2008-09-17 20:08:02
Proposed SEC Legislation Would Require Hedge Funds To Disclose Short Positions
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The SEC is continuing their crusade against short-sellers, as Bloomberg is revealing tonight that the SEC might have plans to force hedge funds to disclose their short-sale positions and subpoena the funds for their "communication records". This follows on the heels of the SEC's complete ban of naked short-selling, which goes into effect on Thursday morning.
The Bloomberg article reveals that hedge funds and investors managing "more than $100 million dollars" would be required to "promptly begin public reporting of their daily short positions". The SEC will also require "past trading positions in specific securities".
Given the secretive nature of hedge funds, I would imagine that hedge fund managers would go ballastic at the prospect of having to disclose their ongoing short positions on a regular basis.
John Mack, CEO of Morgan Stanley, commented on Wednesday that "we're in the midst of a market controllled by fears and rumors, and short sellers are driving our stock down".
I appreciate his viewpoint, but completely disagree.
The main push lower is coming from terrified investors who are panic-selling their shares based on the number of high-profile implosions. How else do you explain a nearly $100 gain in the price of gold in just one day? Investors are dumping shares en masse right now and retreating into safe harbors, such as gold.
Short-sellers are, as a whole, profiting right now - there is no doubt. However, there is a stunning excess that is being worked off in the markets right now, and this has nothing to do with short-sellers. With or without short-sellers, there are still many highly-leveraged companies with exposure to bad debt. Short-sellers simply bring these facts to light - they don't force companies to ruin their balance sheets.
Hillary Clinton and Charles Schumer are proposing a "temporary" ban on short-selling of all financial stocks in order to provide a "measure of stability to our financial markets".
With the markets plummeting and nobody willing to accept any of the blame, a scapegoat is needed. Short-sellers are having the fingers of blame pointed at them, when the real culprits are the executives and management of the companies that are now falling apart.
Back to the proposed SEC legislation - hedge fund managers are not going to take kindly to this, but they likely won't have much choice, given the current terrified nature of the market.
Source: SEC May Require Hedge Funds to Reveal Short Positions
Filed under: Hedge Fund News
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