2ND UPDATE, New Info Throughout: The Dow finished down nearly 450 points, the S&P down 57, and the NASDAQ down 109. It was one of the ugliest sessions of the past 10 days of butt ugly, with comparisons to the post-9/11 period on Wall Street. The word for Wednesday? “Deleveraging”. I’ve already written how this bottoming out has affected film financing short and long term. (Ouch, MGM, I feel your pain.) But now there’s a new worry for infotainment stocks: sinking market value.
GE (NBC Universal) fell $1.67 (-6.66%) to $23.39
Disney fell $.32 (-.98%) to $32.19
News Corp (Fox) fell $.78 (-5.75%) to $12.78
Time Warner fell $.34 (-2.41%) to $13.74
Viacom fell $1.18 (-4.59%) to $24.52
SNE fell $1.67 (-4.96%) to $32.00
CBS fell $.95 (-5.94%) to $15.05
One bright spot? The SEC is finally getting tough on naked short-selling. (See below.) Many eyes are on General Electric, the parent company of NBC Universal: its stock keeps falling because of naked short-selling after being lumped in with the embattled financials (due to GE Capital) even though this is a diversified conglomerate. Here’s why this matters: big and small investors from Main Street to Wall Street all have GE in their portfolios. I doubt there’s a pension fund that doesn’t have at least a 2% position. But as much as Jeff Immelt is pretending to carry on with business as usual, the vultures are starting to circle. I’ve said it before and I’ll say it again: unless and until the SEC cracks down on aggressive if not fraudulent forms of short-selling then every company in a beleaguered industry is vulnerable. Today financials, tomorrow Big Media.
But, finally the SEC has acted on behalf of all publicly traded companies against naked short-selling whereby sellers don’t even borrow the shares before selling them, and then look to cover positions immediately after the sale. New rules announced today and going into effect on Thursday will include a requirement to deliver a security by the settlement date. “These several actions today make it crystal clear that the SEC has zero tolerance for abusive naked short selling,” SEC Chairman Christopher Cox said in a statement. Short sellers and their broker dealers are now required to deliver securities by the close of business on the settlement date, which is three days after the sale, or they will face penalties. Broker-dealers failing to comply will be prohibited from further short sales in the same security unless the shares are pre-borrowed. That prohibition on the broker-dealer’s activity will also apply to all short sales for any customer.
You can trace this latest wave of volatility to when the SEC lifted what had been a temporary emergency ban this summer against abusive naked short-selling in 19 stocks in the wake of the Bear Stearns disaster. That’s when Lehman Brothers and then AIG got into trouble. Now Morgan Stanley finds its shares the latest naked short-selling target (down 30% despite decent earnings), and its chairman John Mack is using the media to rally public opinion against the reviled practice. I’m not saying those fortresses of money and their arrogant CEOs didn’t make a mess of things all on their own. But their problems were exacerbated by the short-selling piranhas. Now SEC Chairman Christopher Cox is making those temp protections permanent and applicable to the broader market. I say it’s about time since too many small investors have been hurt by investing in companies which have lost big percentages of their market capitalizations because of this fraud.