| 27 July 2009

The Securities and Exchange Commission announcement today that its temporary short selling rules will be made permanent. The move is not unexpected, given the amount of political pressure the agency has been under to bring short selling under control. For investors, this move should help sustain more stable markets and eliminate any blatant "gaming" of Bear cycles.

The move announced today does a couple of things for investors. First, it makes the temporary short selling guidelines, known as Rule 204, permanent. That rule was enacted in the Fall of 2008 and was set to expire on Friday. Second, rather than renew some of the transparency guidelines, the agency decided to beef them up and create a new set of rules that increased transparency and reporting requirements.

Rule 204 focused on "naked" short selling, which is selling shares short without having to own any of the shares. The rule required that short sellers basically show, either themselves or through their brokers, that they can locate the shares, if needed, to cover their position within three days.

When a short seller can't deliver the shares within three days, that's known as a "fails-to-deliver." The new rule is designed to cut down on abusive short-selling and increase visibility by reporting the actual "fails-to-deliver" that occur.

"Today's actions demonstrate the Commission's determination to address short selling abuses while at the same time increasing public disclosure of short selling activities that affect our markets," said SEC Chairman Mary Schapiro.

In addition, as part of the agency's efforts to increase transparency around short sales, they are planning to publish short sales volume information on a daily basis, they will disclose short sale transaction information, and finally, twice a month, the agency will report all "fails-to-deliver" data.