JPMorgan also points to new rules by securities regulators to limit naked short selling.
Germany banned naked short selling of credit-default swaps, German Treasury bonds, and the stocks of major German financial firms.
Because you and I can sit here and talk about plus tick rules and naked short selling all day.
And Byrne's crusade against naked short selling has drawn a fair amount of ridicule from some corners of the media.
In anticipation of further market declines, Germany announced that it would no longer allow naked short selling of its Euro-denominated bonds.
The now permanent rule regarding naked short selling, called rule 204, requires traders to produce the stock that they shorted within 3 days.
He also rejected the banks' arguments that trade settlement failures do not create phantom shares, a central claim of the anti-naked short selling camp.
"It seems like every jurisdiction wants to get in on naked short-selling, " says Perrie Weiner, an attorney who has represented Wall Street against the naked short-selling crusaders.
But while the Securities and Exchange Commission has taken steps to close loopholes that allow abuses like naked short selling to happen, others have sharply criticized Byrne's efforts.
This rule was put in place at the end of the last year in the midst of high market volatility to hinder naked short selling and bear raids.
People want to get money back, fine go after the truly deep-pockets who caused this mess: Ackman, Soros, Einhorn, Paulson, Chanos, and the other shorts who abused mark-to-market and naked short selling.
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Overstock.com's Chief Executive Patrick Byrne has been campaigning for two years to put a stop to deliberate naked short selling, not just in his own company's stock, and to clean up the trade settlement process.
"Lack of transparency and oversight contributes to the danger that hedge funds may engage in possible use of naked short selling, " wrote Richard Blumenthal, the attorney general for Connecticut, home to many of the biggest hedge funds.
The suit, filed in February, accuses the big banks of participating in a "massive" scheme to manipulate Overstock.com (nasdaq: OSTK - news - people ) shares by allowing naked short selling, in which a trader doesn't properly borrow stocks before selling them short.
He says he proposed several steps the government could have taken to save Lehman from bankruptcy, including being allowed to convert to a bank holding company, granting it an exemption so its Utah bank subsidiary could raise deposits, and imposing a ban on naked short selling.
As an example, as of September 1st 2010, the Greek regulator banned naked short selling of Coca-Cola Hellenic Bottling Company SA. Lauded US politician, Barny Frank once said that all institutional investors should state, when they open a position how long they intend to hold the position for!
Trade settlement failures can be an indication that a manipulative form of short-selling--called naked short-selling--is going on with the stock.
The SEC should be criticized severely for doing away with the uptick rule on short-selling--no shorting of a stock unless it has moved up in price--and for its failure to enforce rules against naked short-selling--requiring a short seller to first borrow a stock before he shorts it.
Part of the problem, according to those who are fighting for stricter short-selling rules, is that brokerages and their stock loan desks aid in naked short-selling by looking the other way or by purposefully misrepresenting the availability of stock to borrow, reaping fees for services they haven't actually provided.
That suggests that short-sellers have been selling shares without actually borrowing them--a controversial practice known as naked short-selling.
The SEC's anti-naked short-selling restrictions also continue in place, including a requirement that short sales be closed out within the settlement period, with penalties on further short-selling activity if the close-out isn't followed.
With naked short-selling, a trader has almost limitless ability to hammer a stock into the ground.
The nation has already banned so-called naked short-selling, where investors do not borrow the shares.
In this case, the focus was more on the trading of the unregistered securities than on the naked short-selling.
Critics have blamed nefarious naked short-selling for driving many stocks into the ground last year.
The state is probing naked short-selling, which is the practice of selling shares short without borrowing them.
That plus market-to-market accounting, no short uptick rule, and no ban on naked short-selling, led to the avalanche.
Naked short-selling can result in the same share being lent to more than one trader, creating phantom share entitlements.
Cracking down on naked short-selling, however, is even more crucial in preventing stock manipulations that would damage the market.
This week, the German Finance Ministry outlawed naked short-selling of European government bonds, credit default swaps and some stocks.
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