July 15, 2008

Today the SEC is to start looking a updating short selling rules.

This is a suggestion.

Currently a margin account with sufficient debt can be accessed by brokerage firms to borrow stock to short. A quick solution to shorting problems is to require clients to specifically allow their account to loan stock. If a person has a margin account, short selling by that individual would not be allowed unless he/she specifically gives authority to borrow. Also, the person cannot short stocks unless his/her stock can be borrowed. All shorts would have to have a confirmed lender.

People could still short but they could not borrow from a person who dissallowed shorting. Also, no shorts would be allowed unless stock is confirmed available at the time of the short sale.

It would be easily implimented. Brokers would have to require margin people to accept shorting by a given date or the default answer is NO. This could be done by "paper" forms or by internet accounts given the choice of electronic acceptance (check a box). Borrowing would have to be confirmed. Most brokers have systems in place to borrow within or outside the firm, and could confirm shares available to short in the morning before market open.

Allen Sorey