U.S. exchanges may seek to impose a temporary ban on short sales for individual stocks that plunge as regulators seek to rein in a practice blamed for forcing down shares of financial service companies such as Morgan Stanley.Someone forgot to tell these exchanges that the short selling ban didn't help in any way in protecting the nearly 20% fall over the last week.The New York Stock Exchange and Nasdaq Stock Market may file their proposal with the Securities and Exchange Commission as soon as today, said three people who have seen a draft of the rule. Under the plan, a stock that ends trading with a loss of at least 20 percent would be protected from short sellers for the following three days, the people said.
Even if this plan goes through - what happens when a company declares bankruptcy? It goes down 20%. No more short selling for three days - but people who own the stock sell it - and get this, no one will be on the other side because you don't allow shorts. This is still lunacy. You should ENCOURAGE shorting in this situation.
What you should do is absolutely ban naked short selling with a 100% penalty paid to the exchange, which is then provided to the company as revenue. Market makers should be out anyhow - the system should move to an order matching mechanism immediately. That's my thought, I know it doesn't matter, but heck, if I can't say what I think on this blog where else....
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