SEC proposes tougher "naked" short selling rules

WASHINGTON, March 4 Tue Mar 4, 2008 5:01pm EST

WASHINGTON, March 4 (Reuters) - The U.S. Securities and Exchange Commission on Tuesday proposed tougher rules to curb so-called "naked" short-selling abuses and prevent market price manipulation.

SEC Chairman Christopher Cox said regulation SHO, an existing rule partly aimed at short selling abuses, "needs teeth."

Short sellers borrow shares they consider overvalued and sell them. If the price drops, they repurchase the shares, return them and pocket the difference. In a naked short sale, the investor sells stock that has not yet been borrowed.

The three-member SEC voted unanimously to propose the rule, which targets sellers who intentionally deceive broker-dealers or purchasers about their ability to meet delivery deadlines.

Sellers sometimes deliberately fail to deliver securities as part of a scheme to manipulate the stock price.

The SEC is seeking public comment on its proposal.

(Reporting by Rachelle Younglai, editing by Richard Chang)

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