New SEC rules on short-selling include 1-month info delay

In the attempt to prevent abuse in short-selling, the Securities and Exchange Commission issued a statement carrying the new rules that would surround short selling.  Even without significant improvement during the 14 days a ban on short-selling was in effect last year, they still seem to be hoping something is to come out of having more regulations for short sellers.

Some of the requirements include: complete a short sale within four days, increase transparency by disclosing, a month after, details of trades, as well as aggregate short-position data for individual stocks (money managers’ names won’t be given).

According to a report from the WSJ, more disclosures would “enable investors and others to determine, forensically, if traders were in some way piling on a company in an improper, coordinated way.”

Two things here don’t make sense to me. First, completing a trade in four days? That either leaves the stock being shorted still undervalued or it’ll cause a panic because people only have 4 days to short.  Riding on the wave of short-sellers, those who did not have a previously similar position would try to enter quickly, in effect, speeding up the volument of shortselling.  As for the first point, I don’t think the “excess” value of the stock could be taken away in a matter of four days, as you need the value to actually go down. That value won’t go down until more stocks are shorted or they just go through a regular selling of the stock.  I don’t think either one would work well.

And, one month? I wonder what good it does.  Plus, even if investors decided to pile up on a stock to short, so what? Isn’t one of the main points of being in the market is to help pinpoint the stocks who don’t reflect their true intrinsic value? And isn’t the imposition of these rules rather contribute to the INefficiency of the market?

Read the news HERE.


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