Short Selling
Trends within the short selling arena look towards that of more comprehensive and tougher regulations. The issue of short selling and the role it has in market operations has been debated time and again between free-market pundits, government officials, company executives, etc. On the one side, it is believed that short selling in times of financial stress or panic actually help to exacerbate the problem and create negative self-fulfilling prophecies. On the other side, it is believed that short selling adheres to the laissez fair of the markets, putting supply and demand in line with prices. Not debating any of the long standing arguments, the one thing that is clear is the government’s willingness to step in on the side of stock buyers in times of panic.
Back in 2008 the SEC made it illegal to do two things related to short selling: the ability to outright short a rather extensive list of companies that they put out and ‘sell naked’. The list of companies first included 799 financial-based stocks but soon began to expand to include other non-financial issues. The second act made illegal was ‘naked selling’, the act of shorting shares without the underlying broker actually owning them.
Whether or not this helped or hurt the markets is again outside the realm of this article, but it is clear that should panic grip the market any time in the future, be prepared for government intervention to increase in favor of the long-market holders.
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