The SEC’s crackdown on short sellers doesn’t go into effect until Monday, and yet it’s already hurting the ability of traders to borrow shares on the agency’s hot list.
Under the SEC’s new rules, traders who short 19 financial stocks – including beleaguered mortgage giants Fannie Mae and Freddie Mac – will be required to borrow the shares before they short them.
The SEC is looking to curb so-called naked shorting, where brokers need only locate the shares short sellers need to borrow to complete their transaction, promising to deliver them before the short trade settles.
Since the Securities and Exchange Commission announced the regs on Tuesday, the cost to borrow Fannie and Freddie have already jumped several percentage points.
Their shares also have become harder to access, placing them on the hard-to-borrow list at some brokerage firms, including State Street, The Post has learned.
“If you wanted to go to a lender today and ask them for [Fannie and Freddie] stock, they may tell you they don’t have the shares,” said one stock-lending official at a large brokerage firm.
Borrowing one share of Fannie or Freddie costs between two hundred and five hundred basis points, up from a fraction of a percentage point in the days prior to the SEC announcement, the official said. A basis point is one-hundredth of a percentage point.
An official from a second brokerage firm said the cost to borrow the mortgage giants’ shares had risen an average of 100 basis points since the announcement.
Stock-lending officials said there are now no significant pricing or availability concerns with the other 17 stocks on the list, which include Bank of America and Goldman Sachs.