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Former SEC Staffer Blasts The Regulator's Short Selling Ban Lunacy, Calls Decision Purely Motivated By Politics
As if anyone needed more proof that the corrupt, biased, inefficient, and outright worthless SEC should be disbanded right now, this instant, here is former SEC staffer Erik Sirri, who ran
the SEC’s division of trading and markets, confirming that all the SEC does is supervise Wall Street's stealth transfer of wealth from the middle class to the Wall Street kleptocrats (as in, "you have only stolen enough to buy just one G-V?"), and does so with a political bias at that. As Bloomberg reports "The U.S. Securities and Exchange
Commission’s decision to restrict short selling was a political
decision rather than one based on evidence, according to a
former agency official who says it may set a precedent for
future decisions." And what politics was involved pray tell? Why, the type that would make the new president incredibly unpopular even before he was sworn in. It becoming increasingly clear with each passing day that this country's equity market is nothing but a sham and a teleprompter-friendly mirror before which Obama can act glum, even as the very regulators allow the market to be manipulated in a way that encourages risk taking, and thus delay and inevitable and terminal crash. But to Obama a crash in the future is worth a hundred rallies in the present. Just as a bankrupt America in five years is worth(less) a mid-term election won (by the narrowest of margins) in November. Not only is the fiscal and monetary policy of this country doomed to an eventual debt repudiation outcome, so, we are now certain, the markets will hit 36,000, wiping out all the shorts on the way, only to be followed by a surgical collapse straight to zero. You will have only the current and past administrations to thank for that, together with all their crony, corrupt, and incompetent regulatory agencies, with the SEC (and CFTC) at the very top of that list. In the meantime, and borrowing from a very prescient French (wo)man in the ending days of that particular civilization, After This Administration, The Deluge.
More from Bloomberg:
Commissioners who voted for curbs when a given stock falls 10 percent from the prior day’s closing price did so without proof that it would improve markets, said Erik Sirri, who ran the SEC’s division of trading and markets during the credit crisis that began in 2007.
The agency temporarily banned short sales on more than 900 financial stocks in September 2008. The Standard & Poor’s 500 Index went on to plunge more than 40 percent through March 2009. The SEC reintroduced limits on the practice last month that will be implemented later this year. The proposal followed more than 4,400 comment letters, most asking for restrictions on short selling, and Morgan Stanley Chairman John Mack blaming bearish bets for driving his company’s stock down in 2008.
“The SEC is going to have to decide how political it’s going to be,” Sirri, who ran the trading and markets unit from August 2006 until April 2009 as an appointee of Republican President George W. Bush, said at a conference yesterday. “It’s not exactly the case that short sellers were wrong” to bet against banks in 2008, he added. “Short sellers were making those prices more efficient. They were right.”
Go ahead. Try to explain this very simple fact to G-Pap... Or the idiots in the European Commission... Or bankrupt California's Treasurer. Or to the Fort Huachuca comm specialists eavesdropping on every conversation in which the keyword "short" in it. We dare you.
Sirri said the “political character” of this round of
short-selling regulation is “atypical” even though the
commissioners are political appointees. He spoke yesterday at a
Capital Markets Consortium conference in New York. The agency’s
short-sale rulemaking will alter “how people are going to
approach the commission in the future,” he added.
The commission approved the new rule because, it said, investors who own stock should be able to exit positions before short sellers, which would alleviate rapid downward pressure and give investor confidence a boost. The two Republican commissioners, Kathleen Casey and Troy Paredes, voted against the rule. The two Democrats and one Independent voted for it.
We wonder if the next step in this escalating politicization of markets will be the ability to sell a stock only if one can prove they voted for a certain candidate in the previous election.
Sirri is not alone in his condemnation of the idiocy of the SEC:
The Security Traders Association, a trade group based in
Darien, Connecticut, told the SEC yesterday that its decision on
short sales was “based on inadequate analysis, a lack of
empirical data, and questionable rationale.” The organization
added, “We are concerned that this could become a rulemaking
standard.”
And here is the nail in the SEC's coffin:
When the SEC asked large brokers for “a name or trade we
can go on” to track down allegedly abusive short sales in the
fall of 2008, no information was provided, Sirri said.“I’m not saying it didn’t happen, but there was nothing
actionable that came back,” he said.
We rarely swear here on Zero Hedge but after reading this it is getting very close to earmuff time.
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anyone who listened to the four hour CTFC hearing last week -- complete with whistleblower evidence and testimony regarding the "crates" of evidence on manipulation that had been supplied to them over the years -- anyone who listened to that can absolutely believe, without question, that our "regulators" are now completely and utterly corrupted.
But...BUT...there is no manipulation in the metals markets. None whatsoever. And there is certainly no reason to believe that stocks are overvalued now and might ever need to be sold.
Nope. And with that I am asking everyone else who believes in Tinkerbelle to clap their hands.......or you can just tap your heels together and say there's no place like home if that's your preference. Whatever.
Regulators could not catch Madoff with all the evidence (and then some) they needed. That alone speaks volumes of the American CFTC/SEC/etc.
The game is rigged and overseen by the SEC/CFTC/etc. They work AGAINST a free market.
Fun fact: Bernie Madoff has referred to current SEC chair Mary Schapiro as a "dear friend"
http://www.senseoncents.com/tag/madoff-calls-schapiro-a-dear-friend/
They weren't trying to "catch" Madoff. They were complicit in what he was doing. There is absolutely no chance many people didn't know what was going on there. The man didn't even execute trades, so it was obvious on the most cursory inspection it was a Ponzi.
Average trading Joe's with small accounts get calls if they have a margin call, or some other such compliance issue, so to think a guy running a $50+ Billion "Fund" was doing this on his own without anyone knowing is a totally ludicrous proposition.
Fact is, Madoff is a microcosm for the entire global fiancial system. The curious thing is individually, most intelligent and competent people realize the entire thing is completely smoke & mirrors and 100% phony, but yet, we march on playing this stupid game as if this system still works......
When are we going to wake up and realize - IT'S BROKEN & CAN NOT BE FIXED!!!!!
Just imagine what it will take to clean-up this mess? Uggly!!!.....Because sooner or later the Dam of fraud will break and wash away alot of the current order. Feeding on a dead carcass come to mind.
In other news, water was described as being "...particularly wet."
The SEC is at the heart of the corruption on wall street. They enable it, hell, they love it as long as the right people profit from it. The SEC is a criminal propagation machine.
Seriously who do you think:
1) orchestrates these short sale bans?
2) orders these SSBs?
3) Profits from these SSBs?
1) Senator Dodd, Senator Kaufman and Jim Cramer
2) Mary Schapiro
3) Long only funds
GS, C, BAC, MS and JPM (etc...) They are the sellers of a lot of the puts.
Please!
If you think that GS, C, BAC, MS, JPM were in support of a short sale ban, you are absolutely wrong. They all met with SEC staff to try and convince them against doing this as it hurts their businesses. See among other articles or the comments with the SEC the following:
http://online.wsj.com/article/SB125417372365647425.html
As to selling a put - if you are going to sell a put, you hedge your exposure by simultaneously shorting the underlying asset. That is made more difficult with the short sale restrictions... so selling puts is one of the areas where the banks you mention are going to lose money since they can not act as efficiently as market makers in the options market for any equity that has hit the 10% trigger for that day as the next trading day.
I get that everyone hates the big banks, but this lunacy was something they were all against.
The closest thing to a large financial institution that really supported bringing back an uptick rule of any sort was Jon Vogle at Vanguard.
You are absolutely wrong. The short sellers were attacking the stocks of the big banks. There is no way the banks were for that selling. The short sale ban (of fall 2008, which is what this article is about) is not the same as the uptick rule (referenced in the article you linked).
February 23, 2010, 9:50 PM EST
By Jesse Westbrook --------------------- Goldman Sachs, meanwhile had also urged the S.E.C.not to adopt new measures, arguing that short-sales “help expose fraud and prevent companies from becoming overvalued,” (NYTimes http://dealbook.blogs.nytimes.com/2010/02/25/hedge-funds-slam-short-sale-rule/) -------------------- Or just look at what GS sent to the SEC as a comment specifically about this very issue http://www.sec.gov/comments/s7-21-09/s72109-53.pdf Look at page 3 where GS writes on this topic: "The necessity of additional measures to eliminate fails or "naked" short selling are not supported by empirical evidence"SS ban ≠ uptick rule. All of those articles are about the uptick rule. This article is about the short sale ban in 2008 which GS was most definitely not against, having seen its share price drop into the mid $50s.
http://www.sec.gov/news/press/2008/2008-211.htm
You can keep embarrasing yourself, or just face the reality that you were confused...
Below is the top of the article. Note the lack of a year on the date... because it was written drumroll please... today.
"Commissioners who voted for curbs when a given stock falls 10 percent..." is clearly talking about the vote the SEC took last month. During 2008, there was no 10% criterion - it was simply a list pulled out of someone's ass.
This article does reference the 2008 period as one showing lack of evidence that the ban then did nothing to slow down the fall in financial stocks, however the article is 100% about the ruling from last month.
It could be that you don't follow the rules process at the SEC and the politics behind it, or simply missed this, which is quite forgiveable - the overwhelming majority of the world population has no idea what any of this means... but then again, the overwhelming majority of the world isn't making an ass of themselves over and over again on a financial blog.
By Nina Mehta
March 30 (Bloomberg) -- The U.S. Securities and Exchange Commission’s decision to restrict short selling was a political decision rather than one based on evidence, according to a former agency official who says it may set a precedent for future decisions.
Commissioners who voted for curbs when a given stock falls 10 percent from the prior day’s closing price did so without proof that it would improve markets, said Erik Sirri, who ran the SEC’s division of trading and markets during the credit crisis that began in 2007.
...................................
If you are still confused, then how about this:
http://www.securitiesindustry.com/news/-24980-1.html
March 29, 2010
Tom Steinert-Threlkeld
The initiation of new short-sale rules, with a circuit-breaker when the price of a stock falls 10 percent, “has taken a political character,” Erik Sirri, former director of the Securities and Exchange Commission’s Division of Trading and Markets, said Monday.
The circuit-breaker, as well as a rule that would permit short-selling to continue in a security only when the price in a transaction is above the best-bid displayed nationwide at that moment, was proposed not because of evidence of harmful effects of short-selling, said Sirri, who is now a professor of finance at Babson College in Massachusetts.
Instead, the rules adopted in February are largely designed “to be politically responsive,’’ Sirri told a gathering of the Capital Markets Consortium in New York.
He is right...John Mack would not have come out with that crap on short sellers if he was against it.....they are against or for as the moment's conveniences dictates them...and they pull the puppets strings accordingly.
The banks did not believe that they were being raided by short sellers - they merely said that in an attempt (failed) to increase public confidence and rating agency ratings of their debt.
If you think that banks want to restrict their ability to transact easily on the short end of transactions, you are grossly mistaken. Roughly 50% of all positions that banks open in their prop trading is short.
GS, GETCO, DE Shaw Citadel and many others were all very active in trying to prevent this stupidity.
http://www.sec.gov/news/press/2008/2008-211.htm
I know the story is real but its hard for me to believe that if the banks didn't want this to pass then it wouldn't pass. It looks like posturing to me or maybe the government is clamping down on them. Not likely since they have gotten everything they wanted so far.
imo the squid instructs the sec as to when to institute a short sale ban to coincide with a needed bump in prices. the sec works for the banksters and big corporations as do the entire congreff and white house. short sale bans are temporary, but not arbitrary, to believe anything less is naive.
No surprise. Short sellers are the bane of all incompetent fools. Why accept your own stupidity and ignorance when there's a conspiracy theory which explains it all in a light so much more favorable to one's self esteem.
With less than 5 days on ZH and spouting nothing but gibberish and foolishness, why don't you go stand in the corner. We'll call you when we think you've got something to say.
Do you have an on topic point or did I just hurt your sensitive feelings ?
A pre-emptive strike before there is massive short selling. If the recession is over and the financial institutions are on solid ground then why all the worries about short selling. You talk about protectionism. Even the appearance of free markets is disappearing.
Every day that I read this site, and digest the information, I just want to move and renounce my citizenship. I am beyond the "earmuff" stage.
But..but..but I though short sellers were evil unpatriotic scum sucking bastards? So they lied to us? Why would they do that?
This article reminds me something.
Why does the bull charge a red cape?
He doesn't. He charges any color cape. The bull is color blind. It's the skillful movement of the cape by the matador that attracts the bull, not the color.
Yet, through repetition and indoctrination (intentional or otherwise) the average person would swear up and down that bulls are madly attracted to red capes, infuriated in fact by the color red.
This is one of the reasons why "good" propaganda is so effective. Rarely does a new piece of propaganda introduce an entirely new concept. Instead, it dovetails nicely off other "truths" and public myths. Any good con man knows the best lies contain just enough truth (or mythical truth) to be believable.
Since the public has been told for decades that the only way to make money in a stock market is to go long, to "buy" the stock and hold on to it, it's very easy to create a bogeyman out of the people who sell a stock short.
"Yet, through repetition and indoctrination...This is one of the reasons why "good" propaganda is so effective."
"good" propaganda ????
God Bless the Amerikan Myth Narrative!
<chant approved slogan here>
"Support the troops!" "No Socialism!" 'They hate us for our freedoms!"
God Bless Sacred and Satanic Symbolism!
<wave little Amerikan flags here>
God Will Protect Us and Damn Those Evil Doers
Whoa! Watch where you point that propaganda cannon. That can get loose and start firing any where.
Historic Note:
When faced with the public rabble out of control... let us remember the young Napoleon's love for giving the public "A whiff of grape shot."
"good" propaganda ????"
Let me try that again.
"Yet, through repetition and indoctrination...This is one of the reasons why "effective" propaganda is so effective."
I couldn't come up with another word for "effective" and I didn't wish to use the word twice in the same sentence, thus "good" in quotation marks. I could have used "powerful" or "convincing" but I wasn't thinking well because of all the effective propaganda coming from CNBC.
> confirming that all the SEC does is supervise Wall Street's stealth transfer of wealth from the middle class to the Wall Street kleptocrats
The motivation was political and decidedly not one that favors Wall Street. Pretty much 100% of all Wall St. entities commented against a SS ban, as it limits their ability to trade on down ticks.
This lunacy is care of political pressure from the likes of Senator Dodd, Senator Kaufman "I am convinced the SEC must restore the uptick rule", and the bloviating Jim Cramer who successfully rallied his followers to send in thousands of form comment letters in support of restoring the uptick rule.
At least give the SEC credit - they were able to put in a rule that should be far less restrictive than the prior uptick rule, and still have the appearance of having done something that might appease the idiots who persuaded them this was needed move.
SS ban ≠ uptick rule
Oy vey
The rule passed by the SEC last month, after many many months of comment periods (going back to June of last year I believe) was the outcome of a call for the re-instatement of the uptick rule.
You can read a small blurb here: http://www.sec.gov/rules/final/2010/34-61595.pdf
It is not the old uptick rule, because the likes of GS, GETCO and many others were able to come up with something far less restrictive... but it is the step-child of the uptick rule, reborn after a short few years of sanity following its repeal.
http://www.sec.gov/news/press/2008/2008-211.htm
You don't know what this article is about.
You're telling me that the squid, which recently paid out bonuses in stock options, and whose stock price is currently ~ $175 is against this rule? Puhleeze! If GS didn't favor this rule it wouldn't have happened, period. Their books stink to high heaven.
Why don't you do a bit of reading. This is GS's comments to the SEC about short sales. Read page 3.
http://www.sec.gov/comments/s7-21-09/s72109-53.pdf
What GS says for public consumption and what its executive and operational opinion might be is highly unlikely to be even in the same ballpark.
I don't know why we're arguing this rule does very litte and was written by the squid.
I'll have to second the previous comment about this being a "relatively" toothless uptick/shortsale rule. Political decision...well, that's a big "Duh!" They are always political decisions. Always will be. Just like Cramer panders to the ignorant masses so do politicians. That's who gets them elected. So when some poor sap's 401k becomes a 201k and he hears it's the "evil" shortsellers, he's on the phone or or sending a letter to the Congressional slut that wants his vote. Nevermind, how many of us sat there watching the idiots on the Congressional finance committee listen to testimony that might as well have been given in Chinese...They had no clue....buy more bullets
have you not yet realized the banksters shorted each other?
If they don't want to allow short selling in the market, then they should have told short sellers that they were going to go all in faking a market up move by printing 20 Billion and spending it on a ponzimoium after hours up draft of the S&P mini futures.
We die hard short sellers would have gladly lent an up market liquidity hand if we knew they were going to manipulate the market and squeeze us out via their robotic peter to paul trading.
With the flooding and Earthquaking becoming more and more absurd by the day, I'm more partial to the idea that the economic collapse is a cover for something more sinister,besides, it'll make a good subplot for my sci fi political conspiracy screenplay now that Uncle Ben does not want us to short but go long so he and his overlords can pull the rugand the fact that the real government no longer can afford people like me who have to do real constructive IT work instead of just running around robbing peter to pay paul treasury and bankster ponzi.
http://funy1.blogspot.com/2010/03/sovereign-nations-hyper-inflating-thei...
Mary doesn't work for the retail investor. She works for the White House.
"The U.S. Securities and Exchange Commission’s decision to restrict short selling was a political decision rather than one based on evidence"
And it appears she's doing her job.
If they just permanently banned naked short selling that would make sense but the squid didn't want that because they do that shit more than anyone. The squid wrote this rule. Any protestations are for public consumption.
I'm pretty sure naked short selling is already illegal (banned, if you prefer), but the rule is hardly (if ever) enforced.
Technically its illegal and for the last year it hasn't been a problem since the market only goes up. From wiki:
In March 2007, Goldman Sachs was fined $2 million by the SEC for allowing customers to illegally sell shares short prior to secondary public offerings. Naked short-selling was allegedly used by the Goldman clients. The SEC charged Goldman with failing to ensure those clients had ownership of the shares. SEC Chairman Cox said "That is an important case and it reflects our interest in this area."...
A lousy two million bucks? As if this was the only time GS did this. No mention of violations in 2008 whatsoever. myass
"...the markets will hit 36,000, wiping out all the shorts on the way, only to be followed by a surgical collapse straight to zero."
"Caustic" Tyler
I think I have officially identified "Caustic" Tyler, whose posts are a searing lye burn until you give up and cry zero...
It is like playing pass the parcel in an Irish bar...cannot blow up on our watch.....
"Data are the natural enemy of hypotheses"
SELLIN BUICKS WITH CHRIS COX:
http://williambanzai7.blogspot.com/2010/03/sellin-buicks-with-chris-cox....
Ok...the SEC has no credibility, but a former staffer does ? Weak !
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