still no sign of my egm papers for the ox, page-7

CHANGE IN RULES RE SHORT SELLING - RESPONSIBLE FOR AT LEAST SOME OF THE DOW JUMP - from today's Wall Street Journal.


The advance by the financial firms came a day after the Securities & Exchange Commission said that it was moving to curb short sales of stocks in more than a dozen top banks as well as Fannie and Freddie. Officials are cracking down on so-called naked short-selling, in which traders take a short position without first locating shares to borrow.

The sentiment shift was visible in the trading of some key ETFs. The ProShares Ultra Short Financial ETF fell 18.2%, and was the worst-performing exchange-traded fund on the day by a wide margin. By contrast, four of the top five ETFs on the day were long bets on banks. The ProShares Ultra Financial ETF jumped 18.9%; the Regional Bank Holdrs ETF was up 14.2%.

The SEC shied from reinstating a rule against shorting a stock that is already falling -- a practice that some brokers would like to see prohibited, as it was in decades past. The SEC voted unanimously on June 20, 2007, to relax the rule. Coincidentally, revelations of soured credit bets were beginning to surface on Wall Street around the same time, and the Dow has fallen more than 18% since.

"The volatility really started with the removal of the rule," said Doreen Mogavero, president of New York Stock Exchange floor brokerage firm Mogavero Lee & Co. "What they just did is an interesting backpedal of sorts. But I don't think the downtick rule is coming back, which is unfortunate."

Douglas Kass, head of hedge fund Seabreeze Partners Management, called the SEC's latest rule change targeting only short sales in certain financial names "an amazing attempt to intimidate shortsellers."

Mr. Kass maintains short positions in Fannie and Freddie, but has been bullish on big-name banks since last month – a bet that paid off handsomely on Wednesday. He believes the broader stock market is likely to remain under pressure in the months ahead because of shaky spending by tapped-out consumers who drive corporate profits.

"The average consumer is looking at big declines right now in his two biggest personal assets – homes and stocks," said Mr. Kass. "That makes it real tough to call the market as a whole. In that kind of environment, it's a good idea to err on the side of conservatism."