Sunday, July 27, 2008

Tuesday's surprise: Expand "naked" short rules

"Wall Street executives expect the Securities and Exchange Commission to extend the temporary limits it has placed on short-selling and expand them to cover additional stocks beyond the 19 financial companies it targeted two weeks ago.

The limits are set to expire Tuesday, and executives, lobbyists and hedge-fund representatives of the Managed Funds Association, the biggest hedge-fund industry group, have been talking throughout the weekend, trying to come up with possible approaches to asking the SEC to reconsider expanding the rules, according to people familiar with the talks.

A call with regulators on Friday gave the funds group "a fair degree of certainty" that the SEC intends to seek an extension of the emergency period, these people said. Regulators said an extension could be for as short as 60 days and could involve insurance, housing-industry and a broader range of financial stocks, according to these people. SEC Chairman Christopher Cox indicated last week the rules might be extended to all stocks...

The SEC is also working to make short-selling rules permanent. The SEC staff is expected to narrow down the options and recommend them to the four SEC commissioners, which could happen as soon as Monday. The rules wouldn't be finalized until later this year. "

We have bearish pros leaning bullish, and an administration that wants to make it difficult to short. And if you rumour a stock down, you face a subpoena. In Lehman Brothers, the Fed is now checking into four rumours!

In subpoenas recently sent to dozens of hedge funds and others, the SEC asks the investment funds for transcripts of phone calls, messages and payroll documents that mention or include the Federal Reserve's lending facility, Barclays PLC, hedge fund SAC Capital Advisors and bond-fund house Pacific Investment Management Co., or Pimco, according to people familiar with the matter. The investigation is in its early stages.

What would you do? Remember, this isn't a religious exercise, it's about money. The consequences are only your bottom line.

So Wall Street will convert.

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