July 18, 2008
The recent SEC issued emergency order (see the SEC news release 2008-143, dated July 15, 2008) which places further restrictions on the short selling of shares of specific companies such as Fannie Mae has only served to highlight the complete and total impotence of regulation SHO.
1) The recovery of the price of shares in these companies soon after the issue of the emergency order suggests that SHO is not effective in controlling abusive (naked) shorting of shares.
2) It makes a complete mockery of the fundamental right of "equal protection under the law". So shareholders of government "approved" companies like Fannie, Freddie or Citi will be protected from abusive short selling practices, while shareholders of Overstock.com or other "non-approved" companies will be left to flap in the wind??? Hello???
A good start would be to modify SHO so that failures to deliver should require repurchase within ONE DAY - and for EVERYONE. A primary broker who is not flat or close to being flat (one who has a significant net long or short position) is simply NOT a primary broker.
Fines for failure to deliver should also be considered.