75 (or 0.81%) as of the time of this post. How were their competitors faring? All I see is red (market caps and volume notwithstanding) …

select-financials-09_22_08

(h/t CR)

UPDATE: The NYSE not so bold: GM, GE added to list. By the time the short selling ban’s first expiration date hits, every company traded will have a new financial services subsidiary that makes them eligible.

The Short Heard ‘Round the World

Short selling is being banned around the world.

Market regulators are scared that some folks think stocks aren’t nearly as valuable as they appear, and those same regulators will be damned if someone makes a profit from being right.

The road to hell is paved with good intentions, as is the road paved with baleful ones.

SEC bans short selling in 800 financial stocks

Capitalism gets a bridle:

Given the importance of confidence in financial markets, the SEC’s action halts short selling in 799 financial institutions. The SEC’s emergency order, pursuant to its authority in Section 12(k)(2) of the Securities Exchange Act of 1934, will be immediately effective and will terminate at 11:59 p.m. ET on Oct. 2, 2008. The Commission may extend the order beyond 10 business days if it deems an extension necessary in the public interest and for the protection of investors, but will not extend the order for more than 30 calendar days in total duration.

The SEC could have said “In order to maintain the value of investment bankers’ bonuses, we are now cutting the investing public out of the game.” And if you are a short-biased fund, you just got “bricked.” The real joke of this is that it’s being done under the guise of “restoring liquidity” to issues. All it’s really doing is giving insiders some breathing room for bailing out.

The “No Loss Sale Rule” is next.

Did the short selling ban work?

The Wall Street Journal found it depends on who you talk to:

Floyd Norris, in his Marketplace column, noted that the 12 pure U.S. stocks rose 23% after July 15; the S&P 500’s financials rose 22% in the same period.

Still, S3 Matching Technologies, an Austin, Texas, data firm, points out that Fannie Mae’s stock fell 40% and Freddie Mac 41%. Those two stocks, you will remember, provided much of the catalyst for the emergency order.

But academic and corporate research indicate the experiment failed. Perhaps the strongest antiban argument comes from Arturo Bris, a professor at Swiss business school IMD who is affiliated with the Yale International Center for Finance. He tracked the 19 stocks protected by the SEC’s Emergency Order and examined short-selling data provided by the NYSE…

Bris’s most damning finding was that the emergency order impeded market efficiency–in effect, it distorted the “price discovery” process that it was hoping to fix. “The G19 stocks have suffered a significant reduction in intra-day return volatility and an increase in spreads, which suggests a deterioration of market quality,” Bris wrote.

In addition, some unprotected financial stocks–including Washington Mutual–were hit really hard. Bris told Deal Journal of the ban: “I think it targeted the wrong stocks.”

And for those with short-term (no pun intended) memory loss, the purportedly right stocks.