The early reviews of Chris Cox's new rules are in. Of the efforts to curtail supposedly abusive shorts, Short Selling Wizard-cum-Coalition of Private Investment Companies Chair Jim Chanos said:
"It appears the Commission has put forth a tough but balanced proposal that recognizes the important role that short selling plays in capital markets. The Commission and staff appear to have adopted an approach that safeguards investors and market integrity while also recognizing short selling as a vital component in helping investors obtain fair prices when buying or selling securities.
Removing the market maker exception would further reduce what is already a low percent of fails to deliver. Tightening anti-fraud statutes certainly makes sense in sending a strong signal to market participants that providing false information about stock borrowing will be dealt with harshly.
We all share the same goal: eliminating the problems that arise in stock lending and clearing. Keep in mind that so called "naked-shorting" arises only after a trade has been legitimately entered. Solving these problems will improve markets for the benefits of all investors.
We strongly support the idea that stock should be delivered within the traditional T+3 timeframe. We are concerned, however, that implementation may lead to unintended consequences and call upon the SEC to carefully monitor how this untested interim rule works.
While we are still reviewing the details, it appears that the rules will ensure short selling can thrive while also addressing abuses in the market where someone acts with no intention to borrow or arrange to borrow securities. We believe that markets are best served when there is a level playing field between buyers and sellers, which in turn produces prices that better reflect fundamental values.
These are unique and troubled times but we continue to believe that government regulation is improved when all stakeholders have an open opportunity to have their views heard before rules go into effect."