Here’s Adam Warner’s take on the new rules newly to be enforced rules on naked short selling. He is particularly unhappy about the market maker exemption being removed. (Music below,… not a favorite but goes with the title.) – Ilene
Short People
Adam Warner’s (at Daily Options Report)
Seeing headers on Briefing in re shorting stock.
BUT, it looks like it’s just reiteration that they will now really really really enforce the rules they don’t seem to actually bother enforcing.
Oh, and the market maker exemption is now toast.
That’s just dumb imho, and not just because market making was my past life and I still have friends in the biz.
There are reasons why market makers need things like that rule, as well as market maker margin that allows them to take much larger positions than their capital would ordinarily allow. They were created to provide liquidity in the options marketplace. If you take steps to make that more difficult to impossible, you’ll thin and severely widen markets. Particularly puts as the net effect of making it more difficult to short will immediately translate into disjointed reverse/conversion markets.
You could make the case that MM’s and specialists aren’t needed any more, as the few remaining Wall Street firms can take the other side of trades. Call me crazy though, but I would think after the turmoil we’ve seen the last thing you want to do is have less transparent markets.
Bottom line is you’re going to cost MM’s and specialists some short term P&L hits as they will virtually all have the wrong position on in everything (you’re almost always long calls and short puts as a floor trader). But in the long run their business model actually improves with the wider markets and pumped puts.
And that’s ultimately a net cost basically to everyone else.
Short People
