A crackdown on naked short-selling
The Securities and Exchange Commission is cracking down on naked short-selling. Critics of naked shorting say the practice puts unfair pressure on stocks, driving them lower for reasons not based on fundamentals.
How does naked shorting differ from regular short selling? In regular short-selling - which is allowed - traders locate and borrow shares of a stock they expect to go down in price. They ultimately have to buy the shares and return them to the owner. If the stock price decreases, they buy it at the reduced price and pocket the difference between the new price and the borrowed price. If the stock goes up, they must make up the difference.
In naked short-selling, traders don't bother to find and borrow real shares. Because these shares don't exist, there is theoretically an infinite supply. This means demand can never keep up, causing downward pressure on the stock. Just how exposed are you to naked shorts?
The major stock exchanges every day publish a list called Regulation SHO, also known as the threshold securities list. If your stock is on this list, there's a good chance it is being attacked by naked short-selling.
To see the Regulation SHO lists, go to regsho.com. Under the tab "naked short lists" click on "view by exchange."
FundAlarm: Shining a light on mutual funds
You probably put in hours of due diligence every time you buy a mutual fund. But once you're in, do you know when it's time to get out?
FundAlarm (fundalarm.com), a free Web site, says its goal is to "shine a light in the darker corners" of the mutual fund industry.
Do you know whether your fund's manager has quit or been fired? FundAlarm keeps tabs on management comings and goings. It also publishes a list of "3-Alarm" funds that it says are a "strong candidate for sale" because they have underperformed.
