Since the rule has been in place, Bank of America Corp. is up 81%, Lehman Brothers Holdings Inc. is up 41%, J.P. Morgan Chase & Co. is up nearly 10%.
SEC Chairman Christopher Cox said naked short positions "turbocharge" an environment in which false information may ruin a company that's already under threat from a "distort and short" campaign.
So, on July 15, the SEC attempted to halt a series of deep price declines in financial stocks by outlawing the practice of taking short positions without actually locating and borrowing the shares.
The rule, which was extended July 30, will expire Tuesday night, but it probably won't be long before a more permanent rule is in place. The comment and drafting period aimed toward making a permanent rule is expected to begin within two weeks, said SEC spokesman John Nester.
The emergency rule may have worked, but it wasn't fair. It protected some banks but left others such as Wachovia Corp. at the mercy of these distorters and shorters. It also wasn't fair to short sellers, who, despite the SEC's characterizations, were pursuing a perfectly legal trading strategy only to find the rules changed midgame.
"Naked shorting was ever an issue with the 19 stocks covered by the SEC emergency order," said Eric Newman, portfolio manager at TFS Capital. "Creating uncertainty was the only effect of the order, and this served to artificially buoy the markets as short sellers covered their positions. Even without extending or expanding the emergency order, this uncertainty will remain."
In crafting the new rule, the SEC should make it broad enough that everyone is playing by the same rulebook. The commission should also remember that the market, not the government, decides a company's value each day.
Speculators exit
What happened to the global demand that was fueling record oil prices?
You remember: The world, driven by the hothouse economies of Brazil, China, India and Russia, was consuming oil at such a rate that the price of light sweet crude was going to soar to $200 by July 4.
For a while, it looked like it might happen, if not on Independence Day then by the end of the summer. Oil hit $147.20 in the Nymex pits on July 11. It sputtered and has been in close to a free fall ever since, losing 21% over that span.
Now, the expectation is that oil will sink to $100 a barrel.
So what's changed? Not demand. It's still creeping along. The world will use 1.1% more oil next year, about the same growth rate as this year and the year before, according to the International Energy Agency. China's share is growing but at about the same 6% rate it has been for the last four years, IEA estimates.
Supply hasn't changed. Even if offshore drilling becomes a reality, it's unlikely to have a profound effect on supply, and it won't happen soon. Many experts say such drilling isn't even necessary. After all, there is no oil shortage, just higher prices.
Could it be the end of speculation? As we pointed out in May, between $100 billion and $120 billion in new speculative money entered the energy markets during a three-year span ending in 2006, according to a congressional report. Investment in commodity index funds surged more than 500% to $80 billion during the same period. Hedge funds do 55% of derivatives trading, according to a study last year by Greenwich Associates.
Fearing a top, a lot of that money has pulled out or gone short. But don't tell that to those who say big oil companies and global growth are to blame. They seem to think demand is coming from a very specific region: Fantasyland
No comments:
Post a Comment