The SEC’s Short Story

The stock market’s rally on July 16 and 17 resulted from the sharp drop in crude oil, better than expected earnings reports from the big banks, and short sellers covering positions.

Short selling is when an investor borrows and sells shares, betting the stock will decrease in price. A short seller must buy back the shares to close their position. “Naked” short selling is when an investor shorts the stock without borrowing the shares in advance of settlement. As a way of tempering the slamming by short sellers in the volatile financial sector, the Securities and Exchange Commission (SEC) on July 15 issued an Emergency Order prohibiting naked short selling in 19 financial securities (see page 5) with large short interest. The order is effective from July 21 through July 29, 2008, with a 30 day option to extend the order. SEC Chairman Christopher Cox commented on CNBC that the SEC might extend the naked short prohibition to the rest of the market, and is also considering permanently prohibiting naked short selling. A retail investor cannot short a stock unless their broker has the shares available to borrow.

The SEC was created when President Roosevelt signed the Securities Exchange Act of 1934 on June 6, 1934. The agency has five commissioners who are appointed by the President and approved by the Senate. No more than three commissioners can be of the same political party. The commissioners’ terms are staggered, ending June 5 of each year.

With the Sun in dualistic Gemini harmonizing with Jupiter and challenging Neptune, the SEC takes a very laissez faire and confusing approach towards oversight and regulation of the securities markets. Regulation SHO prohibits naked short selling unless the short seller “has reasonable grounds to believe the security can be borrowed” by settlement. How’s that for confusion? The Sun’s two aspects to the planetary energy of exaggeration (Jupiter) and bubbles (Neptune) indicates that the SEC will allow a situation to get completely out of hand before stepping in. It also reflects that the largest (Jupiter) financial firms will have the greatest influence over the SEC.

Gemini is ruled by Mercury, the planetary energy of communication. The SEC’s Mercury challenges Jupiter, indicating the SEC is overly optimistic the markets can monitor themselves with little regulatory supervision. The ideas and regulations the SEC devises are not thought through carefully enough to be inherently useful. Just as the credit bubble was about to burst last year, the SEC abolished the Uptick Rule that was put in place during the Depression era to slow down relentless shorting. The Uptick Rule only allowed investors to take a short position following a trade where the last price move in the stock had been higher.

Venus rules banking and finance. The SEC’s Venus is in its “home” sign Taurus. Venus harmonizing with Neptune describes the SEC’s too cozy relationship with Wall Street. If Wall Street assures the SEC that nothing is wrong, the SEC will have a tendency to be lulled into believing it, as Taurus can be stubborn and resistant to make changes. Venus conjoins Uranus in Taurus, indicating that when the SEC does take action, it tends to happen suddenly and unexpectedly. The multiple aspects involving the Sun, Mercury, and Venus to Neptune reflect that most of the SEC’s work is conducted secretly behind the scenes.

The SEC’s Mars challenges Saturn, inhibiting its ability to take action. A high level of frustration probably exists between staffers and the top brass as well as among the Commissioners, slowing down its ability to be an effective enforcer. To overcome the weaknesses of the SEC’s energies requires a strong group of Commissioners.

Chairman Cox was appointed by President Bush in 2005. Born with the Sun, Saturn, and Neptune conjoined in Libra, he strives for fair and balanced regulation but tends to place too much faith that Wall Street will behave according to his idealistic vision. The Libra archetype tends to have difficulty making decisions. Like Taurus, Libra is also ruled by Venus. Cox’s Venus makes strong alignments to his Jupiter and Pluto, reflecting he is too eager to please and far too influenced and controlled by the Street’s most powerful players. Cox likes to be liked and he enjoys living the good life.

Eclipses are harbingers of major change. The Solar Eclipse of August 1, 2008 in Leo, the sign of speculation, ushers in a new lunar cycle that will magnify planetary transits affecting the financial markets. In the August 19, 2008 Lunar Eclipse calculated for the USA, Neptune (rumors) conjoins the Full Moon in Aquarius (emotional shocks/surprises) in the second house of finance, opposing a lineup of the Leo Sun, and Mercury, Venus, and Saturn in Virgo in the eighth house of shared assets and debt. This could indicate that all the data has been analyzed and enough evidence exists to press charges. Saturn in Virgo will conjoin the SEC’s natal Neptune, and Mercury in Leo will conjoin progressed* Neptune. The SEC could announce an indictment(s) against individuals and/or firms who have engaged in spreading rumors about financial firms to promote their short position. The Lunar Eclipse conjoins the SEC’s natal Saturn and opposes its progressed Sun which will probably bring tighter regulation and government scrutiny for hedge funds. In essence, its karmic payback time for past financial misdeeds.

Short sellers have a legitimate role to play in financial markets. Regardless of what side of the trade an investor takes, he or she is required to play by the rules. It should not even be debated that short sellers should obtain the security before shorting it. Spreading rumors is illegal and so is inciting panic. The government should not be looking the other way or playing favorites.

*A predictive method that mathematically calculates the planets forward in time.

Christopher Cox: October 16, 1952 time unknown St. Paul, Minnesota.

No comments: