Many banks are bitching about the new SEC rules on shorting. On the off chance you are new to the story, it’s time for a full recap from the beginning.

Complete Chronological Recap

In case you are just tuning in, the most pertinent of the above is Tossed To The Dogs? where I said…

Where is Washington Mutual (WM)? Wachovia (WB)? Were they tossed to the dogs?

What about Corus Bank (CORS), Bank United (BKUNA), National City Corporation (NCC)?

It is beyond all belief that naked short selling is affecting Goldman Sachs (GS) more than Washington Mutual, Wachovia, Corus Bank, Bank United, and National City Corporation.

Now that the complete background is out of the way, inquiring minds may wish to consider SEC Short-Sale Rule Gets Negative Reviews.

In a letter to Mr. Cox [the SEC chairman], the American Bankers Association, a trade group that represents the interests of 8,500 banks, said it fears short sellers will now focus on banks not covered by the new rules, many of which are already big targets of short sellers.

“The emergency order could further exacerbate a loss of confidence in the safety and soundness of this country’s banking industry,” the ABA wrote, as it called for an expansion of the order to including stocks of banks and bank holding companies.

The Financial Services Roundtable, an organization that represents 100 of the largest U.S. financial companies, also asked the SEC to extend the order. It wants to have all financial-services companies covered in the second week.

Only one company, Deutsche Bank AG, is on both the SEC’s protected list and the NYSE Euronext’s threshold list. Deutsche Bank has been on the threshold list for the past six trading days; however, that may have been triggered because of low U.S. trading volume, compared with its global trading volume. A Deutsche Bank spokesman declined to comment. Because these stocks are so widely traded, it’s possible they are subject to abusive trading and the firms still wouldn’t make the list.

Other companies that also have been under selling pressure didn’t make the cut, including Wachovia Corp. and Washington Mutual Inc. Washington Mutual submitted a letter to the SEC asking that the rule include other financial companies, according to a person briefed on the matter. Wachovia declined to comment.

National City Corp., a regional bank that scrambled to raise capital earlier this year and isn’t protected in the SEC order, has been on the threshold list nine of the first 12 trading days this month.

“The current universe of names is too narrow” and should include the largest U.S banks, said Kristen Baird Adams, a spokeswoman for Cleveland-based National City. She said the bank intends to contact the SEC.

This took about as long as expected. In other words, almost immediately. And there you have it, the financial dogs are now all howling “me too”. Everyone wants protection.

However, as I explained in SEC Issues Order To Protect Those Most Responsible For Naked Shorting, the SEC action is quite counterproductive in regards to share price.

Mike “Mish” Shedlock
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