Short Sellers Reined In by SEC, Lenders

By Kevin Spak,  Newser Staff
Posted Apr 7, 2009 8:31 AM CDT
Traders work on the floor of the New York Stock Exchange, Tuesday, March 31, 2009 in New York.   (AP Photo/Mary Altaffer)
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(Newser) – After years of criticism, the SEC is reigning in short sellers, the Wall Street Journal reports. First it cracked down on “naked” short selling, the practice of selling stock one doesn’t actually possess, and tomorrow it could reinstate the “uptick rule,” which had, until 2007, forced traders to wait for a stock to rise before betting against it. At the same time, financial firms are cutting back on lending to short sellers.

As a result of all this, the number of shares that haven’t been properly delivered has plummeted to an average of 79 per day in the first 3 months of this year, down from  529 in the first 9 months of 2008. But critics say the SEC took too long to do too little. “The majority of these failures-to-deliver are not the result of honest mistakes,” said a former SEC commissioner. “These companies are instead targets of illegal and manipulative trading.”