I read a story that the SEC is going to implement some new rules that are intended to curb naked short selling and I think the SEC should have passed tougher rules long ago.

I believe hedge funds and institutions have been using naked shorting to manipulate stock prices for quite a while, especially among small caps. I think this has gotten more pronounced in the last couple of years.

I don’t know how many times I have seen a small cap take a pretty significant drop without any news. It has also become commonplace for small caps to get slaughtered after earnings if they don’t report results that blow away expectations. I think naked shorting is a big reason for both of these events. (more…)