SEC bans naked shorting
THE Securities and Exchange Commission (SEC) yesterday moved to make permanent an emergency rule aimed at reducing “naked” short selling, which was partly blamed for bringing down big US banks like Lehman Brothers and Bear Stearns last year.
Naked short selling is the practice of selling a stock short without first borrowing the security as is done in a conventional short sale.
The SEC put in place last autumn a temporary measure that meant that brokers must promptly buy or borrow securities after a short sale. This was due to expire on Friday, but now the US financial watchdog has made this requirement permanent. Investors and politicians have been clamouring for the SEC to put new brakes on trading moves they say worsened the market’s downturn starting last year. SEC chairman Mary Schapiro said this issue was a priority for the watchdog.