In a decision that ought to make the A-train happy … or at least happier:

SEC Quickly Revises Short-Selling Rules - WSJ.com

Shift on Financials, Hedge Funds Sends Traders Scrambling

WASHINGTON — The Securities and Exchange Commission said shortly after midnight Monday that it would revise rules to curb short selling that it had issued just three days before.

The SEC’s latest change of direction on short selling caught some market participants off guard and prompted criticism that the agency has miscalculated the impact of its rulemaking.

The SEC, in a release issued at 12:26 a.m. EST Monday, reversed a position it had taken Friday when it said that market makers couldn’t short financial stocks after Friday. The new rules as of Monday: Those engaged in bona fide market making and hedging activity, including in derivative contracts, could continue to short.

“The purpose of this accommodation is to permit market makers to continue to provide liquidity to the markets,” the SEC explained in the revised order. To try to prevent short sellers from using market makers to take big positions, the SEC said market makers couldn’t short for a customer if it would give them a net short position in the security.

Also Friday, the SEC issued a temporary ban on short sales in nearly 800 financial stocks, including those who make markets in the securities. In a short sale, investors borrow shares and sell them, hoping the stock will fall and they can buy it back at a lower price.

The agency said Friday that hedge-fund and money mangers needed to disclose short positions the first Monday following the trade.

Monday’s rules: Hedge funds still must disclose their positions to the SEC, but the SEC won’t make the trades public until two weeks later. The SEC also announced Monday that it had delegated to the stock exchanges the decision about which company makes the no-shorting list.

So no longer an outright ban on shorting financials; legitimate hedging and liquidity shorting is still allowed, as long as the market maker ends net-long or flat.

Heard on the Street - WSJ.com
Some Traders Win Big
Harbinger, Greenlight, Tremblant Profited By Betting Against Bear
By GREGORY ZUCKERMAN, JENNY STRASBURG and TOM MCGINTY
March 20, 2008

The collapse of Bear Stearns Cos. dealt a severe blow to investors, from big names like billionaire Joseph Lewis to thousands of employees of the brokerage firm.

But there’s one group trying to contain their joy amid all the gloom on Wall Street: Investors who placed big bets against Bear Stearns.

Large hedge funds — including Harbinger Capital Partners, Greenlight Capital, Tremblant Capital Group and Paulson & Co. — made millions of dollars as Bear Stearns’s shares tumbled and various bearish positions rose in value, according to securities filings and people close to the firms.

Bear Stearns to Get Backing From J.P. Morgan, N.Y. Fed - WSJ.com
Firm’s Shares Sink Amid Liquidity Fears
By KEVIN KINGSBURY, ANDREW DOWELL and SERENA NG
March 14, 2008 1:22 p.m.

NEW YORK — In a dramatic move Friday, JPMorgan Chase Co. and the Federal Reserve Bank of New York stepped in with emergency funds to keep beleaguered investment bank Bear Stearns Cos. afloat.

The move, during a week of worry about whether Bear could continue to meet its obligations, took the credit crisis to a new, more serious stage and was a reminder of how quickly an erosion of confidence can undermine even leading financial institutions.

The involvement of the Fed — coordinating with the Treasury Department and the Securities and Exchange Commission — made clear authorities were concerned about the risks to the broader financial system. Bear is the smallest of Wall Street’s big five investment banks, but it is a significant player in markets for debt, particularly for securities backed by mortgages.

My reaction?

It’s just a start, and I hope to flesh it out further as the day goes on.

To the tune of “The Bare Necessities” from Disney’s The Jungle Book:

Look for the Bear Stearns equity,
The simple Bear liquidity,
I’m talking ’bout debt instruments and cash.
I mean the bare necessities,
Like J.P. Morgan’s sympathy,
‘Cause the Fed ain’t always gonna save your ass.

Whenever they go long, whenever they short,
The hedgies are wond’ring if they should abort.
Investors are running on the bank,
To make some money before Bear tanks.
When you see all the traders retreat,
It’s time to examine the balance sheet,
Then maybe sell some more.

The Bear’s liquidity and strife will affect you,
They’ll affect you.

Look for the Bear Stearns equity,
The simple Bear liquidity,
I’m talking ’bout debt instruments and cash.
I mean the bare necessities,
That’s why Bear Stearns can’t rest at ease
‘Cause the Fed ain’t always gonna save your ass.

Copyright © 2008, Steven L. Sheffield. All Rights Reserved.