Levelling the playing field in rapid fashion. Let’s summarize.
- Extending a requirement for prompt delivery of borrowed shares (maximum of three days) to options market makers
- Imposing penalties on brokers whose clients have failed to deliver shares three days after these are sold short
- Making it a fraud for investors to lie (to their broker) about their ability to locate shares to borrow
- Proposed disclosure rule forcing funds (larger than $100M) to disclose their short positions on a daily basis
- Forced disclosure of past trading behaviour of shorting funds in certain securities
- New York Attorney General Andrew Cuomo began an investigation into whether bears illegally drove down stock prices of financial firms
- Some pension funds refusing to lend shares to short-sellers
- In the UK an outright ban on short selling financials
- A similar temporary ban in the making for the US.
In addition to that, a proposed buying of bad debts/illiquid assets tl clear the balance sheets of financial institutions and get illiquid markets going again.
What can the shorts do with heavily (and nakedly) shorted stocks like InterOil?
- Although high (top, in fact) on the reg. SHO list, it won’t be a priority for the SEC
- So there might not be immediate large scale unwinding of positions, but any triggered rally will be much more difficult to contain for the shorts
- Since locating shares for borrowing will be pretty hard, considering the number of outstanding shorted shares already, it will be both more costly (interest cost) and difficult to short InterOil
- They can nakedly short it for a couple of days, so we should get used to more, probably much more short-term volatility
- But the trend will be up (as long as there is no disappointing fundamental news) and there could easily come a breaking point for the shorts. When that comes is hard to say, but we think it’s a matter of time..