Friday, September 19, 2008

Pre-Market - New Rules

The SEC has temporarily banned short selling in U.S. financials. In effect the U.S. government has stepped in to control stock prices. This will have serious implications for Wall St. Here is the list of 799 companies. For an idea as to how this might play out, read Trader-X's comment to this post. Also check out his special post on this subject.

Futures sharply higher in response to the ban on short selling. Financial stocks in particular, are getting a huge boost this morning as the SEC announced that it is temporarily banning short selling on certain financial stocks. The Commission's action will apply to the securities of 799 financial companies. The emergency order is immediately effective (thanks for the advance notice) and will terminate at 11:59 p.m. ET on October 2, 2008. Nice of them to change the rules when they're in over their heads with all these bailouts. Now they want to control share prices so that they can save their asses. Finally, I've figured out what Bush meant when he said, he looked into Putin's eyes and saw his soul. Well, we can add one more outrageous act to the Bush presidency - eliminate free market capitalism.

The other big story helping to alleviate fears in the banking system, is that the Treasury will unveil a $50 billion plan that will guarantee money market funds. The Treasury will insure public money funds for a fee. WSJ reported that Citigroup is considering making a bid for Washington Mutual (WM). Some notable large cap financials making big moves this morning include Goldman Sachs (GS +31%), Morgan Stanley (MS +51%), Citigroup (C +25%), and Merrill Lynch (+29%).

ORCL gapping up on earnings and guidance.

7 comments:

Trader-X said...

Interesting and worth sharing:

The Pakistani example of banning short sales:
By notablecalls

A smart hedgie pinged me with the following:

An extreme example comes from Pakistan where the local SEC responded to a stock slump last month by banning short selling and limiting daily price declines to 1% while allowing them to rise by 10%. The initial reaction was a massive 8.6% one day rally followed by 15 straight days of slumping prices amid extremely low turnover, the worst such period for that market in several years. As rioting investors stormed the Karachi Stock Exchange last week, the rules were rescinded.”

Jamie said...

Thanks X,

I was trying to imagine how this might play out. I suspect we will see a similar response.

john said...

CNBC correspondents have been incessantly parroting the floor traders' calls for bringing back the uptick rule. The uptick rule puts us individual traders at a great disadvantage.

When the uptick rule was in force, there were many times when I watched a stock open and then crater without me (particularly listed stocks) ...taking out a shitload of stop losses only to recover to just below the retest area, where I presume short orders that were never to be filled, were waiting.

Every time there witch hunt like there is now, big money ends up getting our idiot pols to put in place rules that hurt the little guy under the guise of protecting him. This is an issue worth preemptively bitching about!

John

Jamie said...

John,

I don't think they will re-institute the uptick rule anytime soon because that would mean that they (the SEC) were inept when they came up with the change in the first place. Not to mention the weeks and possibly months of system programming changes required to implement the switch back to the uptick rule. When they first removed the uptick rule it was known months in advance.

Today's ban of short selling financials was not well thought out and there are serious implications for market makers especially where they relate to options. The idea of changing the rules, with no advance notice, in order to control stock prices so that the gov't can stop the bleeding to their own risky bailout schemes is outrageous. This is not about saving the small investor, it's about saving themselves or covering their asses. I'm sure that some short selling accounts and hedge funds were seriously hurt this morning because of the new rules.

It will be difficult to trade while the ban is on as liquidity will be compromised. But hopefully, things will get back to normal when the ban is lifted.

bl said...

While I think short selling ban is rediculous as it doesn't address the real problem at least they did something to quell the angst and possible real rangers that could happen in hte near future. I went long Profunds fin bnk ndx100 eod, and AIG. Opportunity??

Jamie said...

BL,

Short-term.

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