Cox To Fannie and Freddie: We're Going To Protect You From The Shorts

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SEC Chairman Christopher Cox Cox told the Senate Banking Committee that the agency was putting in place an emergency order limiting short sales in Fannie Mae and Freddie Mac with a requirement that the shorted stocks be "preborrowed."
It's not immediately clear what this "pre-borrowing" requirement entails, or what sort of authorization short-sellers would need to certify the shares had been preborrowed. Naked-shorting, the practice of shorting a stock without borrowing it first, is currently disallowed in many circumstances. It's possible the new rule would require investors to show concrete evidence that the shares had been borrowed or eliminate a loophole allowing broker-dealers to accept short trades from other broker-dealers.
Cox didn't cite any evidence that naked-shorting has become more common in the market for shares of the GSEs. It's possible that federal officials hope that making shorting more costly, basically weighing down short interest with red tape, they'll be able to lift the stocks. Yesterday, one prominent Wall Street analyst called for a complete ban on shorting the stocks of these entities.
Cox added that he might go further. "In addition to this emergency order, we will undertake a rule making to address the same issues across the entire market," Cox said.

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