"the order effective through Aug. 14.... Short sellers bet that a stock's price will fall so that they can profit from it."
Why does the name Buzzy Krongard come to mind, readers?
"SEC set to extend 'naked' short selling ban; Goal is to protect Fannie, Freddie, among others" by Associated Press | July 29, 2008
WASHINGTON - Federal regulators are expected to extend through mid-August a temporary order banning a certain kind of short selling of the stocks of mortgage finance companies Fannie Mae and Freddie Mac, and 17 large investment banks.
Advocates for smaller banks and investment firms also are urging the Securities and Exchange Commission to expand the order - scheduled to expire today - to cover additional financial companies. They contend that smaller companies continue to be targeted by aggressive short selling.
SEC chairman Christopher Cox told Congress last week that a proposal expanding the order to cover all public companies will be introduced soon. The SEC issued the emergency order July 15, after a perilous slide in shares of Fannie and Freddie, which together hold or guarantee $5 trillion in home mortgages - nearly half the US total.
The SEC move followed a 13 percent drop in the price of Fannie shares and a 22 percent plunge in Freddie's on July 10, when a news report said the government had begun contingency planning in the event the companies failed. The next day, Freddie shares plummeted 33 percent at one point, and Fannie lost 29 percent.
The SEC has said the order could be extended for as many as 30 calendar days if the agency determines that is necessary for the public interest and to protect investors. Industry and government insiders expect that to occur, which would make the order effective through Aug. 14.
Analysts and regulators blamed aggressive short selling for exacerbating the recent plunge in the stock of Fannie Mae, Freddie Mac, and Lehman Brothers Holdings Inc.
The SEC order bans "naked" short selling of shares of Fannie, Freddie, and the 17 large investment banks. The companies' shares generally have gained since the agency's announcement. But shares of regional banks and investment firms have continued to be targeted, according to the American Bankers Association.
Short sellers bet that a stock's price will fall so that they can profit from it. They borrow shares of the stock and sell them. If the price drops, they buy cheaper actual shares to cover the borrowed ones, pocketing the difference.
"Naked" short selling occurs when sellers don't even borrow the shares before selling them, and then look to cover positions immediately after the sale. The SEC order requires short sellers to actually borrow shares."