Some are saying it is no coincidence that a day where pirates (AKA the federal government) have seized control of the financial markets is also Talk Like a Pirate Day.

While shorts certainly got it in the shorts today, some longs did too. Nasdaq is invoking an existing rule, breaking trades on sales of some stocks traded between 9:30-10:30 if they are up over 20% from the previous close. As you can imagine, this has created quite a bit of squealing and chaos.

The SEC has also apparently realized that unless they want to crater the entire options market, that market makers in options must be allowed to short stocks. This is the only way market makers can hedge and if they can’t hedge, spreads widen rapidly and the whole options market becomes unworkable.

The blowback from the no-shorting-financials rule will be severe and unexpected. Lots of mutual funds and hedge routinely short, both as speculation and to hedge. While you might not own any such funds, maybe your pension fund does. “Blowback” is a phrase from WWI where one side would release poison gas against the other, only to have it drift back upon them when the wind changed, and is the unintended and adverse reactions to a given action.

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