SEC Publishes Text of “Naked” Short Sales Anti-fraud Rule

  • SEC calls for public comment on proposed new rule 10b-21.
  • New rule concerns liability for deception in share ownership, intent, ability or failures to deliver securities in time for settlement.
  • SEC received over 400 investor complaints regarding naked short selling last year.
  • Comments sought on how the proposed rule may affect legitimate short sales and broker-dealer policies and procedures, and whether the rule would cause naked short sellers to move offshore.
  • SEC Chairman Cox claims new rulewill bring “teeth” and needed enforcement to Regulation SHO - stemming abuses such as intentional failure to deliver in order to manipulate price or avoid borrowing costs.
  • Significant intent or knowledge of wrongdoing required for enforcement of the rule.

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