by Larry Levin
A protection racket is an extortion scheme whereby a powerful entity or individual coerces other less powerful entities or individuals to pay protection money which allegedly serves to purchase "protection" services against various external threats. I doubt Wall Street banks are paying the SEC any extra cash, but they sure are being protected. With the new naked short selling rules that begin Monday for a select few, the SEC is now operating a protection racket on a grand (financial) scale.
The new rule changes from the SEC are meant to restrict naked short selling, which is selling a stock short without locating said stock to borrow. Although it is already illegal to knowingly short sell a stock without borrowing it first, it is OK to short these stocks even if your broker says they are unavailable. Why is that you might wonder? Because if the trader called first and the broker-dealer had no available locate at the current time, the dealer would often tell the seller to go ahead and make the trade - knowing that the locate would come at some point.
I'm not sure exactly how the rules will change, but it will most likely require a definite available position to lend before the trade is put on. In other words, locating it some time down the road won't be good enough. The effect of this is two fold; to squelch the free market, and to put the bears on notice: Tony Soprano (SEC Gestapo) will be visiting your office soon if you keep selling these hand-picked stocks.
These new rules do not apply to industrial stocks, they do not apply to technology or commodity stocks; no, they apply only to certain bank stocks. That's right; these new rules do not even apply to all banks. Here is the list of banks taking advantage of the SEC protection racket: BNP Paribas, Bank of America, Barclays, Citigroup, Credit Suisse, Daiwa Securities, Deutsche Bank, Allianz SE, Goldman Sachs, Royal Bank of Scotland, HSBC Holdings, JP Morgan, Lehman Brothers, Merrill Lynch, Mizuho, Morgan Stanley, UBS, and of course, Fannie Mae & Freddie Mac.
Why in the world is Goldman Sachs on that list, while Wachovia, Wells Fargo, and WaMu are not? I'm guessing it's because the G-men are more politically connected than even some members of the House of Representatives. This list, short-lived as it is, may not last very long. Already the Financial Services Roundtable, an organization that represents 100 of the largest U.S. financial companies, is asking the SEC to extend the order. It wants to have all financial-services companies covered next week. What the hell, let's just ban short-selling altogether.
What's really sad (or aggravating - you choose) is that as long as the investment banks and brokers were making money engaging in naked shorting of stocks, there was no problem. However, when the bears began using the tactic against the big financials, it became time to selectively enforce the existing regulation. Moreover, many of the stocks on the list need to raise capital, and how can they do that if their shares are so low? Answer: The new SEC Protection Racket
Real Time Trading Signals*for
Trade Date: 7/18/08
E-Mini S&P Trades*
(before fees and commissions):
1) VA buy @ 8:30am at 1257.75 = -2.00 (1 lot)
2) Engf sell @ 9:30am at 1255.25 = -1.25*2
3) 80% sell @ 9:45am at 1257.75 = -2.00 (1 lot)
4) OTF buy @ 10:45am at 1257.75 = b/e (1 lot)
5) Algorithm trades (6)...combined total...-2.50
E-Mini Russell Trades*
(before fees and commissions):
1) Sell @ 9:44am at 692.8 = -1.0 (1 lot)...-$100
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