Thursday, September 18, 2008

Who benefits from new short selling rules?

Certainly the investors in financial institutions will benefit from new rules to prevent naked short selling and other to-be-announced variations on the short selling theme. Essentially, their stocks will be protected from particularly aggressive short sellers.

Another beneficiary is likely to be ProShares. The company offers a selection of inverse ETFs that allow investors to short various market sectors (financials, tech, semiconductors, for example) or market styles (mid-cap value, small cap value, small cap growth, etc.) or indexes (the Dow, the S&P 500, the NASDAQ).

There are always investors who will want to short stocks, especially in an investment environment like we are experiencing these days. The ProShares ETFs may offer a simple way around the rules. And the potential increase in volume will serve to reduce the bid/ask spread, making trading these ETFs more efficient.

For more detail on this topic, I suggest you read the following post by John Spence at MarketWatch: New short-selling rules could boost ETFs.



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