In an effort to eliminate "naked short-selling," the U.S. Securities and Exchange Commission (SEC) announced that, as of September 18, there will be penalties associated with failure of delivering shorted securities by the settlement date.

"These several actions today make it crystal clear that the SEC has zero tolerance for abusive naked short selling," said SEC chairman Christopher Cox. "The Enforcement Division, the Office of Compliance Inspections and Examinations, and the Division of Trading and Markets will now have these weapons in their arsenal in their continuing battle to stop unlawful manipulation."

Under the new rules, all securities that have been shorted must be delivered within three days of the settlement date before the short seller incurs penalties ranging from fraud charges to a prohibition of ever short selling the given security.

The SEC added that the new regulations will apply to all publicly traded securities.

By Erik Kevin Franco and edited by Sarah Sussman
©CEP News Ltd. 2008