Loading...
Symbols:
Authors:

Stocks Potentially Impacted by SEC's Enforcement of Regulation SHO

by: J Clinton Hill September 18, 2008 | about stocks: ABR / ALXN / AMED / AMSC / ARO / ARTC / BIG / BWLD / BZH / CALM / CORS / CSGP / DNDN / DSL / EMKR / ETH / EWBC / FTEK / GMCR / HZO / JOSB / LEE / LTM / NETL / NFLX / NILE / NTRI / OTEX / PALM / PFCB / PII / PRAA / RAH / RRGB / RWT / SIGM / SPF / TPX / TRLG / VPRT / YRCW / ZION / ZLC    

J Clinton Hill

About this author:
Become a Contributor Submit an Article
  • Font Size:
  • Print

Yesterday the SEC announced its intent to enforce Regulation SHO which became effective on September 7, 2004. The rule was enacted to "establish uniform locate and delivery requirements in order to address problems associated with failures to deliver, including potentially abusive “naked” short selling (i.e., selling short without having borrowed the securities to make delivery)".

There are many arguments against short sellers, but in fairness they do facilitate liquidity and bring discipline to the markets by punishing the securities of poorly managed companies. Some do not like to admit it for fear of killing the goose that lays golden eggs, but any honest trader or broker who has ever worked directly with a trading desk or broker on the floor can attest that lack of transparency for delivery or enforcement of this rule has created a dysfunctional market for both small and large investors.

If the SEC truly follows up on its intent to fairly discipline violators, then it is worth taking a look at these top 50 securities that currently have a disproportionately high number of shorted shares relative to their outstanding total common shares.

Business Services (PRAA; CSGP)

Consumer Staples (CALM; TRLG; LEE; RAH)

Consumer Discretionary (NTRI; HZO; LTM; TPX; PII)

Retail-Wholesale (JOSB; NILE; BIG; ZLC; BWLD; ARO; GMCR; PFCB; ETH; NFLX; RRGB)

Medical (ARTC; ALXN; AMED; DNDN)

Industrial Products (FTEK; VPRT)

Construction (BZH; SPF)

Computer/Technology (NETL; EMKR; SIGM; PALM; AMSC; OTEX)

Finance (DSL; CORS; EWBC; ZION; ABR; RWT)

Transportation (YRCW)

On average, the above securities have 62% of their total outstanding shares shorted. Some of these securities are also on the NYSE and Nasdaq Threshold lists whereby "sellers have failed to deliver 10,000 shares or more in the past five trading days and the level of “fails'’ is a minimum of 0.5 percent of the shares outstanding".

The SEC’s latest action may not put an end to the bear market, but at least innocent companies will stand a better chance if not associated with those guilty of poor or fraudulent management. Ultimately, this should help allow our capital markets to function as they were intended which is based upon the merit of results.

Disclosures: None

Related Articles

This article has 6 comments:

  •  
    Sep 18 08:32 AM
    I can't agree more with you. But there seem to be some justice, the first victims are the banks that lent the money enabling those same hedge funds to drive them to the bottom.
    Reply
  •  
    Sep 18 09:36 PM
    You could eventually add some of the CanRoys to this list, particularly those that have a small cap. and aren't in the oil-gas sectors.
    Reply
  •  
    Sep 19 12:43 AM
    Why are we talking about this now?

    The law was enacted in 2004. Cox says he is now going to enforce it, in 2008? What do we pay these people for? Why isn't Cox standing up before Congress trying to defend his refusal to enforce the law for the last four years?
    Reply
  •  
    Sep 19 08:42 PM
    Didn't anyone see McCain on TV criticizing the SEC chairman, saying he'd fire him? Kind of funny, one of your own voting tribe and he acts like hes above his own party.
    Reply
  •  
    Sep 22 10:59 AM
    It is one thing to state an intention to enforce a rule - and quite another to do it. The SEC has ignored its own disciplinary threats before. Often, it is not investors trying to manipulate stocks, but brokers themselves so the SEC has full authority to obtain compliance with SHO if they choose to do so. With considerable skepticism, time will tell.
    Reply
  •  
    Sep 23 11:43 AM
    It's so odd to me. when DNDN spiked into the 20's i remember peopleposting that they couldn't short the stock anymore, their broker didn't have and couldn't find anymore shares to short for their clients. I guess things have changed a little bit since than.
    What would happen in todays market, ok before 5 days ago, when naked short selling was allowed.

    what would have happened. I'm lost on this one as usual.


    Billy Staples

    for a prez shirt thedarksize.com

    for a hard to get stock market joke thedowjokesreport.com


    Hang in there all, but not like I did with apple


    Oh unofficial poll.....what do you think happens in October for DNDN


    Yea or nay for Provenge?
    Reply
More Comments on PRAA ยป
More by J Clinton Hill
Investment Resources
Money Managment
Research
Seeking Alpha provides these ads as a service to its leading contributors
Articles on related themes
Long Ideas
Bonds
Dollar/Currencies
Earnings