Naked short-selling laid bare? | FT Alphaville

Naked short-selling laid bare?

The SEC’s ban on naked short-selling of 19 financials, including Fannie and Freddie, ended yesterday.

Bloomberg points out that the market value of the 19 companies has jumped 26 percent since July 15 – when the ban was announced in the interest of preventing “unlawful manipulation” of the markets. But that $270bn-rise only returns the companies to their valuation on March 19 – or the day JPM bailed Bear Stearns.

SEC: Before & After

Though the hedgies complained predictably, few were expecting the ban to do much other than increase transaction costs and paperwork. It will be interesting to see then, what happens to the financials at US open today. Could a pronounced slide in share prices signal that the curbs did more, providing fodder for the SEC’s widely expected new short-selling rules?

Goldman Sachs, one of the companies included in the ban, has already been hit by a raft of analyst downgrades (including one by bank slayer Meredith Whitney) providing fresh downward momentum for US banks. As if they needed any more.

Further Reading
Did it help to curb short sales? – NY Times
Probably useless short-selling rules expire tomorrow – Dealbreaker
Short-selling rule backfires – FT