New Short Ban Planned To Protect Crappy Stocks

The Get Shorty Squad is still scheming the reign in short-selling. Apparently the New York Stock Exchange and Nasdaq Stock Market have drafted rules that would ban short selling any stock that a stock that closes down more than 20 per cent. The rules may be submitted to the SEC today, Bloomberg says.

On a day like today, with the S&P down almost 7%, that would mean every company whose stock underperforms the market would have a decent chance of getting protected. Interestingly, this could actually wind up accelerating declines. If you see a stock dip more than 10%, you’ll know that you’d better get your short position on quickly or risk getting locked out of the trade. So declines will be followed by massive shorting, leading to greater declines. This is going to be ugly.

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