Monday, July 27, 2009

Naked Shorting Gone!

So today the SEC put the hammer down on the short selling of shares of stock that you do not own or can not borrow. Is this a new rule? No. It's just enforcement - sort of like all the other laws on the books that somehow have no teeth.

But now it is going to be harder to short stocks - or is it? Will it really be any more of a challenge for me to short my 100 shares of Amazon via Fidelity? Or 200 shares of eBay at Schwab? You get my point. Most of us are probably going to yawn at this one.

What we should be watching, however, is the growing trend for brokers not to let retail use leveraged ETFs. I suppose it is a good thing for a broker to know if their customer is fully aware of what these things are but a blanket rule seems like taking the meat for the big boys and letting retail have the bread.

What may be worse is that Nanny (I mean the government - specifically FINRA) says that they are too dangerous and should not be allowed for retail. While I concur that they are time bombs, so is smoking. Let anyone kill themselves if that's what they want as long as they don't take anyone down with them. I don't want to pay for smokers' health issues and I don't want to suffer because someone lost money trading FAZ. But everyone has the right to hurt themselves if they choose to be so stupid (pulling no punches on this one).

What's next? Commodities ETFs? Options? How about all stocks not in the S&P 500 to eliminate more risk for us poor retail slobs?

How much more meddling will they do? How about fostering an atmosphere where creating this derivative crap is not profitable. A strong economy might be nice.


bmbull said...

It would be helpful if these institutions (UBS, et al) would tell us WHY they're banning the use of leveraged ETFs. I find it very difficult to believe they are suddenly concerned for the health and welfare of their clients -- they never have been before. So why would they choose to cut off the stream of commissions generated by these trades.

Something really doesn't add up here...

Amalan said...

it is probably part of the deal they cut with the Govt - the brokers who are also into investments and trading of the institutional/wholesale kind probably said to the Govt., "we'll stop mom and pop investors from getting hurt, and you don't ask for short positions on individual stocks". Eventually, they settled at reporting short positions after a one-month delay.