June 13, 2007 11:23 ET
By Judith Burns
Of DOW JONES NEWSWIRES
WASHINGTON (Dow Jones)--The Securities and Exchange Commission voted Wednesday to
approve a change to tighten rules intended to curb manipulative short sales,
including so-called "naked" short sales.
The change eliminates a controversial exception that shielded existing short
positions from requirements to deliver hard-to-borrow shares within 13 days of
settlement. Once the change takes effect, short positions previously protected by
the grandfather clause must be closed out within 35 days.
SEC Chairman Christopher Cox said persistent failures to deliver shares sold
short seem to be due to the grandfather protections, which the SEC included in
2004 to prevent stock-market volatility. Critics complained the protections
undermined efforts to clean up abuses involving "naked" short sales.
Short selling involves sales of borrowed securities, producing profits when
prices decline. The practice is legal, but the SEC's Regulation SHO sought to
prevent "naked" short sales, in which short sellers don't borrow securities they
sell.
SEC officials said delivery failures have declined about 35% overall since
Regulation SHO took effect and have fallen about 53% for hard-to-borrow stocks
defined as "threshold" securities.
-By Judith Burns, Dow Jones Newswires, 202-862-6692; Judith.Burns@dowjones.com
(END) Dow Jones Newswires
