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Money Matters: Short Selling Issue

September 23, 2008, 9:50 PM by Angela Kennecke

Money Matters: Short Selling Issue
The Securities and Exchange Commission issued an emergency order banning short sales of stocks that will last another week. 

Short selling happens when an investor borrows stock from an owner, sells it at a high price, and buys the same amount of stock later, hopefully at a lower price, to repay the stock owner. 

Many say short selling keeps stock prices from becoming inflated.
The issue of short selling, and an often fraudulent practice called "naked short selling" is up for vote in South Dakota and is stirring up plenty of controversy. In tonight's Money Matters we take a look at how this affects you. 

The”Vote Yes on 9” group says its measure would hold unscrupulous traders accountable for taking part in the illegal activity of naked short selling, or selling stock that really hasn't been borrowed legitimately. 

Initiated Measure 9 Supporter Mark Meierhenry says, "If a company or individual in South Dakota is harmed by this illegal short selling, they have to go to New York, or where it occurred. What we are attempting to do with this initiative is to not create any new laws to make things illegal, but to put the place of the lawsuit in SD." 

But those opposing Initiated Measure 9, claim it would make all short selling, even the legal kind, illegal. 

Opponent to Initiated Measure 9, Dave Gerdes says, "Measure nine is not needed and it's overkill. It’s broader than it should be the way it is written and any short selling any place in United States would be violation of South Dakota law. It included both criminal and civil penalties for any short selling, even the legal kind.” 

Meierhenry says, "It does not affect legal short selling; only selling stock you don't own or haven't borrowed from someone by contract."
But the opposition claims if "9" should become law, all brokerage firms would leave the state. 

Meierhenry says, "That's just the Red herring, I don't believe it for a second. If one pulls out another one will come in.
Meierhenry, the measure's author, knows the subject may be difficult to understand, which the opposition says is reason enough not to vote for it. 

“I think they should listen to State Bar Association, who's against it; the South Dakota Chamber of Commerce whose against it; the board of directors South Dakota retirement system whose against it, that's just to name a few, says Gerdes.” 

The SEC wants to eliminate naked short selling through a series of measures that took effect last week, which penalize failures to deliver borrowed shares when payment is due. 

The financial turmoil in the United States has everyone concerned. If you have a financial question e-mail it to us and we'll take it to the experts to get the answer and bring it to you on Money Matters on KELOLAND news at ten.

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