So what exactly are these new shorting rules?
The SEC has said that most traders who missed the deadline delivered shares within five to 10 business days and that the delays are often due to clerical errors or mistakes. Still, the SEC is eliminating the wiggle room and saying that if a trader doesn’t deliver shorted shares within three business days, then he is prohibited from short-selling the same stock unless the shares are actually borrowed ahead of the bearish bet.
The SEC is also tightening requirements on market makers for options and making it illegal for a customer to mislead a broker about having located stocks and then failing to deliver them.
OK, I never quite understood the “clerical mistake” mulligan. A rule is a rule, mistakes happen, you have to face the consequences. I can’t think of one other trading rule that you can weasel out of by claiming a clerical mishap.
As to customers misleading their broker? Great, but why wasn’t that actually enforced beforehand.
And as long as we’re going there, how about punishing brokers who lend out the same stock to multiple parties, sort of like The Producers hadning out 10% stakes to 50 different people? From what I understand, that was a way bigger issue as far as fails went than anything else.
And the MM exemption? I opined yesterday, but as Floyd Norris says here.
Presumably, market makers will be hesitant to write puts on shares that are hard to borrow. Or at least they will charge more. Either way, it will be more difficult or more expensive to bet against a company.
Very true (and Abnormal hat tip) . But is this ultimately beneficial? Many rallies of borne of put owners and stock shorters chasing everything in sight. If you basically dry up the put market, you’re also going to lose some natural buyers.
To me, it’s all another half-baked scattershot approach. It’s a sop to the Blame the Shorts crowd that allows Cramer to get on TV and declare his 4700th “Game Changer” moment but does not actually change much of anything.
Now it’s interesting the plus tick rule didn’t come back. Is this the bullet they’re holding onto for some sort of maximal impact? To go with this trial balloon about some sort of hedge fund short disclosure?
My opinion on all of it is that it’s overblown smoke that obscures the simple fact that shorts are way down on the culprit chain after the I-Banks themselves, Sir Alan, et. al. But regardless, it’s complete wasted energy to rue the rules whether you agree with them or not. This is the market backdrop we have, and our job is to trade/invest in it.
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contrary to popular belief, we don’t care about protecting the retail investor or the “little guy”. We’d rather smoosh them like ants, it’s more fun.
clearly.
It’s really a joke.
Word on the street is that brokers want more clarification from the SEC. Until then, some are only going to lend shares that they have internally located.
truthfully, they’re the biggest culprits themselves, they promise the same 1000 shares to multiple parties.