Quick Read: Naked-Short-Selling
Last Updated: June 9, 2008
Overview:
There have been efforts in a number of states to regulate short selling, either by prohibiting short selling altogether or by requiring broker-dealers registered in the state to publicly report information on fails-to-deliver. Congress gave the Securities and Exchange Commission (SEC) broad authority to regulate short sales. The SEC adopted Regulation SHO in 2004, and amended it in 2007, to provide comprehensive federal regulation over all short sale activities. The proposed state regulations would impose additional recordkeeping and reporting requirements on broker-dealers.
Position:
SIFMA strongly opposes state efforts to regulate short selling. The Securities and Exchange Commission (SEC) and the self-regulatory organizations (SROs) have provided aggressive regulatory oversight of short selling activities. SIFMA believes that, not only is there no need for states to enact separate short sale rules, but that such state regulations are expressly and impliedly preempted by federal securities laws and that they violate the Commerce Clause of the U.S. Constitution.
Status:
The South Dakota Secretary of State has approved a ban on all short-selling, and the measure will be on the November 2008 ballot. SIFMA believes, similar to the Utah bill, such legislation would be preempted by federal securities laws.
SIFMA testified before the Missouri State Senate Interim Committee on Consumer and Financial Protection during a hearing entitled “Examining the Issues of Naked Short Selling” on October 15, 2007
In the 2007 session, Arizona, Oklahoma and Virginia considered and rejected short selling legislation.
In Utah, the legislature enacted short selling legislation in a one-day special session in May of 2006, but repealed the statute in February of 2007.
