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A New SEC Rule?

Tuesday, 15 Jul 2008 | 6:42 PM ET

Funny: U.S. Securities and Exchange Commission Chairman Christopher Cox appeared on national TV to champion his new short-selling rule.

The problem? The rule already exists.

Cramer's Short Fiction
Bringing back honest short-selling, with Mad Money host Jim Cramer.

Cox declared he'll no longer allow traders to short stocks without borrowing them first, at least when it comes to Fannie Mae and Freddie Mac . This "naked shorting" is banned, he said. Strange that the SEC chairman doesn't know that the practice is already illegal.

The rule is that all traders shorting a stock need to first borrow it first. And it doesn't matter whether it's Fannie, Freddie, Ford or Pfizer . This rule applies to any stock out there. It's just that the SEC isn't enforcing the rule anywhere else. As a result, hedge funds are sending down the shares of any number of companies in the market.

This move just goes hand in hand with the SEC's dissolution of the uptick rule, in which a trader must wait for a stock to go up before he can sell it short. Hedge funds have been taking advantage of that as well, again hurting companies and shareholders alike.

Cramer's suggestion to the SEC: Start doing your job. Regulate the markets, for cryin' out loud. The average investor is watching his net worth evaporate because because you won't reign in these hedge funds.








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