Insight into OMM status....
Keep up the pressure everyone......
Now is the time, more than ever.
From a Dow Jones Newswire story.....
<<< While the SEC has previously cracked down on naked short selling, critics say the effort hasn't been wholly effective, citing long-running failures to deliver some stocks after trades settle.
Pitt said he wouldn't be surprised if the SEC proposes a number of different approaches, rather than limit itself to the preborrowing approach mandated by the emergency order.
"There are several ways to skin this cat," said Pitt.
One option would eliminate an exception for options market makers from requirements to close out delivery failures. The SEC has proposed that several times, arousing strong opposition from options market makers. The public comment period on the proposal closes Wednesday, and a final rule could come soon after, said John Welborn, an economist at Haverford Group, a Utah company owned by Overstock.com Inc. (OSTK) Chief Executive Patrick Byrne, an outspoken critic of short-sale abuses.
"The SEC knows it needs to do something and knows it needs to do something quickly," said Welborn. "This is the loophole they drive the truck through."
SEC economists estimate that a large number of delivery failures are due to the options market maker exception, and given that evidence, "I don't foresee the option market maker exception continuing in the future," said Julian Rainero, a partner with Bracewell & Giuliani in New York who heads its market regulation and broker-dealer practice.
Rainero also expects the SEC to propose a new rule that would toughen short-sale rules for all securities, not just the 19 targeted by the emergency order.
"Everything I've heard suggests they're going to tighten up the locate rule," he commented.
Current SEC rules call for a reasonable assurance that shares can located for borrowing. Regulators could propose a stricter standard to preborrow shares, or require brokers to get representations from customers affirming they have preborrowed shares before placing a short sale order. Another option would allow brokers to rely on internal databases showing share availability for borrowing.
Larry Bergmann, a former SEC attorney and now a special counsel with the law firm Willkie, Farr & Gallagher, in Washington, said a firm preborrowing rule would have the greatest impact on smaller, less liquid securities that may be hard to borrow - and easier to manipulate through naked short selling.
Making the switch won't be easy. Brokerage firms that used manual systems and phone calls to comply with the emergency order would need to retool systems if that approach is applied to all stocks, so Bergmann said a three- to six-month phase-in might be needed.
Despite such hurdles, Hazem Daouk, an associate professor at Cornell University who has written about short-selling restrictions, favors extending the emergency order marketwide. Daouk said "the risk of manipulation for smaller stocks is real" and could be reduced by stricter short-sale rules.
Rainero said delivery failures were "exceedingly low" for the 19 stocks covered by the emergency order, but that many market participants had to lock up shares for intraday trading purposes. "A lot of efficiency was sacrificed," he commented.
Since strict preborrowing requirements for short sales are cumbersome, potentially costly and could reduce market liquidity, some want the SEC to focus instead on firming up delivery requirements. David Hirschmann, president of the U.S. Chamber of Commerce's Center for Capital Markets Competitiveness in Washington, likes that idea, provided it carries some teeth.
"Some folks have suggested a penalty for failing to deliver might be a smarter option," said Hirschmann. "If you're doing legitimate short sales, you'd never have to pay the fine."
The chamber also would like the SEC to adopt a proposed anti-fraud rule for naked short selling, and require expanded disclosure of short positions. But it is less enthusiastic about reinstituting market-based restrictions on short sales when stock prices are falling. After scrapping such "tick test" restrictions, SEC Chairman Cox has said the agency will revisit the need for such limitations. Hirschmann said, "There are a lot of concerns about that approach, and we're still analyzing it."
-By Judith Burns, Dow Jones Newswires; 202-862-6692;
judith.burns@dowjones.com