Has The SEC Finally Woken Up?

The SEC is attempting to throw a curve at short sellers. Chairman Cox is asking the Commission to CONSIDER a disclosure rule that will require hedge funds and other large investors to disclose their short positions.

The Division of Enforcement is also going to obtain from hedge funds and other institutional traders disclosure of past trading positions in specific securities.

Whoa. That is potentially important. Why? Because, I assure you, most hedge funds do not want their short positions disclosed, even if it is only to the SEC, even if it is legitimate.

The effect here is that this may slow down the volume of short selling.

As for the other big issue--the uptick rule. There is a clamor for the SEC to reinstate the uptick rule, which prevents traders from shorting a stock on a downtick. Traders believe this will slow the tidal wave of short selling that has occurred this year.

Still, there are many who doubt this would be any more than a stopgap measure. Years ago, when trading was much slower, the uptick rule did indeed make it more difficult to amass a short position quickly. But things have changed considerably.

For example, there are stocks who can turn THOUSANDS of trades in a few seconds. The time it would take to amass a short position would still take longer, but the time frame would be greatly reduced, perhaps now only a matter of minutes.

Reinstating the uptick rule may indeed be worth exploring, as are the actions just announced by the SEC, but let's not kid ourselves.

Let's stop blaming short sellers, or AIG, or Dick Fuld for our problems.

The main issue is too much debt! Companies, consumers, and (arguably) even the government is overextended. Credit is lacking for consumption and investment.

Focus on the illness, not the symptoms.

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