April 4, 2008
A crackdown on naked short selling is long overdue. Reg SHO did not do the job, and I was getting the impression that the SEC was protecting naked short sellers.
The proposed new rule should apply to all securities. Any organization selling stocks short should have the stocks in possession. That does not mean that it should have a promise that the customer ordering the short sell either owns the stock or has a contract with the owner, it means that the broker should have the stocks in its possession. This will enable the broker to ensure that the stocks are not sold short multiple times, and that it is indeed a valid short sale.
I am concerned that the penalties for naked short selling may not be severe enough to stop this practice which is harming legitimate investors.