Subscribe to this blog's feed... "What's that you're sprinkling on your carpet?"
"It's elephant powder. It's to keep away wild elephants."
"But we're in London. There aren't any wild elephants anywhere near us."
"You see? It works!"
...anyway. Back in July, the SEC announced that it had worked out why financial stocks were falling. No, it wasn't the multi-billion dollar losses and writedowns combined with a slackening economy, the liquidity crisis or the widespread revelations of incompetence and fraud. It was, the SEC said, straight-faced, because of too much naked shorting. Accordingly, it banned naked shorting in a list of 19 financial services firms - including most but not all the major US investment banks. Floyd Norris (via Felix Salmon) has had a look at whether the measure had any effect, and, in the best traditions of the New York Times, has come down firmly on both sides of the question.
It's true that since the announcement of the ban, financial stocks have rallied significantly. But this is true for stocks not on the SEC's list, such as Wachovia (up 92%!) and, furthermore:
All or most of the gains for stocks on both lists came before the rule actually took effect on July 21. Since then, the average stock subject to the rule is down 8%, while the 10 other companies have gained 9% on average.
The rule certainly worked to curtail short selling:
In the period from the end of June through July 15 — the period just before the SEC acted — short positions on the 12 companies covered by the rule that have major American markets rose by an average of 19.3%. By the end of the month, the average had fallen by 8.4%.
By contrast, short positions on the 10 stocks not on the S.E.C. list rose by a smaller 5.8% before the rule was announced, and rose by 7.2% more in the next period.
So what, ultimately, was the point? (I'm still wondering, too, about Wachovia's no-shorting policy...)
