04/03/2010 Author: Elana Margulies

SEC's shorting plans won't impact primes

Prime brokers have given short shrift to the SEC’s latest attempts to corral the actions of hedge funds through shorting restrictions.

On 24 February, the head of the SEC, Mary Schapiro, announced new rules that restricted the short-selling of a stock if it experienced significant downward pressure, specifically if a security's price falls more than 10% in one day.

Members of mid-tier brokerages were less concerned about any potential falling revenues and more worried about the responsibility of monitoring. “I'm more concerned about monitoring it from a compliance standpoint,” Glen Dailey, head of prime brokerage, Jefferies & Co, said. “I don't know if this will prevent short-selling. It will give the long side a wider window to dump stocks.”

Richard Del Bello, senior partner, Conifer Group, also agreed that the smaller prime brokers’ revenue won't be as affected by the SEC's provision in the same way as an investment bank’s might be. He suggested Congress pressured the Commission to find a way to impose more rules on short-selling.