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Muriel Siebert on Naked Shorts:
Muriel Siebert on naked shorts
Muriel Siebert Has a Few Things to Share With Regulators
Aug 14, 2008
URL:
https://www.advancedtrading.com/showArticle.jhtml?articleID=210004122
Muriel Siebert needs no introduction. She is a woman who has paved the way for others and has countless "firsts" to her credit: the first woman to own a seat on the New York Stock Exchange; the first woman Superintendent of Banking for New York; the first woman member of the Wings Club, an industry club sponsored by the chairman of several aerospace and airline companies; one of the first members of the Woman's Forum, which is now the International Women's Forum, where she served with the likes of Margaret Thatcher; and the first woman to launch a brokerage firm. She founded discount retail brokerage Muriel Siebert & Co. in 1975.
At 75, Seibert feels somewhat comfortable with women's place on Wall Street, and has now moved on to represent investors' rights. Siebert has testified before Congress on a number of occasions, including after the Enron debacle.
Now she is witnessing what she describes as the worst time in financial services history -- as a result of the culmination of the subprime mess, the housing crisis, market recession and the financial trouble that many financial institutions are facing as a result.
Her passion today is protecting the market from short sellers. Siebert believes there is a lack of market transparency because of the removal of the Uptick Rule, which was lifted in July 2007. [The Uptick Rule said you could not short a stock until there was an uptick in its price, preventing a free-for-all downward spiral of the stock.]
July's emergency order, put in place to protect 19 companies from naked short selling, furthered her passion to protect investors from short selling. She believes this order was unfair as it only protected 19 companies, rather than protecting all companies from naked short selling. [Naked short selling allows investors to short a stock without first borrowing the stock. In other words, it can be done very quickly and in reaction to market rumors. Generally, when you short a stock, the investor borrows the stock and then sells it at a certain price, expecting to buy it back at a lower price. It takes time to borrow the stock, which must be done in advance of shorting the stock.]
But her latest crusade is to reach out to regulators and give them her perspective -- and some suggestions. She has many. No. 1 on her list is to ask that they give thought to having shorts reported daily rather than monthly. As she puts it, "We have the technology to do it, and it would create a transparency that is critically important in this type of market."
I recently sat down with Siebert to discuss short selling, her thoughts on the current state of the market and her views on how Wall Street has changed.
On her suggestions to regulators:
MS: I've made the suggestion that we ought to release the shorts in each stock daily. Look, if you are a long-term holder of a stock, and I see that stock being pummeled, I have a decision to make. Do I want to buy more? Or is there something wrong with the company and I want to get out? The action with the stock would tell me. If I saw 400,000 shares were traded and 300,000 were short, I'd have my answer. We'd have transparency that does not exist right now. What about reporting shorts every day? With computers we can do it.
AT: What is your biggest concern today?
MS: We have individuals who were destroyed in the Internet bubble. Then they said, "We're going to put our money in our homes -- we live there." If they see another hammering of good quality stocks, do they have to own stocks?
I have strangers walking up to me today saying, "Is my money safe? Should I take it out of stocks?" And, God forbid, what if they ever started to cash in their mutual funds?
We ought give them every bit of information in terms of transparency that we can.
AT: Are you surprised by today's market conditions?
MS: Who would have ever thought the major banks could get into this trouble? When I heard 'subprime,' I thought, 'Oh, it's just a little slice.' But these turned out to be greedy little piggies.
This is serious stuff. When the Fed lays on extra liquidity support, you know we need new regulation. When the Glass-Steagall was reformed, and banks took on the roles of brokers and brokers took on the roles of banks, we created something that wasn't so good.
AT: What action do you plan to take?
MS: I'm waiting on the SEC. I've called Chairman Cox, but haven't heard back from him yet. If I don't hear from him, I'll talk to him through the papers [by writing an op ed piece].
AT: What would you discuss with him?
MS: Shorts. The shorts in this market are the most important. Now, the Fed should have made those rules apply to all the companies, and the SEC should address all the companies. All this does is shove the shorts over to other companies, so they're getting the short position that 19 other companies would have gotten.
I'm going to write [Federal Reserve Chairman] Bernanke and [Treasury Secretary] Paulson and ask for an appointment. I'm going to tell them I have a lot of experience and I'd like to share my thoughts.
Another thought I have is that commodities traders, trading on speculation, should put up 50 percent in leverage. This is the same amount that you have to put up in equities. Currently, they only have to put up about 3 percent.
Another suggestion I have is to have the SEC create a Street Committee, made up of all types of roles in the capital markets. This committee should advise or make suggestions to the SEC, being that they have practical knowledge and experience with the markets.
I also think there should be an international standard for rules and regulations, similar to what there is in banking.