Thursday, September 25, 2008

A Simple Stock Regulating Device

The SEC has the ability to turn off short selling for any stock.

It just did this for financials and for GE and GM to help them weather the growing crowd of investors who have turned to making money selling short. The "sell now, buy later" crowd.

The SEC could do the same for any stock.

When more than 70 percent of a company's shares have been sold short, it can turn off short selling for a while.

Give the stock a rest. Let the cash resources of simple investors set the price, rather than the predator's hope for cataclysm.

Turn short selling on again when only 50 percent of the shares are sold short. Or 30 percent.

This does not control the price - just turns the sharks on and off.

It's a thermostat. The SEC can set "On" and "Off" levels as appropriate for each stock.

Updates can be daily. Short sellers who puncture the bottom and stay overnight would risk waking to an up market that doesn't allow them to recover their aggressive expenditure.

Most of the technology is in place. The SEC will need to get a nightly short sales report from the brokers. The rules need creating. Brokers won't like it. Manufacturers will.

Would you like your company to be traded this way?

Ask your boss if he can make it happen.

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