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On July 15, 2008, The Securities and Exchange Commission issued an emergency order, http://www.sec.gov/rules/other/2008/34-58166.pdf to enhance investor protections against "naked" short selling in the securities of Fannie Mae, Freddie Mac, and primary dealers at commercial and investment banks.
The SEC's order will require that anyone effecting a short sale in these securities arrange beforehand to borrow the securities and deliver them at settlement. The order will take effect at 12:01 a.m. ET on Monday, July 21. In addition to this emergency order, the SEC will undertake a rulemaking to address these issues across the entire market.
"The SEC's mission to protect investors, maintain orderly markets, and promote capital formation is more important now than it has ever been," said SEC Chairman Christopher Cox." The Commission's action aims to stop unlawful manipulation through 'naked' short selling that threatens the stability of financial institutions.
The SEC's order will require that anyone, other than Market Makers, effecting a short sale in these securities, be required to Pre-Borrow shares, prior to executing a Short Sale. In Response to this specific mandate that market participants Pre-Borrow shares, RegSHO.com announces today the introduction of the "LocateLock" product. Developed jointly with Locatestock.com the LocateLock offers hedge funds and traders instantaneous, real-time, electronic, hard to borrow liquidity, to ensure that they are not Naked Short. The "LocateLock" product creates an electronic record with all the critical data required to meet the mandate of the Emergency Ruling.
RegSHO.com aims to help enforce SEC rules against "naked shorting" - an illegal version of short selling where traders sell shares without first borrowing them. Short sellers try to profit on a stock's decline. Short sellers borrow shares from others in order to meet their delivery requirements. Eventually they buy shares back and return the shares that they borrowed.
RegSHO.com will allow traders to locate shares in illiquid, hard-to-borrow stocks, provide enhanced tools to assure short sale compliance and publish real-time availability of borrowed shares. It also will offer needed assistance to mid-sized brokerage firms that allow retail investors to earn income by lending their shares.
"Short selling helps create market liquidity, and offsets irrational exuberance in our securities markets," said Pitt, CEO of Kalorama Partners, LLC. "But naked short sales hurt companies and investors. RegSHO.com is aimed at promoting the beneficial role of short selling, while curbing abuses."
Pitt noted that current SEC Chairman Christopher Cox recently called for technological solutions to "abusive naked short selling."
Pitt's firm, Kalorama Partners, has teamed with John Tabacco Jr., CEO of Locatestock.com, an electronic marketplace for borrowing and lending shares, and Tom Ronk, CEO of Buyins.net, a company whose software identifies the demand for borrowed shares.
"Recent SEC efforts to close loopholes in antiquated short-selling rules will increase the demand for hard-to-borrow stocks," Tabacco said, "making RegSHO.com the right product at the right time."
The nation's 5,200 brokerage firms need a securities-lending program. There are over $700 billion equities on loan in the U.S. and the appetite to borrow keeps growing as hedge fund assets grow. RegSHO.com hopes its automated platform will help brokerage firms as competition to borrow stocks heats up.
Once the new SEC rule changes take effect, short positions previously grandfathered from compliance must be closed out within 35 days, pushing brokers and hedge funds to lock up borrows before they enter into transactions-known as a locate.
"Delivery failures, often a sign of naked short selling, continue for about 53% of hard-to-borrow stocks," Ronk said, citing SEC statistics. "RegSHO.com should help address the growing need for transparency and liquidity in the short sale market place.
Fannie Mae (NYSE: FNM | Quote | Chart | News | PowerRating) provides funds to mortgage lenders through the purchase of mortgage assets, and issues and guarantees mortgage-related securities that facilitate the flow of funds into the mortgage market in the United States. It operates in three segments: Single-Family Credit Guaranty, Housing and Community Development, and Capital Markets. The Single-Family Credit Guaranty segment securitizes single-family mortgage loans into Fannie Mae mortgage-backed securities (MBS) and facilitates the purchase of single-family mortgage loans for the company's mortgage portfolio. The Housing and Community Development segment securitizes multifamily mortgage loans into Fannie Mae MBS and facilitates the purchase of multifamily mortgage loans for the company's mortgage portfolio. This segment also invests in rental and for-sale housing projects. The Capital Markets segment manages the company's investment activity in mortgage loans, mortgage-related securities, debt financing activity, and liquidity and capital positions. Fannie Mae's customers include mortgage banking companies, investment banks, savings and loan associations, savings banks, commercial banks, credit unions, community banks, insurance companies, and state and local housing finance agencies. The company was founded in 1938 and is based in Washington, the District of Columbia.
Freddie Mac (NYSE: FRE | Quote | Chart | News | PowerRating) engages in mortgage purchasing, credit guarantee, and portfolio investment activities in the United States. It purchases single-family and multi-family residential mortgages, and mortgage-related securities from lenders in the primary mortgage market that originate mortgages for homebuyers, including mortgage banking companies, commercial banks, savings banks, community banks, credit unions, state and local housing finance agencies, and savings and loan associations. The company also buys mortgage loans and mortgage-related securities, and issues guaranteed mortgage-related securities in the secondary market. In addition, Freddie Mac guarantees the payment of principal and interest on mortgage-related securities, including single-family and multi-family, mortgage participation certificates issued by the company, and securities related to tax-exempt multifamily housing revenue bonds. The company was founded in 1970 and is headquartered in McLean, Virginia.
FOR MORE INFORMATION
MEDIA CONTACT: Thor Valdmanis The Dilenschneider Group Work (212) 922 0900 Cell (917) 774 5471 Email tvaldmanis@dgi-nyc.com
BROKERS AND HEDGE FUNDS CONTACT: RegSHO.com's toll free number: 866 943 7625
ABOUT KALORAMA PARTNERS: Kalorama Partners is a strategic consulting firm founded in 2003 by Harvey Pitt, the 26th Chairman of the US Securities and Exchange Commission. Kalorama offers a unique combination of pragmatic business, regulatory, accounting and economic expertise to assist global businesses in forming and implementing their strategies.
ABOUT LOCATESTOCK.COM: LocateStock.com, the premier electronic securities lending company, provides real time, hard to borrow liquidity and market data, to hedge funds and professional traders seeking short sale transparency and liquidity. The LocateStock.com suite of products includes two proprietary software platforms, "The Matador" and "The New York Short Sale Exchange Trader." Both electronic platforms provide transparency, liquidity and price discovery, allowing previously underserved traders access to a wide array of U.S. domestic securities, in a fully compliant environment meeting all the requirements of Regulation SHO. Today, Locatestock.com has over 85 hedge fund and broker dealer clients and over 2,300 registered end users.
ABOUT BUYINS.NET: Buyins.net is a service designed to help brokerage firms, institutional investors, management and shareholders of publicly traded US companies respond to naked short selling. The service has built a proprietary database that uses Threshold List feeds from NASDAQ, AMEX and NYSE. For the first time, actual trade by trade data is available to the public that shows the size, price and dollar value of short sales in stocks that have been legally shorted, as well as, naked shorted. The Buyins.net database collects, analyzes and publishes a proprietary volume weighted average short price for each stock that has been shorted, including nearly 2 billion short sale transactions going back to January 1, 2005 when the data was first available.
CONTACT: Thomas Ronk, CEO, BUYINS.NET Tel: +1 800 715 9999 e-mail: Tom@buyins.net WWW: http://www.buyins.net
M2 Communications Ltd disclaims all liability for information provided within M2 PressWIRE. Data supplied by named party/parties. Further information on M2 PressWIRE can be obtained at http://www.presswire.net on the world wide web. Inquiries to info@m2.com.
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