The Jailhouse

[thepennyking]

Stock transfer agents would be
barred from handling shares
that carry any limitations on transfer under a
proposal floated Wednesday by
the U.S. Securities and Exchange Commission.

The SEC is seeking to halt a trend in which
companies have imposed
restrictions on stock transfers to combat short
selling abuses. Small
companies whose shares chiefly trade in the
over-the-counter Bulletin Board
market believe restrictions will keep shares from
falling into the wrong
hands, but their "self-help" efforts aren't
helping U.S. markets overall,
said SEC market regulation division director
Annette Nazareth.

Nazareth called restrictions on stocks "a
significant step backwards" in the
move from paper stock certificates to automated
computerized trading of
shares that can be easily transferred.

Abusive "naked" short selling has been a problem
in some cases, but is best
dealt with by a pending SEC proposal, not
restrictions on transferring
shares, Nazareth told the SEC.

Short sales involve selling borrowed stock, and
produce profits when stock
prices decline. The practice is legal although
subject to certain
restrictions by the SEC. Naked short-selling
occurs when sellers don't buy
shares to replace those they borrowed, a
manipulative practice that can
drive a company's stock price sharply lower.

A previously issued SEC proposal, dubbed
Regulation SHO, would update
short-sale rules and clamp down on abuses. Robert
Colby, SEC deputy market
regulation division director, predicted the SEC
will vote on whether to
adopt that proposal in early June.

In the meantime, the SEC voted to seek public
comment for 30 days on its
plan to ban transfer agents from handling stocks
that carry restrictions
such as requiring shares held in certificate form
in the name of the
individual shareholder. Final adoption of such a
change would require a
second vote by the five member SEC. The SEC staff
recommended the new rule
take effect within 90 days of approval.

The rule targets transfer agents because they are
directly regulated by the
SEC. Regulators said their ability to ban
companies from restricting stock
transfers is less certain. In the case of
companies that try to exert
control by handling stock transfers themselves,
Colby said regulators might
have to sue firms that seek to impose
restrictions on stock transfers.